ITO, Ward - 43(1), Kolkata , Kolkata V. Shri Binod Kumar Goenka, Kolkata

ITA 2462/KOL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6042 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 14-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST DATED PASSED
• Keywords: Speculation loss
• Section: 143(3); 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B, KOLKATA BEFORE SH. J.SUDHAKAR REDDY, ACCOUNTANT MEMBER & SH.S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.2462/KOL/2017 (ASSESSMENT YEAR-2012-13) ORDER PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 22.04.2015 PASSED BY CIT(A)-13, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) FOR AY 2012-13. 2. THE ONLY ISSUE IS TO BE DECIDED AS TO WHETHER THE CIT(A) JUSTIFIED IN DELETING THE ADDITION MADE IN TERMS OF SECTION 43(5) OF THE ACT. THE AO HELD THE FOREIGN EXCHANGE LOSS RESULTED FROM HEDGING TRANSACTION AS SPECULATIVE LOSS AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE CIT(A) HELD IN A FORWARD CONTRACT WHEN THERE IS NO PHYSICAL DELIVERY AND NO ASSURANCE OF PRICE MOVEMENTS, NO DISALLOWANCE IS MAINTAINABLE AS SPECULATIVE LOSS AND DELETED THE SAME. THE RELEVANT PORTION WHICH IS REPRODUCED HEREIN BELOW:- 6.1.3. PERUSAL OF FACTS SHOWS THAT IT WAS ADMITTED BY THE APPELLANT THAT IT WAS A FORWARD CONTRACT WITHOUT HEDGING AND IT WAS NOT SUPPORTED BY BANKING CHANNEL. THEREFORE, THERE WAS NO HEDGING. THE LOSSES WERE NOT ENSURED. IT WAS MERELY A FORWARD CONTRACT. THEREFORE, IT WAS BASICALLY A PRACTICE OF BUYING AND SELLING TO MAKE PROFIT. THE APPELLANT ENTERED IN THE FOREIGN EXCHANGE MARKET FOR BUYING AND SELLING IN ANTICIPATION OF FUTURE PRICE MOVEMENTS WHEREAS NO PHYSICAL DELIVERY WAS TAKEN PLACE OR WOUND ITO, WARD-43(1), KOLKATA VS SH. BINOD KUMAR GOENKA, C/O-V.N.SARAF & CO.-ADVOCATE, P-11, NEW HOWRAH BRIDGE APPROACH ROAD, 2 ND FLOOR, ROOM NO.1A/3, KOLKATA-700001. PAN - ACZPG7855L (APPELLANT) (RESPONDENT) APPELLANT BY SH.ROBIN CHOUDHURY, ADDL.CIT SR.DR RESPONDENT BY SH. A.K.TIBREWAL, FCA & SH. AMIT AGARWAL, ADV. DATE OF HEARING 15.01.2019 DATE OF PRONOUNCEMENT 23.01.2019 ITA NO.2462/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 2 UP. THE APPELLANT ASKED THE MARKET PRICE, RECEIPT DATE, LEGALITY AND CAPITAL TO THE FOREIGN EXCHANGE MARKET. THE MONEY WAS PUT AT RISK BY THE APPELLANT BECAUSE NO BANKING SECURITY WAS OBTAINED. IT WAS DONE ON THE BASIS OF FOREIGN EXCHANGE PRICE IN VIEW TO MAKE FUTURE PROFIT BY THE APPELLANT BASED ON ACCOUNT OF HISTORICAL KIND OF PATTERN OF THE MARKET. THE TRANSACTIONS IS DONE ON SPECULATION, THE SPECULATOR ASSUMES MARKET PRICE RISK, ADDING LIQUIDITY AND CAPITAL TO THE FOREIGN EXCHANGE MARKETS. THE SPECULATORS PUT THEIR MONEY AT RISK, THEY WON'T DO SO WITHOUT FIRST TRYING TO DETERMINE TO THE BEST OF THEIR ABILITY WHETHER PRICES ARE MOVING UP OR DOWN. SPECULATORS ANALYSE THE MARKET AND FORECAST FOREIGN EXCHANGE PRICE MOVEMENT AS BEST THEY CAN. THEY MAY MANAGE IN THE STUDY OF THE EXTERNAL EVENTS THAT AFFECT PRICE MOVEMENT OR APPLY HISTORICAL PRICE MOVEMENT PATTERS TO THE CURRENT MARKET. IN ANY CASE, THE SMART SPECULATOR DOESN'T OPERATE BLIND. A SPECULATOR WHO ANTICIPATES UPWARD PRICE MOVEMENT WOULD WANT TO TAKE ADVANTAGE BY BUYING THAT PARCEL OF FOREIGN CURRENCY. IF PREDICTIONS ARE CORRECT, THEN THE PARCEL OF CURRENCY CAN BE SOLD LATER AT A PROFIT. IF IT'S EXPECTED THAT PRICES WERE GOING TO ME DOWNWARD, THE SPECULATOR WOULD WANT TO SELL NOW AND, IF ALL GOES AS PLANNED, BUY BACK LATER AT A LOWER PRICE. WHEREAS IN HEDGING, BUYING AND SELLING FOREIGN EXCHANGE AS A RISK MANAGEMENT TOOL MEANS TO COVER A FOREIGN EXCHANGE EXPOSURE THROUGH AN OFFSETTING TRANSACTION. THIS IS ALSO KNOWN AS 'COVER'. COVER IS USUALLY OBTAINED BY USING FORWARD CONTRACTS. FORWARD EXCHANGE RATES ARE WIDELY USED BY IMPORTERS, EXPORTER, BORROWERS AND INVESTORS FOR THE PURPOSE OF HEDGING. IN THE CASE OF THE APPELLANT THE VALUE OF THE CURRENCY WAS NOT PROTECTED AGAINST THE PRICE FLUCTUATION. 6.1.4. KEEPING IN VIEW THE FACTS THAT IT WAS A FORWARD CONTRACT WHICH WAS DULY ADMITTED BY THE APPELLANT, NO PHYSICAL DELIVERY WAS TAKEN, NO ASSURANCE OF PRICE MOVEMENTS WAS MUTUALLY AGREED BY BOTH THE PARTIES NEITHER IT WAS ROUTED THROUGH BANKING CHANNEL, THEREFORE, THE DISALLOWANCE MADE BY THE AO AS SPECULATION LOSS IS HEREBY DELETED AND THE GROUND OF APPEAL IS ALLOWED. 3. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A). THEREFORE, SOLE GROUND RAISED BY THE REVENUE IS DISMISSED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.01.2019. SD/- SD/- (J.SUDHAKAR REDDY) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER [ DATE:- 23.01.2019 *AMIT KUMAR* ITA NO.2462/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 3 COPY FORWARDED TO: 1. APPELLANT- ITO, WARD-43(1), KOLKATA. 2. RESPONDENT- SH. BINOD KUMAR GOENKA, C/O-V.N.SARAF & CO.- ADVOCATE, P-11, NEW HOWRAH BRIDGE APPROACH ROAD, 2 ND FLOOR, ROOM NO.1A/3, KOLKATA-700001. 3. CIT-KOLKATA 4. CIT(APPEALS)-KOLKATA 5. DR: ITAT -KOLKATA BENCHES BY ORDER AR/H.O.O ITAT, KOLKATA