Case Law Details
While perusing the profit and loss account of the assessee, the AO noticed that the assessee has claimed a loss of Rs.93,63,235/- on account of loss on foreign currency futures. The AO was of the strong belief that the loss cannot be allowed in the light of the provisions of section 43(5) of the Income Tax Act, 1961 (the Act) r.w. clause (ac) of section 2 of the Securities Contracts (Regulation) Act 1956. While disallowing the loss of Rs.93,63,235/-, the AO has considered the relevant provisions of section 43(5) of the Act and section 2(ac) of the Securities Contracts (Regulation) Act.
Aggrieved by this finding of the AO the assessee carried the matter before Ld. CIT(A). It was strongly contended that the contracts in foreign currency futures were not speculative transaction. It was further explained that the foreign currency contract does not satisfy the condition of being a speculative transaction and, therefore, the loss on account of foreign currency futures was not speculative loss. After considering the facts and the submissions, Ld. CIT(A) observed that the assessee is not engaged in manufacturing or merchanting business and was also a dealer and investor in stock and shares. Therefore, the loss of Rs.93,63,235/- earned by the assessee on account of transactions in foreign currency future was not in the nature of hedging loss, therefore, such loss was not earned in the course of guarding against loss through future price fluctuation in respect of contracts for actual delivery of goods manufactured or in respect of stock of share entered into by a dealer. Ld. CIT(A) was of the firm belief that proviso (d) to section 43(5) was not applicable. Ld. CIT(A) confirmed the assessment order holding that the AO has correctly held that such loss was a speculation loss within the meaning of section 43(5) of the Act. Aggrieved by this assessee is before us.
Ld. Counsel for the assessee reiterated what has been submitted before lower authorities. Ld. Counsel for the assessee drew our attention to proviso (d) of section 43(5) of the Act and stated that the Revenue Authorities have failed to interpret the said proviso. It is the say of the Ld. Counsel that the contracts entered by the assessee cannot be said to be of speculative in nature because the contracts have ultimately been settled by the delivery of Forex.
We have carefully perused the orders of the Revenue Authorities and the submissions made by the assessee in the light of the relevant provisions of the IT Act and also Securities Contract Regulation Act, 1956. Section 43(5) of the I.T. Act.
From which it can be seen that the derivatives also includes securities. The definition of eligible transaction mentioned herein above clearly show that the transaction must have been carried out electronically in accordance with the provisions of Securities Contracts (Regulation) Act and the Rules and Regulations or bye laws made or directions issued under this Act or by banks or mutual funds on a recognized stock exchange and which is supported by time stamped contract note issued by such stock broker or sub-broker or intermediary to every client indicating in the contract note the unique client identity number and permanent account number.
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