INCOME TAX ACT, 1961

Section 28(i)

Business loss - Allowability - Loss on forward contract to hedge against possible foreign exchange loss on account of export sale -

Assessee-company was engaged in manufacture and export of processed food products such as fruit pulp and other allied items, for which it was receiving export sales proceeds from abroad in foreign exchange currencies. AO disallowed assessee's claim of foreign exchange loss considering the same as a speculative loss. However, Tribunal allowed the said claim on the ground that it was not a speculative loss but a loss incurred in the course of business. Held: It was found that assessee entered into foreign exchange export contracts with banks to the extent of its export orders, i.e., every foreign exchange forward contract was against a specific export order. Therefore, it could be said that the assessee did not deal in foreign exchange but entered into foreign exchange forward contracts with banks to safeguard itself against possible foreign exchange losses on account of export sale proceeds to be received, and hence, the said transactions were not speculative in nature and the resultant foreign exchange losses were consequently not speculative losses but allowable business losses.

REFERRED : CIT v. Badridas Gauridu (P.) Ltd., (2003) 261 ITR 256(Bom): 2003 TaxPub(DT) 0952 (Bom-HC), PCIT-3 v. Jindal Drugs Ltd., Income Tax Appeal Nos.1517, 1545 and 1642 of 2016 decided on 17-2-2018: 2018 TaxPub(DT) 8142 (Bom-HC), PCIT-5 v. M/s M. Suresh and Company, Pvt. Ltd., Income Tax Appeal No.1607 of 2016 decided on 23-1-2019, CIT v. D. Chetan & Company, (2017) 390 ITR 36 (Bom): 2016 TaxPub(DT) 4887 (Bom-HC)

FAVOUR : In assessee's favour

A.Y. :

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