M/s ITT Shipping Pvt. Ltd. Vs Pr. CIT (ITAT Kolkata)
When the assessee is not dealer in foreign exchange and as a part of his normal business activity, enters into hedging contracts of foreign exchange, the loss in question is normal business loss and cannot be held a “Speculation Loss” as covered by Section 43(5) of the Act. The Vishakhapatnam Bench of the ITAT in the case of DCIT, Circle-1(2), vs. B Enterprise Pvt. Ltd. reported in (2017) 80 Taxman 362 (Vishakhapatnam Trib.) at para 16 and 17 held as follows:
“16. The next issue that came up for our consideration for the assessment year 2009-10 is towards disallowance on loss of forward contracts. The AO disallowed loss on forward contracts on the ground that loss incurred by the assessee is in the nature of speculative transaction, which cannot be allowed as deduction against business income. According to the AO, as per the provisions of section 43(5) of the Act, only eligible transactions which are not in the nature of speculative transaction as defined u/s 43(5) of the Act, only qualify for deduction. The AO referred to the CBDT circular and observed that any eligible transaction in respect of trading in derivatives referred to in clause (ac) to section (2) of the Securities Contracts (Regulation Act, 1965), that has been carried out in a recognized stock exchange shall not be treated as speculative transaction. But, the transactions carried on by the assessee are not covered by the said exceptions, therefore, loss incurred by the assessee towards forward contracts is not eligible of deduction. It is claim of the assessee that it had entered into forward exchange contracts to hedge the possible loss in fluctuation in currency in the course of export turnover and the resultant loss on account of settlement of hedging transactions is treated as revenue expenditure. The assessee further contended that during the financial year relevant to assessment year 2009-10, its export turnover is more than the value of forward exchange contracts, therefore, any loss suffered on forward exchange contracts not in the nature of speculative transactions is allowable as deduction against business income.
17. Having heard both the parties and considered the materials on record, we find that the assessee has entered into a forward exchange contracts with its bankers to hedge the export receivables in foreign currency, in order to safeguard against price fluctuation in realization of trade debtors. During the year, in respect of such hedging contracts, the assessee incurred loss of an amount of Rs. 3,41,583/-. We further observed that the assessee has achieved an export turnover of over Rs. 100 crores. We further observed that the transaction entered into by the assessee with its bankers is not in the nature of speculative transaction as defined u/s 43(5)(d) of the Act. Therefore, we are of the view that any loss incurred on forward contracts entered with its bankers to hedge the export receivables, in order to safeguard against price fluctuations in realization of trade debtors is in the nature of business loss, but not speculation loss as defined u/s 43(5)(d) of the Act. The Ld. CIT(A) after considering the relevant details has rightly deleted additions made by the AO. We do not find any infirmity in the order of the Ld. CIT(A), hence we inclined to uphold Ld. CIT(A)’s order and reject the ground raised by the assessee.”
Hence the issue in question is covered by a decision of Co-ordinate Bench of the Tribunal. We respectfully following the same as no contrary judgments have been brought to our notice by the ld. CIT DR.
