Section 43(5) of the Income Tax Act

The decision most relied on for Section 43(5) is CIT v. Woodward Governor India Pvt. Ltd. (312 ITR 254), cited in 843 of the 92 judgments on BharatTax that turn on this section.

Leading authorities on Section 43(5)

CIT v. Woodward Governor India Pvt. Ltd.
312 ITR 254 · 2009 · Supreme Court
843
citing judgments

Foreign exchange fluctuations, whether gains or losses, are inextricably linked to the underlying business transaction and must be accounted for under the mercantile system. The Supreme Court also affirmed the standard accounting principle of valuing stock at cost or net realisable value, whichever is lower.

Brooke Bond India Ltd. v. CIT
225 ITR 798 · 1997 · Supreme Court
223
citing judgments

Expenditure incurred for increasing a company's share capital or expanding its capital base, such as expenses related to the issue of shares, constitutes capital expenditure. Such expenses are not deductible as revenue expenditure under Section 37(1) of the Income-tax Act, 1961, even if they incidentally benefit the business.

Punjab State Industrial Development Corporation Ltd. v. CIT
225 ITR 792 · 1997 · Supreme Court
158
citing judgments

Expenditure incurred for increasing a company's share capital, such as expenses related to issuing shares or an initial public offering (IPO), is capital expenditure. Such expenses are not allowable as a revenue deduction under Section 37, even if they incidentally benefit the business, because they result in an increase in capital.

CIT v. Rittal India (P) Limited
380 ITR 423 · 2016 · High Court
121
citing judgments

Additional depreciation is allowable under section 32(1)(iia) for new machinery or plant even when put to use for less than 180 days, with the unabsorbed balance available for claim in the subsequent year.

CIT v. Badridas Gauridu (P) Ltd.
261 ITR 256 · 2003 · High Court
114
citing judgments

Losses incurred from foreign exchange forward contracts or derivatives, entered into to hedge currency fluctuations in the course of regular business like exports, are treated as business losses and not as speculative transactions under Section 43(5). Such contracts, when incidental to business and cover exchange rate risks, constitute a business activity.

CIT v. Oswal Agro Mills Ltd.
341 ITR 467 · 2012 · High Court
108
citing judgments

The Legislature abolished terminal depreciation under section 32(1)(iii) and the taxing of balancing charge under section 41(2), replacing these provisions with the requirement to reduce sale proceeds of depreciable assets from the block of assets.

CIT v. Southern Roadways Ltd.
288 ITR 15 · 2007 · High Court
76
citing judgments

Expenditure on software useful for a short period or requiring regular updates, for which subscription fees are paid, constitutes revenue expenditure, distinguishable from capitalized software purchased on a perpetual license model, based on the test of enduring benefit.

Solid Containers Ltd. v. DCIT
308 ITR 417 · 2009 · High Court
74
citing judgments

The write-back or waiver of a loan obtained for business purposes constitutes taxable business income under Section 28. This applies even if no prior deduction was claimed, thereby not attracting Section 41(1).

CIT v. Soorajmull Nagarmull
129 ITR 169 · 1981 · High Court
55
citing judgments

Losses from foreign exchange forward contracts, when incidental to an assessee's regular business and undertaken to safeguard business interests, are treated as business losses and not speculative losses under section 43(5).

CIT v. DLF Commercial Developers Ltd.
35 Taxmann.com 280 · 2013 · High Court
51
citing judgments

Loss incurred by certain types of companies in trading derivatives is considered speculative loss under the Explanation to Section 73, as the value of stock derivatives depends on shares. Such speculative losses are ineligible for set-off or carry forward against business income.

Judgments on Section 43(5)

PANKAJ AGARWAL,KANPUR vs. THE AO SPECIAL RANGE,, KANPUR

In the result, the appeal of the assessee is allowed

ITA 122/LKW/2024[2017-18]Status: DisposedITAT Lucknow27 Feb 2026AY 2017-18

Bench: Sh. Sudhanshu Srivastava & Sh. Nikhil Choudharya.Y. 2017-18 Pankaj Agarwal, 7/151, Ratan Vs. The Assessing Officer, Majestic, Opp. Sony World, Special Range, Kanpur- Swaroop Nagar, Kanpur-208002 208001 Pan: Abnpa4816E (Appellant) (Respondent) Assessee By: Sh. Rakesh Garg, Adv Revenue By: Sh. R.R.N. Shukla, Addl Cit Dr Date Of Hearing: 23.12.2025 Date Of Pronouncement: 27.02.2026 O R D E R Per Nikhil Choudhary, A.M.: This Is An Appeal Filed By The Assessee Against The Order Passed By The Ld. Cit(A), Nfac Dated 9.01.2024 Wherein The Ld. Cit(A) Has Dismissed The Appeal Of The Assessee Against The Orders Of The Ld. Ao, Special Range, Kanpur, Passed Under Section 143(3) On 26.09.2019. 2. It Is Seen From The Record That The Appeal Is Delayed By 2 Days. However, Since The Date Of Filing Is Preceded By Saturday & Sunday, Wherein The Offices Of The Itat Were Closed, The Delay Is Condoned & The Appeal Is Admitted For Hearing. The Grounds Of Appeal Are As Under: - “1. Because The Cit(A) Has Erred On Facts & In Law In Treating The Loss Of Rs.42,17,895/- Being Loss On Account Of Trading In Derivatives As A Capital Loss As Against Business Loss Claimed By The Assessee, Which Finding Of The Ao Being Contrary To Facts, Bad In Law, The Addition Made Be Deleted.

For Appellant: Sh. Rakesh Garg, AdvFor Respondent: Sh. R.R.N. Shukla, Addl CIT DR
Section 143(3)Section 43(5)Section 44ASection 72Section 74

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