Case Law Details
PCIT Vs Simon India Ltd. (Delhi High Court)
Delhi High Court held that loss on account of the Forward Contracts cannot be considered as speculative loss and hence loss on Forward Contracts is allowable as a deduction from the income chargeable to tax even if the Forward Contracts have not closed.
Facts- The sole controversy in ITA No.976/Del/2013 relates to whether the loss on Forward Cover Purchase Contracts for foreign exchange (hereafter ‘Forward Contracts’) is allowable as a deduction from the income chargeable to tax for the relevant assessment year notwithstanding that the Forward Contracts have not closed.
Conclusion- Undisputedly, the Forward Contracts, in the present case, are hedging transactions. The Assessee has reinstated its debits and credits from the underlying transactions on the value of the foreign exchange on the due date. The corresponding losses and gains under the forward contracts were thus also required to be accounted for to arrive at the real profits. It would be anomalous if, on the one hand, debtors and creditors, with respect to current assets, were stated at the current value of foreign exchange and the corresponding loss on the hedging transaction was not accounted for. In essence, the assessee has stated his income by taking into account the foreign exchange value as it stood on the due date. It is well settled that the CBDT Instructions and circulars which are contrary to the law are not binding.
This Court finds no fault with the order of the learned CIT(A) as well as the learned Tribunal in finding that the loss, on account of Forward Contracts, cannot be considered as speculative and the AO had erred in disallowing the same.
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