2016 (3) TMI 682 - HC - Income Tax

Forward booking of foreign exchange - whether was a speculative transaction which cannot be allowed for set off against normal business income? - CIT(A) has allowed set off by holding that a hedging loss is to be treated as business loss and is allowable to set off against business and profit also confirmed by ITAT - Held that - CIT(A) has recorded a finding of fact that the assessee had made contract with the Bank to cover up the risk of fluctuation in the dollar rate and there was actual delivery in the appellant s case and based on the material and submissions, it did not agree with the assessing officer s finding. The above finding of fact has been further upheld by the Tribunal as noticed hereinbefore. - Decided against revenue

Summary

Issues:
1. Whether the transaction of forward booking of foreign exchange is a speculative transaction?
2. Whether the forward booking of foreign exchange can be set off against normal business income as a business loss?

Analysis:
1. The Assessing Officer concluded that the transaction entered by the assessee in forward booking of foreign exchange was speculative, disallowing it for set off against normal business income. The CIT(A) allowed the appeal, stating that hedging transactions are not speculative and can be set off as business loss. The Tribunal upheld this decision, emphasizing that the transaction was a hedging contract to cover risks of fluctuation in the dollar rate, involving actual delivery, not a speculative business loss.

2. The Revenue appealed before the Tribunal against the CIT(A)'s decision. The Tribunal found no fault with the CIT(A)'s conclusion, stating that a hedging loss is to be treated as a business loss and can be set off against business income. The Tribunal dismissed the Revenue's appeal, highlighting that the forward booking was a legitimate hedging contract to mitigate risks, involving actual delivery and not speculative in nature.

3. The appellant argued that the CIT(A) and Tribunal erred in not accepting their plea, claiming substantial questions of law were involved. However, the High Court found that the CIT(A) had correctly assessed the facts, noting the actual delivery in the hedging contract with the bank to cover fluctuation risks. The High Court upheld the Tribunal's decision, stating no substantial question of law was involved, and dismissed the appeal.

In conclusion, the High Court affirmed the Tribunal's decision that the forward booking of foreign exchange by the assessee was a legitimate hedging contract, not a speculative transaction, eligible for set off against normal business income as a business loss. The High Court found no errors in the lower authorities' findings and dismissed the appeal, as no substantial question of law was identified.