2018 (10) TMI 720 - AT - Income Tax

Disallowance of speculation loss - loss arising from exchange traded currency derivatives - Held that - CIT(A) rightly held that the assessee executed currency transactions in derivative segment on the platform of recognized stock exchange which is in the realm of eligible transaction and covered by the exceptions provided to Section 43(5)(d) of the Act. In view of the provisions of Section 43(5)(d) of the Act read with Section 2 of Securities Contracts (Regulation) Act, 1956, such derivative transactions of the nature of currency futures are to be excluded from the ambit of the speculative transactions. Consequently, the loss arising from exchange traded currency derivatives has been rightly regarded as normal business loss by the CIT(A). We do not find any infirmity in the order of the CIT(A). - Decided against revenue.

Summary

Issues:
Appeal against CIT(A) order deleting addition of speculation loss.

Analysis:
The appeal was filed by the Revenue against the order of the CIT(A) concerning the assessment year 2012-13. The Revenue challenged the deletion of an addition of ?74,18,448 made on account of disallowance of speculation loss. The assessee, a domestic company engaged in trading commodities and shares, claimed losses against transactions in currency derivatives. The AO invoked Section 43(5) of the Income Tax Act, 1961, treating the losses as speculative due to settlement methods. However, the CIT(A) found the case covered by exceptions under Section 43(5)(d) of the Act, stating that derivative transactions on recognized stock exchanges are not speculative. The CIT(A) referred to various judgments supporting this view.

The CIT(A) held that transactions in currency derivatives on recognized stock exchanges are business transactions, not speculative, as per Section 43(5)(d) of the Act. The losses from such transactions were considered business losses, not speculative losses. The CIT(A) directed the AO to treat losses from currency derivatives as business losses. The Tribunal found merit in the CIT(A)'s decision, stating that derivative transactions in currency futures on recognized stock exchanges fall under the exceptions to speculative transactions under Section 43(5)(d) of the Act. The Tribunal upheld the CIT(A)'s order, concluding that the losses from exchange traded currency derivatives were rightly considered normal business losses. As a result, the appeal of the Revenue was dismissed.