Ridhi Vincom Pvt. Ltd. Vs ITO (ITAT Kolkata)
Assessee incurred a loss of ₹93,38,052/- from trading in currency derivatives (foreign exchange futures) & debited it to the Profit & Loss account. The AO treated it as speculative loss u/s 43(5) & disallowed set-off. CIT(A) confirmed the disallowance, alleging lack of documentary evidence & holding that forex trading prior to amendment was speculative.
Before the Tribunal, Assessee argued that such derivatives were traded through recognized stock exchange platforms & thus covered by the exception in Section 43(5)(d), which excludes “eligible derivative transactions” from speculative definition.
ITAT observed:
- Assessee had submitted contract notes & ledger accounts, contrary to CIT(A)’s claim.
- The decisions relied upon by CIT(A) (Varsha Corporation, Kunal Kataria) dealt with commodity hedging, not currency derivatives, & were therefore not applicable.
- Currency derivative trading through recognized exchanges is covered by Explanation to Section 43(5)(d).
- Multiple ITAT rulings (Vinay Prakash HUF – Delhi ITAT, IVF Advisors – Mumbai ITAT, Nand Nandan Agarwal, Kamal Kishore, etc.) have held that currency derivatives are derivatives under the Securities Contracts (Regulation) Act & thus not speculative.
- CBDT Instruction No. 03/2010 also supports this interpretation.
Loss incurred from trading in foreign currency derivatives on recognized exchanges is non-speculative business loss & is eligible for set-off.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
