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TMI Blog2015 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank, we find ourselves in agreement with the contention of assessee that the nature of the relevant derivative transactions was not properly appreciated either by the Assessing Officer or by the learned CIT(A) and the said transactions were treated by them as speculative transactions by referring to the provisions of S.43(5) without appreciating the correct nature of the relevant derivative transactions. Keeping in view this position, clearly emanating from the relevant documents as well as the orders of the authorities below, we are of the view that the matter should go back to the file of the Assessing Officer for deciding the same afresh, after properly appreciating and ascertaining the exact nature of the relevant derivative transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le by the Assessing Officer. After referring to the definition of the terms interest swap and foreign exchange forward given in the relevant RBI guidelines, he narrated the nature of the derivative transactions entered into by the assessee in paragraph No.4.3 of her order as under- 4.3 The mode of transaction in the case of currency options is that there is no actual purchase of loan/currency or sale of the same. It is just that the arrangement is made for the rate at which the Forex loan/currency is to be purchased and sold. Thus, the difference in the Forex rates at time of opting to purchase or sale, is what settled as payment made to the bank or to be received from the bank. Therefore, there is no actual sale or purchase of curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut through banks (e) The transactions are not carried out in recognized stock exchanges. Accordingly, the loss arising from the Forex derivative transactions of the assessee was treated by the Assessing Officer as speculative loss and the same was not allowed to be set off by him against business income. 4. The disallowance made by the Assessing Officer on account of its claim for loss arising from the Forex derivative transactions inter-alia was disputed by the assessee in an appeal filed before the learned CIT(A), and after considering the submissions made on behalf of the assessee as well as the material available on record, the learned CIT(A) confirmed the disallowance made by the Assessing Officer on this issue, for the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has preferred this appeal before the Tribunal. 6. The learned counsel for the assessee submitted that the exact nature of the derivative transactions entered into by the assessee company was not understood properly either by the Assessing Officer or by the CIT(A) and the loss arising from the transactions was treated as speculative loss by applying the provisions of S.43(5), which in fact, were not applicable in the case of the assessee. He explained that rupee loans availed by the assessee company were converted into foreign exchange loans as per the understanding with the concerned bank and consequently, there was foreign currency exposure in terms of the said loan repayable in foreign currency, including interest thereon. He submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer. He contended that the claim of the assessee for loss from similar transactions being business loss, thus, should be accepted following the rule of consistency. 8. The learned Departmental Representative, on the other hand, although initially supported the case of the revenue on the issue under consideration, by relying on paragraphs 6.8 and 6.9 of the impugned order of the learned CIT(A), finally submitted that, if at all, the nature of the relevant derivative transactions is found to be not properly appreciated by the authorities below, as contended by the learned counsel for the assessee, the matter may be restored to the file of the Assessing Officer for deciding the same afresh, after properly appreciating the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derlying foreign currency exposure, and iii) All necessary corporate authorisations and approvals have been obtained for entering into and performance of this transaction. b. Assessment and Understanding : Each party is capable of assessing by itself (on its own behalf or through independent professional advice) the merits and understands and accepts the terms, conditions and risks of this Swap Transaction. c. Status of Parties : The counter party is not acting as a fiduciary for or an adviser to it in respect of this transaction. d. Risk Management: It has entered into this transaction for the purpose of hedging its assets or liabilities or in connection with a line of business or market making, and not for the purpose of specu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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