CITICORP INVESTMENT BANK (SINGAPORE) LTD,DELHI vs. ACIT INT TAX CIR-2(1)(1), MUMBAI

INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI BENCH: I BEFORE HON’BLE BEENA PILLAI, JUDICIAL MEMBER AND HON’BLE ARUN KHODPIA, ACCOUNTANT MEMBER

ITA No. 9147/Mum/2025 & SA 35/MUM/2026 (िनधा�रण वष�/Assmt. Year: 2023-24) Permanent Account Number: AAACC5806F CITICORP INVESTMENT ASSISTANT BANK (SINGAPORE) COMMISSIONER OF LIMITED INCOME TAX-INT TAX 1ST Floor, Wing A&B, Prius Vs. CIRCLE 2(1)(1), MUMBAI Platinum, D-3, District Centre, Saket, New Delhi – 110017 [PAN: AAACC5806F] (��थ� Respondent) (अपीलाथ� Appellant)

िनधा�रती �ारा/Assessee Shri Himanshu (virtually) represented by: a/w Shri Arijit Ghosh, A/Rs Shri Satya Pal Kumar, CIT राज� व �ारा/Revenue represented D/R & Shri Krishna Kumar, by: Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 29-April-2026 घोषणा की तारीख / Date of pronouncement: 08/07/2026 आदेश / ORDER PER BEENA PILLAI, JUDICIAL MEMBER: Present appeal filed by the assessee arises out of the assessment order framed u/s 143(3) r.w.s. 144C(13) of the Act, dated 15/10/2025 passed by the Learned Assistant Commissioner of Income Tax, Int. Tax Circle -2(1)(1), Mumbai [hereinafter referred to as “the Ld.AO”] for A.Y. 2023-24, on following grounds of appeal:- “1. On the facts and circumstances of the case & in law, the final assessment order passed on 15 October 2025 by the Ld.AO, under section 143(3) read with section 144C(13) of the Act, is beyond the limitation period provided under section 153 of the Act; and is accordingly illegal and liable to be quashed.

The above grounds are independent of and without prejudice to each other and the Appellant craves leave to add, amend, alter, withdraw, modify and/or substitute, and to withdraw any or all of the above grounds of appeal.”

Regulations, 2019 and is engaged in making investments in permissible debt securities issued by the Government of India and listed Indian companies. As part of its investment activity in India, the assessee enters into forward foreign exchange contracts for hedging the foreign exchange exposure arising from such investments. For the year under consideration, the assessee earned a sum of Rs.11,94,99,597/- on cancellation / early settlement of forward foreign exchange contracts and claimed the same as exempt capital gains under Article 13(5) of the India- Singapore DTAA. The assessee filed its return of income for the year under consideration on 31/10/2023 declaring total income of Rs.1,10,450/-.

2.1. The return of income was selected for scrutiny under CASS. During the course of assessment proceedings, the Ld. AO noticed that the assessee had claimed the gain arising on cancellation of forward contract cover on debt instruments as exempt under Article 13 of the India-Singapore DTAA. The assessee was, therefore, called upon to explain as to why the said amount should not be treated as taxable income in India and brought to tax under the provisions of the Act. In response, the assessee submitted that the forward contracts for foreign currency were entered into only to hedge the foreign exchange exposure arising from the underlying debt securities; that such contracts were permissible only in accordance with the RBI/FPI regulations and could not exist independently of the underlying investments; that the forward contracts constituted capital assets; that cancellation thereof amounted to transfer; and that the issue stood covered in favour of

the assessee by the decisions of the Tribunal in assessee’s own case for earlier years.

2.2. The Ld.AO, however, did not accept the explanation furnished by the assessee. According to the Ld.AO, the assessee failed to establish that the forward foreign exchange contracts were inextricably linked with the underlying debt investments and, therefore, the gain arising therefrom could not be treated as capital gains. The Ld.AO, accordingly, in the draft assessment order passed under section 144C(1) of the Act, held that the gain of Rs.11,94,99,597/- arising on cancellation of forward foreign exchange contracts was taxable under the head “Income from Other Sources” and proposed to assess the total income of the assessee at Rs.11,96,10,047/- as against the returned income of Rs.1,10,450/-.

Aggrieved by the draft assessment order, the assessee filed objections before the Ld.DRP.

3.1. The DRP, however, rejected the principal objection of the assessee and upheld the action of the Ld.AO, while observing that the issue was required to be kept alive in the interest of the Revenue, though it noticed that there were favourable decisions of the Tribunal in assessee’s own case for earlier years.

Pursuant to the directions of the DRP, the Ld.AO passed final assessment order under section 143(3) r.w.s. 144C(13) of the Act on 15/10/2025, wherein the addition of Rs.11,94,99,597/- was made and the total income of the assessee was assessed at Rs.11,96,10,047/-.

Aggrieved by the final assessment order, the assessee is in appeal before this Tribunal.

continue independently and has necessarily to be cancelled or unwound.

4.1. According to the Ld.AR, the very regulatory framework demonstrates that forward contracts are not independent speculative transactions but are inextricably linked with the underlying debt investments.

4.2. The Ld.AR further submitted that the assessee had placed complete details before the Ld.AO/DRP to demonstrate such nexus, including the list of Indian debt securities purchased / sold during the year, the list of forward contracts entered into for hedging purposes, deal confirmations evidencing purchase / sale of the underlying debt securities and deal slips issued at the time of booking / cancellation of the forward contracts.

4.3. Referring to the additional evidence filed before the Ld.DRP, the Ld.AR submitted that the gains arising on early cancellation of forward contracts were duly reconciled with the amount disclosed in the return of income and the material on record clearly established that the forward contracts were entered into only to safeguard the assessee against the risk arising from fluctuations in foreign exchange rates in relation to the underlying debt securities.

4.4. The Ld.AR submitted that the forward contracts for foreign currency constitute capital assets within the meaning of section 2(14) of the Act. In this regard, it was contended that the expression “capital asset” includes property of any kind and, in the case of an FPI, specifically includes securities held in accordance 6

with the SEBI regulations. The Ld.AR submitted that the expression “securities” under section 2(h) of the Securities Contracts (Regulation) Act, 1956 includes “derivatives” and the definition of derivative is wide enough to include instruments derived from debt instruments and risk instruments. It was thus contended that a forward foreign exchange contract, whose value is derived from changes in foreign exchange rates, would fall within the broad meaning of a derivative / risk instrument and, therefore, would qualify as a capital asset when entered into by an FPI in accordance with the applicable regulatory framework.

4.5. The Ld.AR further submitted that cancellation of a forward contract constitutes transfer within the meaning of section 2(47) of the Act. It was contended that upon cancellation / early settlement of a forward contract, the bundle of rights and obligations embodied in the contract stands extinguished and, therefore, the same constitutes transfer of a capital asset. It was also argued that where a secondary transaction is inextricably linked to the primary transaction, the character of the receipt from the secondary transaction must follow the character of the underlying asset / transaction. In the present case, since the forward contracts were entered into only as a hedging mechanism in respect of the underlying debt securities held as capital assets, the gain or loss arising on cancellation of such contracts must necessarily partake the same character and be assessed under the head “Capital Gains”.

4.6. The Ld.AR strongly relied upon the orders of the Tribunal in assessee’s own case for earlier years and submitted that the issue 7

is squarely covered in favour of the assessee. It was submitted that in assessee’s own case for AY 1998-99, reported in [2012] 24 taxmann.com 211 this Tribunal held that, gains arising from early settlement of forward foreign exchange contracts were capital in nature. It was further submitted that, similar view has been taken by the Tribunal in subsequent years, including AYs 2006-07, 2008- 09, 2009-10, 2010-11 and 2012-13, and in certain years where losses arose on early cancellation of such contracts, the Revenue itself accepted the treatment of the same as capital loss in scrutiny assessments. The Ld. AR submitted that, in the absence of any stay or reversal of the earlier orders of the Tribunal, the Ld.AO/DRP were bound to follow the same and were not justified in taking a contrary view merely on the ground that appeals for some earlier years were stated to be pending before the Hon’ble High Court.

4.7. Per contra, the Ld.DR relied upon the orders of the Ld.AO and the Ld. DRP. It was submitted that the assessee failed to establish that the gains arising from cancellation of forward foreign exchange contracts were directly linked with the underlying debt investments and, therefore, the Ld.AO was justified in treating the same as taxable under the head “Income from Other Sources.”

4.8. The Ld. DR submitted that the assessee had not demonstrated that it traded in foreign exchange as a capital asset linked to its investment portfolio and not as an independent asset class. It was further submitted that the DRP rightly sustained the action of the Ld.AO to keep the issue alive in the interest of the Revenue. The Ld. DR, thus, supported the impugned order and prayed that the action of the Ld.AO . 8 We have perused the submissions advanced by both sides in light of the record placed before us.

“Citicorp Investment Bank (Singapore) Limited 5 Changi Business Park Crescent, Level 5 Singapore, 29 April, 2026 To The Hon'ble Bench “I” Income Tax Appellate Tribunal, Mumbai 4th Floor, Pratishtha Bhawan, Maharshi Karve Rd, Dhobi Talao, New Marine Lines, Church Gate, Mumbai, Maharashtra 400020 Subject: Application seeking withdrawal of Ground No. 1 in the case of Citicorp Investment Bank (Singapore) Limited [ITA 9147/Mum/2025] May it please your Hon'ours, 1. This application is submitted respectfully on behalf of the Appellant, Citicorp Investment Bank (Singapore) Limited, concerning the appeal referenced above for AY 23-24. 2. The Appellant raised Ground No. 1 in the appeal to contend that the final assessment order passed on 15 October 2025 under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 is beyond the prescribed limitation period under section 153 of the Act and is therefore illegal and liable to be quashed. 3. In the interest of facilitating the expeditious disposal of the appeal on merits and to avoid any further delay, the Appellant, vide this application, respectfully seeks the liberty of this Hon'ble Tribunal to withdraw Ground No. 1 raised in the appeal numbered 9147/Mum/2025, on a without prejudice basis.

Prayer In light of the above, it is most respectfully prayed that this Hon'ble Tribunal may be pleased to permit withdrawal of Ground No. 1 on a without-prejudice basis. The Appellant regrets any inconvenience caused and trusts that this request shall be acceded to. Thank you. Yours sincerely, For Citicorp Investment Bank (Singapore) Limited (Counsel) ARIJIT GHOSH (D/4278/2020)”

Accordingly, Ground no.1 is dismissed as not pressed.

6.1. The undisputed fact borne out from the record is that the assessee is a Category-I Foreign Portfolio Investor registered under the SEBI (Foreign Portfolio Investors) Regulations, 2019 and is engaged in making investments in debt securities in India. It is also not in dispute that the forward foreign exchange contracts in question were entered into by the assessee in the course of such investment activity. The consistent stand of the assessee before the 10

authorities below as well as before this Tribunal is that these forward contracts were booked only for hedging the foreign exchange exposure arising from the underlying debt securities held by it and were not independent speculative or standalone transactions. In support of the said stand, the assessee placed reliance on additional evidences that were filed before the DRP including the list of debt securities purchased / sold during the year, the list of forward contracts entered into for hedging purposes, deal confirmations evidencing purchase / sale of the underlying debt securities and deal slips issued at the time of booking/cancellation of the forward contracts.

6.2. On a perusal of the material placed before us, we find considerable force in the submissions advanced by the Ld.AR that the forward contracts in question were inextricably linked with the underlying debt investments. The regulatory framework governing FPIs and foreign exchange hedging also supports the case of the assessee. The RBI framework permits an FPI to hedge foreign exchange exposure only to the extent such exposure arises from the underlying securities. The notional amount and tenor of the derivative contract cannot exceed the value and tenor of the underlying exposure and, once the underlying security is sold, the related forward contract cannot continue independently and has necessarily to be cancelled or unwound. Thus, the very nature of the regulatory regime demonstrates that such forward contracts are not independent speculative transactions, but are entered into only as a protective mechanism against the foreign exchange risk attached to the underlying debt investments. In the present case,

no material has been brought on record by the Revenue to show that the assessee was independently trading in foreign exchange or entering into forward contracts de hors the underlying investments.

6.3. Once it is accepted that the forward foreign exchange contracts were entered into only as a hedge in relation to the underlying debt securities, the character of the gain arising on cancellation thereof has to be determined having regard to the character of the underlying asset/transaction. The underlying debt securities held by the assessee as an FPI are capital assets. The forward contracts were not entered into in the ordinary course of any business of dealing in foreign exchange, but only to safeguard the value of such investments against fluctuations in foreign exchange rates. Therefore, the gain or loss arising on cancellation of such forward contracts would partake the same character as the underlying investments and would fall for consideration on capital account. The mere fact that the contracts were cancelled or settled prior to maturity does not alter their intrinsic character or sever their nexus with the underlying debt securities.

6.4. We also find merit in the submission of the assessee that the forward contracts constitute capital assets and that cancellation thereof amounts to transfer. The expression “capital asset” under section 2(14) of the Act is of wide import and includes property of any kind. In the case of an FPI, securities held in accordance with the applicable regulations are specifically covered. The expression “securities” under the Securities Contracts (Regulation) Act includes derivatives, and a forward foreign exchange contract, 12

being an instrument whose value is derived from exchange rate movements, would fall within the broad ambit of such derivative / risk instrument. Further, on cancellation / early settlement of the forward contract, the bundle of rights and obligations embedded in the contract stands extinguished and, therefore, the same answers the description of transfer within the meaning of section 2(47) of the Act.

6.5. Apart from the above, we find that the issue is squarely covered in favour of the assessee by the decisions of the co-ordinate Bench in assessee’s own case for earlier years. The litigation history placed before us shows that in AY 1998-99, the Tribunal in assessee’s own case (supra), held that gains arising from early settlement of forward foreign exchange contracts were liable to be treated as capital gains. Similar view has been taken by this Tribunal in assessee’s own case in subsequent assessment years as well. It is also seen from the litigation history placed before us that in certain years where losses arose on early cancellation of such contracts, the same were accepted by the Revenue as capital losses in scrutiny assessment proceedings. Thus, there is a consistent line of authority in assessee’s own case holding that gains / losses arising from early cancellation of forward foreign exchange contracts, being hedging contracts linked with the underlying investments, are to be treated on capital account.

6.6. The DRP, while upholding the action of the Ld.AO, observed that the issue was being kept alive in the interest of the Revenue as appeals against certain orders of the Tribunal for earlier years were pending before the Hon’ble High Court. In our considered view, 13

such an approach cannot be approved. Mere pendency of appeal against an orders of the Tribunal, in the absence of any reversal or stay by the higher forum, does not dilute the binding nature of the earlier orders of the co-ordinate Bench, especially when the issue arises in assessee’s own case on identical facts. Judicial discipline requires that such binding precedents be followed unless shown to have been reversed or stayed by a superior forum. Admittedly, no such reversal or stay has been brought to our notice.

6.7. In view of the foregoing discussion and respectfully following the decisions of the co-ordinate Bench in assessee’s own case for earlier years, we hold that the gain of Rs.11,94,99,597/- arising on cancellation / early settlement of forward foreign exchange contracts entered into by the assessee for hedging the foreign exchange exposure in respect of its underlying debt investments is liable to be treated on capital account and cannot be brought to tax under the head “Income from Other Sources.” The Ld. AO is, accordingly, directed to treat the said amount in accordance with law under the head “Capital Gains” as claimed by the assessee. Ground Nos.2 and 3 raised by the assessee are, therefore, allowed.

In the result, the appeal of the assessee is partly stands allowed on merits and SA No.35/Mum/2026, become infructuous and is accordingly, dismissed. Order pronounced in the open court on 08/07/2026.

Sd/- Sd/- BEENA PILLAI ARUN KHODPIA ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai Dated: 08/07/2026 SC. Sr. P.S.

Copy to:

CITICORP INVESTMENT BANK (SINGAPORE) LIMITED 1ST Floor, Wing A&B, Prius Platinum, D-3, 1 District Centre, Saket, New Delhi – 110017

ASSISTANT COMMISSIONER OF INCOME TAX- 2 INT TAX CIRCLE 2(1)(1), MUMBAI

3 THE PCIT / CIT,

4 THE D.R., ITAT, MUMBAI BENCH

5 GUARD FILE