Case Law Details
PCL Foods Pvt. Ltd. Vs ACIT (ITAT Delhi)
ITAT Delhi held that forward contract was purely hedging transactions entered into by assessee to safeguard against loss arising out of fluctuation in foreign currency, loss on such transactions could not be held as speculative transactions felling within ambit of section 43(5).
Facts-
The assessee is engaged in the business of purchasing paddy, removing husk and bran layers there from, extracting rice from the purchased paddy and polishing and grading the extracted rice. Thus, the assessee can be said to be engaged in ‘Rice milling activity’. The case of the assessee was picked up for assessment under Section 143(3) of the Income Tax Act, 1961.
The Assessing Officer treated the foreign exchange fluctuation loss of Rs. 89 lac as speculated loss u/s. 43(5) r.w.s. 28 of IT Act. The CIT(A) held that that transactions done in currency derivatives do not fall in proviso to section 43(5) and hence nothing but speculative transactions. The CIT(A) held that loss incurred in respect of currency derivatives is treated as speculation loss governed by Section 73. Thus, the main contention of the revenue was that the currency derivatives as referred in Section 2 of the Securities Act, 1956 and hence the contract for differences are part of derivatives and hence the derivatives loss cannot be treated as a trading loss.
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