Foreign Currency Forward Contract Loss is not Speculation Loss

Admittedly, the assessee is not a dealer in foreign exchange. For the purpose of hedging the loss due to fluctuation in foreign exchange while implementing the export contracts, the assessee had entered into forward contract with the banks. In some cases, the export could not be executed and the assessee had to pay certain charges to the Bank and  thereby incurred certain expenses. These expenses the  assessee claimed by way  of expenditure towards business. We do not find that  the transaction can be stated to  be  in speculation as to cover under sub-section (5)  of section 43 of the Act.

 HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 131 of 2013

 COMMISSIONER OF INCOME TAX

Versus

PANCHMAHAL STEEL LTD.

Date : 28/03/2013

ORAL ORDER

(PER : HONORABLE MR.JUSTICE AKIL KURESHI)

1.Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 13.7.2012 raising following questions for our consideration :

“Whether, the Tribunal erred in deleting dis allowance of Rs. 34,88,834/- made on account of loss claimed due to cancellation of forward contract thereby over viewing the fact that transactions in question fell within the definition of  speculative transaction as per section 43(5) of the Income Tax Act?

2. Tribunal in the impugned judgement relied on its own decision in case of Friends and friends Shipping Pvt. Ltd. which was carried in appeal before this Court. This Court had also by judgement 23.8.2011 in Tax Appeal No. 251/2010 upheld the decision of the Tribunal. In the said judgement, this Court had made   following observations :