INCOME TAX ACT, 1961

Section 43(5)

Speculative business - Speculative loss - Loss on forward contract cancellation -

Assessee company being an importer has foreign currency exposure in order to hedge its foreign currency exposure, assessee entered into agreement with the bank in advance for specified date on which payments were to be made. Due to lack of availability of funds forward contact entered by assessee-company with banks could not be executed and was, therefore, cancelled. Assessee claimed deduction of loss on forward contract cancellation. AO treated the transaction as speculative in nature and thus disallowed loss. Held: Assessee entered into forward contracts in foreign exchange in order to cover loss arising due to difference in foreign exchange rate and/or valuation, and same was incidental to assessee's regular course of business. Also, section 43(5)(a) clearly excludes hedging foreign currency transactions from the definition of speculative transaction and accordingly, disallowance of loss on forward contract cancellation on the ground of speculative transaction could not be upheld.

Relied:CIT v. Soarajmull Nagarmull [(1981) 129 ITR 169 (Cal) : 1981 TaxPub(DT) 0772 (Cal-HC)]

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 37(1) Section 43B

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