2015 (1) TMI 1275 - AT - Income Tax

Disallowance of foreign currency derivative loss by treating it as speculation loss - not allowing set off against regular business - Held that - The definition of speculative transaction , will not apply to a situation where the purpose of entering a forward contract was to hedge/safeguard against any loss on account of repayment of principal amount of the loan cancellation of the contract was identical to that object and consequently any loss/gain arising from such cancellation is directly related to repayment of the loan. Further, attention is also drawn to proviso (c) to s.43(5) of the Act, which excludes a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing, etc. to guard against loss which may arise in the ordinary course of his business to such member from the definition of speculative transaction. Thus we hold that Forex contracts entered into by the assessee will not fall under the definition of speculative transaction - Decided in favour of assessee. Denial of duty draw back while computing deduction under section 80IB - Held that - We do not find any infirmity or good reason to interfere with the order of Commissioner of Income Tax (Appeals) since the Commissioner of Income Tax (Appeals) has only followed the decision of Hon ble Supreme Court in the case of Liberty India v. CIT (2009 (8) TMI 63 - SUPREME COURT ) in concluding that duty drawback is not profits derived from industrial undertaking for the purpose of computing relief under sec.80IB of the Act. - Decided against assessee.

Summary

Issues involved:
1. Condonation of delay in filing appeal.
2. Disallowance of foreign currency derivative loss.
3. Denying deduction under section 80IB of the Act on duty drawback.

Condonation of delay in filing appeal:
The appeal filed by the assessee was delayed by 60 days due to the assessee's accident and hospitalization. The Tribunal, after perusing the reasons, allowed the condonation of delay in the interest of justice. The delay was condoned, and the appeal was admitted.

Disallowance of foreign currency derivative loss:
The Tribunal considered the appeal filed by the assessee against the disallowance of foreign currency derivative loss by treating it as speculation loss. The Tribunal referred to a previous decision where it was held that such losses are deductible as business losses. The Tribunal noted that the assessee was not a dealer in foreign exchange and the forex transactions were part of the regular business. Citing relevant case laws, the Tribunal allowed the ground of appeal in favor of the assessee.

Denying deduction under section 80IB on duty drawback:
The issue revolved around the exclusion of duty drawback from eligible profits while computing deduction under section 80IB of the Act. The Assessing Officer had excluded duty drawback from the profits derived from the industrial undertaking. The Commissioner of Income Tax (Appeals) upheld this decision based on a Supreme Court ruling stating that duty drawback cannot be included in eligible profit for claiming deduction under section 80IB. The Tribunal, following the decision, dismissed the grounds raised by the assessee on this issue, upholding the exclusion of duty drawback from eligible profits for the deduction under section 80IB.

In conclusion, the Tribunal partly allowed the appeal of the assessee, condoning the delay in filing the appeal and ruling in favor of the assessee regarding the disallowance of foreign currency derivative loss. However, the Tribunal rejected the grounds raised by the assessee concerning the denial of deduction under section 80IB of the Act on duty drawback, in line with the decision based on the Supreme Court ruling.