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Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
PER PRABHASH SHANKAR [A.M.] :- The present appeal arising from the appellate order dated 16.06.2025 is preferred by the Revenue against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)"] pertaining to assessment order passed u/s.143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 14.12.2019 for the Assessment Year [A.Y.] 2017-18. A.Y. 2017-18 Foods and Inns Limited, Mumbai
The grounds of appeal are as under:-
“Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in treating the earning on foreign exchange forward contracts as regular business income and not speculation gain disregarding the fact that the provision of section 43(5) are applicable in this case?"
The registry has pointed out that the appeal is delayed by 11 days. Considering the delay being negligible, we condone the same.
Briefly stated facts of the case are that the assessee company filed its return of income declaring income of Rs.5,99,07,110/- under normal provisions of the Act and at Rs.12,45,38,643/- u/s 115JB of the Act which was later revised modifying the returned income. In the course of assessment proceedings, it was noted by the ld.AO that during the year, the assessee had earned Foreign Exchange gain of Rs. 11,50,83,853/- on Forward contracts. In response to the query made in this regard, it was submitted that the forward contract was in nature of hedging to avoid loss in foreign currency rate fluctuations and the same was covered by the first proviso to section 43(5) of the Act. The assessee also relied on various case laws that the forward contract gain was not speculative in nature. However, the AO did not accept the contentions by observing that the assessee was dealing in Fruit Pulp and allied items and was not a dealer in Foreign exchange. Delivery of foreign exchange had not been taken or given and were dealt with in form of forward
Page 3 A.Y. 2017-18 Foods and Inns Limited, Mumbai
contracts only. It was not the case of the assessee that forward contract gain on account of raw material dealt by him i.e. fruit pulp. It was on account of the foreign exchange and it was held that forex gain on forward contract for not hedging contracts and therefore, held to be speculative in nature. In view of the specific provisions of the speculative transactions u/s 43(5) of the Act, the above stated gain was held to be Speculative gain.
In the subsequent appeal, the ld.CIT(A) observed that the issue was covered in favour of the assessee as on identical facts, the coordinate bench of ITAT, Mumbai in the case of assessee itself had allowed similar deduction claimed. Facts remaining same, therefore following the judgement of Hon'ble ITAT in appellant's own case and CIT (A)'s order for A.Y-2015-16 and ITAT order of “F” Bench Mumbai for A.Y 2013-14, 2014-15 and 2015-16, addition made by the AO of Rs.11,50,83,853/- treating speculative gain was deleted.
Before us, the ld.DR has placed reliance on the assessment order while the ld.AR has pleaded that the issue in hand is squarely covered by the ITAT, Mumbai bench orders in its own case where similar deduction was held to be allowable. He also placed on record order passed by hon'ble Bombay High Court in its own case for AY 2016- A.Y. 2017-18 Foods and Inns Limited, Mumbai
17 in ITA No.1804/2017 dated 22.01.20222 in which appellate order of ITAT has been approved on the issue in hand. In this regard, we have examined the said order of ITAT in ITA Nos.6859,6860 & 6862/MUM/2019 CO Nos.132, 133 & 135/Mum/2021.Relevant parts of the order are reproduced as below for the sake of brevity:
“9. With regard to Ground No. 3 which is in respect of Loss of foreign Exchange on forward contracts, Ld. AR of the assessee brought to our notice that the issue in appeal was considered by the Co-ordinate Bench of this tribunal in assessee's own case for the Assessment Year 2009-10, 2010-11 and A.Y. 2012-13 and decided the issue in favour of the assesse, against the department. On the other hand, Ld. DR has fairly accepted the submissions of the Ld.AR.
Considered the rival submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y.2012-13. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 983/Mum/2018 dated 30.09.2019 held as under:
"
We have carefully perused the material on record in the light of the rival contention of the parties. As pointed out by the Ld. counsel for the assessee, the coordinate Bench has decided the identical issue in favour of the assessee in assessee's own case 1262/Mum/2011, 6629/Mum/2012 and 6271/Mum/2014 for A.Y.s 2009-10 & 2010-11 by upholding the findings of the first appellate authority vide which the Ld. CIT(A) had deleted the addition made by the AO, rejecting the claim of the assessee. The findings of the Ld. CIT(A) read as under: -
“6.3 I have considered the facts of the case and the appellant's submissions. I find that the Hon'ble ITAT in its combined order dated 07.06.2016 in ITA Nos.1262/Mum/2011, 6629/Mum/2012 and 6271/Mum/2014 for A.Y.s 2009- 10 & 2010-11 has discussed the issue at length and decided the issue in favour of the appellant by observing and holding as under:
"5.3.1 We have heard the rival submissions and perused and carefully considered the material on record including the judicial pronouncement referred to in the orders of the authorities below. Form the fact on record, it is not disputed that the assessee is engaged in the manufacture and export of processed food products such as fruit pulp and other allied items, for which it was receiving export sales proceeds from abroad in foreign exchange currencies. We find from the record that the learned CIT (A), after examination of the matter, found that the assessee had entered into foreign exchange forward contracts with banks only to safeguard itself and hedge against the A.Y. 2017-18 Foods and Inns Limited, Mumbai
exposure risks in future fluctuation in the exchange rates of foreign currency to be received by it as export sole proceeds. It is seen that these foreign exchange forward contracts entered into with banks from time to time iii the relevant periods under consideration. were made against confirmed export orders and export of goods by the assessee.
2 In our view the AO's findings to the contrary that the aforesaid foreign exchange losses suffered by the assessee are speculative in nature was factually flawed as it was based on a factually incorrect assumption that the assessee not being dealer in foreign exchange, its forward contracts were only for foreign exchange which were settled without delivery thereof. The RBI has permitted importers and exporters to enter into foreign exchange forward contracts with the banks in respect of its export orders. In the case on hand the assessee entered into foreign exchange export contracts with banks to the extent of its export orders; which means every foreign exchange forward contract is against a specific export order. in this factual matrix, it is clear that the assessee did not deal in foreign exchange, but entered into foreign exchange forward contract with banks to safeguard itself against possible foreign exchange losses on account of export sale proceeds to be received.
3 We concur with the view of the learned CIT (A) in the impugned order that the facts and circumstances of the case establish that the proviso (a) to section 43(5) of the Act is squarely applicable in the case on hand since the foreign exchange forward contracts entered into by the assessee with banks, in the course of its manufacturing and export business of fruit pulp and allied items, were in order to safeguard itself against possible future foreign exchange tosses on account of exports sale proceeds receivable, due to fluctuation in price of different commodities and which contracts were backed by confirmed export orders for dealing of goods manufactured or traded by it. These transactions were not speculative in nature and the resultant foreign exchange losses were consequently not speculative losses but allowable business losses. Such contracts are directly from and incidental to the assessee's business of manufacture and export of fruit pulp and allied products and therefore, in our view, do not represent speculative transactions. Therefore, the concept of delivery and non- delivery thereof is of no consequence and is irrelevant in the context of the facts of the case on hand. As long as the aforesaid transactions of foreign exchange forward contracts are concerned, they are directly linked with the assessee's business of manufacture and export of twit pulp and allied items, in our considered view, by no stretch of imagination can they be classified as 'speculative business'.
4 We find that the issue on hand is squarely covered in favour of the assessee by the decision of the Hon'ble Bombay High; Court in the (Bom):
"The assessee had entered into forward contracts with the Banks in respect of foreign exchange. Some of these contracts could not be honoured by the assessee for which it had to pay some amount which A.Y. 2017-18 Foods and Inns Limited, Mumbai
was debited to the P & L account. The assessee claimed the same as business loss being payment on account of cancellation of forward booking of forex with the banks in respect of exports orders. Finally, when the issue came up for consideration the Hon'ble Bombay High Court held as under: - The assessee was not a dealer in foreign exchange. The assessee was a cotton exporter. The assessee was an export house. Therefore, foreign exchange contracts were booked only as incidental to the assessee's regular course of business. The Tribunal has recorded a categorical finding to this effect in its order. The Assessing Officer has not considered these facts. Under Section 43(5) of the Income-tax Act, “speculative transaction" has been defined to mean a transaction in which a contract for the purchase or sale of a commodity is settled otherwise than by the actual delivery or transfer of such commodity. However, as stated above, the assessee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge against losses, the assessee had booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for export of cotton in some cases failed. In the circumstances, the assessee was entitled to claim deduction in respect of Rs.13.50 lakhs as a business loss. This matter is squarely covered by the judgment of the Calcutta High Court. with which we agree, in the case of CIT v. Soorajmull Nagarmull (1981)22 CTR Cal) 8: (1981) 129 ITR 169 (Cal)”.
5 Taking into account the facts and circumstances of the case as discussed above and the judicial pronouncement referred to (supra), we are of the considered view that the orders of the learned CIT (A) for assessment years 2009-10 and 2010-11 holding that foreign exchange losses of 16,72,65,011/- and 6,53,06,057/- for assessment year's 2009- 10 and 2010-11 respectively were business losses and directing the AO to allow the same calls for no interference from us and we therefore confirm an uphold the same. Consequently, Revenue's grounds No. 1(a) and (b) for A. Y. 2009-10 and ground No. 2 for A. Y. 2010-11 are dismissed."
Respectfully following the above decision of the Hon'ble ITAT in the appellant's own case, the disallowance of Rs.2,03,90,644/- on account of foreign exchange is deleted. This ground of appeal is allowed.”
The Ld. CIT(A) has decided the issue in question by following the decision of the Tribunal rendered in assessee's case referred above. The revenue has not pointed out any change in the facts and the circumstances of the present case. We, therefore do not find any reason to interfere with the findings of the Ld. CIT(A) which is in accordance with the decision of the coordinate Bench. Hence, we uphold the findings of the Ld. CIT(A) and dismiss this ground of appeal of the revenue and further direct the AO to delete the addition.
Page 7 A.Y. 2017-18 Foods and Inns Limited, Mumbai
In view of the above order, respectfully following the same, we do not find any infirmity in the appellate order. Accordingly, we dismiss the ground of appeal in this regard.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 17/11/2025. NARENDER KUMAR CHOUDHRY (न्यायिक सदस्य / JUDICIAL MEMBER)
Place: मुंबई/Mumbai दिनांक / Date 17.11.2025 Lubhna Shaikh / Steno PRABHASH SHANKAR (लेखाकार सदस्य/ACCOUNTANT MEMBER)
आदेश की प्रतिलिपि अग्रेषित/