Case Law Details
ACIT Vs M/s. Lifestyle International (P) Limited (ITAT Bangalore)
The brief facts in relation to the above ground is that the assessee had imported certain trade merchandise from parties located outside Payments to such foreign vendors is required to be made in future on specified dates in foreign currency. The assessee had also obtained foreign currency working capital loans and repayment needs to be made on future specified dates in foreign currency. The assessee in order to secure itself from adverse foreign exchange movements, i.e,, making payments at higher rate than the rate at which expense was booked has entered into currency hedging contracts with State Bank of India (SBI) and Indian Overseas Bank (IOB) as per FEMA Guidelines. The bankers levy premium for entering into such forward contracts.
The Assessing Officer for A.Y’s 2008-2009 and 2010-2011 disallowed the same u/s 43(5) r.w.s. 73 of the I.T. Act by stating that – (i) it is in the nature of speculation transaction u/s 43(5) of the I.T. Act considering that the settlement is happening on the currencies and not on the goods in which the assessee is trading, and (ii) the transaction does not fall within any of the exclusive provisos u/s 43(5) of the I.T. Act.
It is submitted that, a forex-cover being in nature of a contract for sale, thus the first characteristic as per section 43(5) is met in the present situation. It is contended that, the impugned purchases should be of shares /stocks or commodity, to constitute a speculative transactions as per section 43(5). Since, in the present case, forex-cover is not a contract for purchase of shares / stock or commodity, but towards foreign currency, the definition u/s 43(5) would not apply to the present case.
As foreign currency does not fall within the purview of the term “commodity” and hence this characteristic of a speculative transaction is not Since, the definition of speculative transaction itself is not applicable to the assessee’s case as all the conditions were not satisfied, treating the transaction as speculative in nature is not sustainable in law. Therefore, we hold that the CIT(A) is correct in deleting the disallowance of premium on forward contract and no interference is called for. It is ordered accordingly.
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