DCIT, TIRUPPUR vs. S P APPARELS LIMITED, AVANASHI

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – 3, Coimbatore, dated 30.12.2015 and pertains to assessment year 2010-11.

There was a delay of 59 days in filing this appeal by the Revenue. The Revenue has filed a petition for condonation of delay. We have heard the Ld. Departmental Representative and the Ld. representative for the assessee. We find that there was sufficient cause for not filing the appeal before the stipulated time.

Shri V. Nanda Kumar, the Ld. Departmental Representative, submitted that the assessee suffered loss in the foreign exchange derivative to the extent of `1,51,45,677/-. The loss claimed by the assessee was disallowed by the Assessing Officer on the ground that it is a speculative transaction. On appeal by the assessee, the CIT(Appeals) found that the derivative contracts were not entered into with an intention to manage the exposure of export proceeds received by the assessee. The CIT(Appeals) has also found that the transaction did not attract the conditions provided in second limb of Section 43(5) of the Income-tax Act, 1961 (in short 'the Act').

On the contrary, Sh. T. Banusekar, the Ld. representative for the assessee, submitted that the assessee entered into cross currency option contracts on the basis of expert advice and scientific analysis of currency movements across various currencies. According to the Ld. representative, the contracts were entered into by the assessee with a view to effectively manage the underlying exposure on account of export proceeds receivable by the assessee. Therefore, according to the Ld. representative, the proviso to Section 43(5) is not applicable at all. The loss on account of foreign currency derivative is purely a business loss, therefore, the loss suffered by the assessee in the course of business is allowable under Section 28 of the Act. In fact, an identical issue was considered by this Tribunal in the assessee's own case for assessment year 2008-09 in dated 17.04.2015. This Tribunal allowed a similar claim of the assessee as business loss. The CIT(Appeals) by placing reliance on the order of this Tribunal in the assessee's own case, for assessment year 2008-09, allowed the claim of the assessee. Therefore, according to the Ld. representative, the Revenue cannot have any grievance at all.

We have considered the rival submissions on either side and perused the relevant material available on record. During the course of business transaction, the assessee entered into cross currency option contracts in order to protect the loss suffered on account of export proceeds receivable by the assessee. The Assessing Officer found that the foreign currency derivative transaction was in the nature of speculative transaction within the meaning of Section 43(5) of the Act, therefore, the loss suffered by the assessee cannot be allowed against the income from business.

In the result, the appeal filed by the Revenue is dismissed.