RIDHI VINCOM PVT. LTD.,KOLKATA V. I.T.O., WARD - 4(1), KOLKATA

ITA 947/KOL/2025

AI Insights

Ridhi Vincom Pvt. Ltd. appealed against the order of the National Faceless Appeal Centre, which confirmed the disallowance of a loss of \\u20b993,38,052 incurred from future trading transactions in foreign exchange, treating it as a speculative loss. The Tribunal examined whether the loss from these derivative transactions in currency qualifies as a speculative loss under Section 43(5) of the Income Tax Act, 1961. The Tribunal noted that the assessee had provided sufficient documentary evidence to support their claim that the transactions were eligible under the specified section, thus non-speculative. The Tribunal's decision was influenced by precedents and interpretations of similar cases, leading to the conclusion that the losses should be treated as non-speculative.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 779266 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 02-05-2025
• Other Referred Cases: Varsha Corporation Ltd. vs. Deputy Commissioner of Income-tax (OSD) -9(1) [2014] 45 taxmann.com 352 (Mumbai), Kunal G. Kataria vs. Assistant Commissioner of Income Tax [2018] 91 taxmann.com 345 (Mumbai), Vinay Prakash (HUF) Vs. ACIT (ITAT Delhi) in ITA No. 8118/DEL/2018 order dated 26.05.2022, Nand Nandan Agarwal vs. DCIT, ITA No.349 and 350/Agra/2016 order dated 18th June, 2018, Kamal Kishore vs.ACIT in ITA No.4592/Del/2016 order dated 13th February, 2017, IVF Advisors Private Limited Vs. ACIT in Ita No. 4798/MUM/2012 for A.Y. 2009-10 vide order dated 13.02.2015
• Laws Referred To: Income Tax Act, Securities Contracts (Regulation) Act, 1956
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANAS MONDAL
• Assessee Lawyers: S. JHAJHARIA
• Keywords: Set aside; Speculation loss; Business income; Transactions in derivatives; Speculative transactions
• Section: 12; 43(5)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRIPRADIP KUMAR CHOUBEY, JM ITA No.947/KOL/2025 (Assessment Year:2013-14) Ridhi Vincom Pvt. Ltd. C/o M/s SalarpuriaJajodia& co. 7, C.R. Avenue, 3 rd Floor, Kolkata-700072, West Bengal Vs. ITO, Ward 4(1) Aaykar Bhawan Poorva, P-7, Chowringhee Square, 8th Floor, Kolkata-700069, West Bengal (Appellant) (Respondent) PAN No. AAECR9858C Assessee by : Shri S. Jhajharia, AR Revenue by : Shri Manas Mondal, DR Date of hearing: 17.09.2025 Date of pronouncement: 15.10.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 03.03.2025 for the AY 2013-14. 02. The issue raised in ground no.1 is against the order of learned CIT (A) in confirming the disallowance of ₹93,38,052/- as made by the learned AO in respect of future trading transactions treating the same as speculative loss and the ground no.2 and 3 are without prejudice ground. Printed from counselvise.com Page | 2 ITA No.947/KOL/2025 Ridhi Vincom Pvt. Ltd.; Ay 2013-14 03. The facts in brief are that the assessee filed the return of income on 30.09.2013, declaring total income at ₹55,320/-. The case of the assessee was selected for scrutiny though CASS and statutory notices along with questionnaire were duly served upon the assessee. The assessee furnished all the evidences before the learned AO from time to time. The learned AO observed that the assessee has debited ₹99,35,361/- to the Profit and Loss account out of which 93,38,052/- has been on account of speculative loss suffered by the assessee in future trading transactions in foreign exchange. According to the learned AO the said trading loss suffered in future trading transaction is a speculative loss and is not allowable and therefore the same is added to the total income of the assessee. 04. In the appellate proceedings, the learned CIT (A) dismissed the appeal of the assessee on the ground that the loss of ₹92,38,052/- was a speculative loss. 05. After hearing the rival contentions and perusing the materials available on record, we find that assessee has incurred loss from its business activity of derivative trading and commodity from foreign exchange. Now the issue before us is whether the said loss is a speculative loss or is covered under the exceptions as envisaged and provided u/s 43(5)(d) of the Act. The learned CIT (A) while dismissing the appeal of the assessee in Para no.5.6 of the appellate order noted that assessee has not submitted documentary evidences in support of his claim and accordingly, he upheld the decision of the learned AO that business activity of the trading in commodity on foreign exchange for A.Y. 2013-14 (pre amendment) will be treated as speculative loss. We find that the said observation of the learned CIT (A) is Printed from counselvise.com Page | 3 ITA No.947/KOL/2025 Ridhi Vincom Pvt. Ltd.; Ay 2013-14 contradictory vis-à-vis the facts available on record as the assessee had vide letter dated 14.03.2016, filed before the learned AO copies of contract notes showing contract in future currency and also relevant ledger account which were also available before the learned Commissioner of Income-tax (Appeals). Therefore, we are not in concurrence with the opinion of the learned CIT (A) that the assessee did not file any documentary evidences. The learned CIT (A) relied on the decision of Varsha Corporation Ltd. vs. Deputy Commissioner of Income-tax (OSD) -9(1) [2014] 45 taxmann.com 352 (Mumbai), which has been dealt in para no.5.4 of the appellate order and similarly, the learned CIT (A) relied on the decision of Kunal G. Kataria vs. Assistant Commissioner of Income Tax [2018] 91 taxmann.com 345 (Mumbai)[23-02-2018] has dealt in Para no.5.5 of the appellate order. We find that both the above decisions on trading on commodity derivatives were in respect of hedging in commodity trading (hedge the gold in MCX) and not the trading in commodity in foreign currency. In our opinion, the loss incurred by the assessee on trading in commodity on foreign exchange is covered under explanation clause u/s 43(5)(d) of the Act as has been held in the following decisions. The case of the assessee find support from the decision of Vinay Prakash (HUF) Vs. ACIT (ITAT Delhi) in ITA No. 8118/DEL/2018 order dated 26.05.2022, wherein the co-ordinate Bench has held as under: - “5. We have carefully considered the rival submissions and perused the assessment order as well as the order of the CIT(A) together with case laws cited and other documents referred to an relied upon as per Rule 18(6) of the Income Tax [Appellate Tribunal] Rules, 1963. 5.1 The solitary issue confronted in the present appeal is on treatment of loss arising from derivative transactions in currency segment in the matter of set off and carry forward. It is the case of the assessee that it has entered into derivatives transactions in Printed from counselvise.com Page | 4 ITA No.947/KOL/2025 Ridhi Vincom Pvt. Ltd.; Ay 2013-14 currency segment of the recognized stock exchange, i.e., BSE and has complied with other conditions stipulated in Section 43(5) read with proviso (d) thereto. The contract for Currency Derivative Transaction (CDT) executed through the registered share broker on the platform of the stock exchange (recognized Exchange by SEBI) was referred to on a sample basis to demonstrate that CDT executed by the assessee falls within the definition of ‘eligible transaction’ as per Explanation-1 appended below Section 43(5) of the Act. It was thus contended that theCDT being ‘eligible transaction’ falls within the exceptions carved out to Section 43(5) of the Act. The consequential effect would be that such CDT are outside the ambit of expression ‘Speculative transaction’ are thus non speculative in nature. Hence loss arising from such CDT being ordinary loss are eligible for set off against the profits arising from other non speculative business transactions, etc. in accordance with law. 5.2 It is contended on behalf of the assessee that clause (ac) of Section 2 of Securities Contracts (Regulation) Act, 1956 includes such transaction within the meaning of derivatives transaction and the transaction has been executed electronically on screen based systems through the stock broker registered under Section 12 of the SEBI Act, 1992. It is thus the case of the assessee that the loss arising from CDT being non-speculative, both the lower authorities have misdirected themselves in law in denying the relief towards set off and carry forward for loss arising from such non speculative transaction. 6. Section 43(5) of the Income Tax Act defines ‘speculative transaction’. As per the Scheme of the Act, a transaction of speculative nature carries a differential treatment qua the non speculative transaction in the matter of set off and carry forward of losses arising therefrom. The proviso to Section 43(5) provides for certain exceptions in varied situation and where the transactions executed fall within any of such exceptions, profit/loss arising from such transactions will not be regarded as derived from speculative business and consequently, will not be deemed to be speculative transaction for the purposes of the Act. 7. We are presently concerned with clause (d) of suchexceptions annexed to Section 43(5) of the Act. In view of the clause (d) to Section 43(5), a transaction will not be regarded as ‘speculative transaction’ where an eligible transaction in respect of trading in derivatives referred to in clause (ac) of Section 2 of Securities Contracts (Regulation) Act, 1956 was carried out in a recognized stock exchange. Explanation-1 to Section 43(5), in turn, defines ‘eligible transaction’ for the purposes of clause (d) to mean a transaction carried out electronically on screen based systems through a stock broker registered under SEBI Act 1992. 8. Clause (ac) of Section 2 of Securities Contracts (Regulation) Act, 1956 defines expression ‘derivative’ in an inclusive manner as under: “(ac) “derivative” includes- Printed from counselvise.com Page | 5 ITA No.947/KOL/2025 Ridhi Vincom Pvt. Ltd.; Ay 2013-14 (A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security. (B) A contract which derives its value from the prices, or index of prices, of underlying securities; (C) Commodity derivatives; and (D) Such other instruments as may be declared by the Central Government to be derivatives.” 9. CBDT also came out with instructions regarding allowability of losses on account of forex derivatives which takes cognizance of the question confronted to us. The relevant paragraph of the CBDT Instruction No.03/2010 dated 23.03.2010 is reproducedhereunder: In a case where a loss on a forex-derivative transaction arises on actual settlement / conclusion of contract and is not a notional or marked to market book entry, a further question will arise as to whether such a loss is on account of a speculative transaction as contemplated in Section 43(5) of the Income tax Act. For determining whether loss from a transaction in respect of a forexderivative is a speculation loss or not, the Assessing Officers may refer to Proviso (d) below sub-section (5) of Section 43 inserted by the Finance Act, 2005, with effect from 1.4.2006. It lays down that any 'eligible transaction' in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, l956, that has been carried out in a recognized stock exchange shall not be treated as a speculative transaction. Further, an 'eligible transaction' for this purpose would be one that fulfils the conditions laid down in Explanation to Section 43(5)(d). Any loss in a speculative transaction can be set off only against profit from speculative transactions. As the revenue implications of such transaction are large, the Assessing Officers need to examine the statements of accounts and the notes to accounts with a view to find out any reference to any loss on account of forex-derivatives. In some cases, these losses may be camouflaged under the 'financial charges' 'foreign exchange loss' or some similar head which may make it difficult to detect them. In such cases, the Assessing Officers should make a specific query asking the assessee to give a break up of any 'Marked to Market' loss on a forex-derivatives included in the Profit and Loss Account and examine whether such transactions are 'eligible transaction' in terms of Sec.43(5)(d). An adjustment to the taxable income may therefore be made, if necessary, keeping in view the provisions of law referred to above. Printed from counselvise.com Page | 6 ITA No.947/KOL/2025 Ridhi Vincom Pvt. Ltd.; Ay 2013-14 10. On facts and as per the contract notes, the assessee has entered into contract for transactions in currency derivatives segment of BSE Ltd. through registered share broker namely PEE AAR Securities Ltd. resulting in the impugned losses. 11. The definition of derivative under Securities Contract (Regulation) Act, 1956 reproduced hereinabove, defines the express ‘derivative’ in an inclusive manner and inter alia includes a security derived from a debt instrument, risk instrument and such other instruments as may be declared by the Central Government to be derivatives. The definition is thus very widely worded. The CBDT instruction no.3/10 clearly provides in the context of proviso (d) below sub Section (5) of Section 43 inserted by Finance Act, 2005 w.e.f. 01.04.2006 relevant to Assessment Year 2006-07 onwards that any ‘eligible transaction’ in respect of trading in derivatives referred to in clause (ac) of Section 2 of Securities Contracts (Regulation) Act, 1956 that has been carried out in a recognized stock exchange shall not be treated as speculative transaction. 12. Contextually, the Co-ordinate Bench of Tribunal in Nand Nandan Agarwal vs. DCIT, ITA No.349 and 350/Agra/2016 order dated 18th June, 2018 referred to and relied upon several other judgments and observed that derivatives include foreign currency and call option / put option executed in the derivative market. It was held that the trading of currency derivatives made by the assessee are covered by the definition of ‘derivatives’ and consequently stands excluded from the ambits of speculative transactions defined under Section 43(5) of the Act owing to clause (d) of the proviso to Section 43(5) of the Act. Similar view has been taken by the Co-ordinate Bench in Kamal Kishore vs.ACIT in ITA No.4592/Del/2016 order dated 13th February, 2017. 13. In essence, an ‘eligible transaction’ [as defined in Explanation-I to Section 43(5)] in respect of derivatives transaction [as defined in clause (ac) to Section 2 of Securities Contract (Regulation) Act, 1956] carried out on a recognized Stock Exchange shall not be deemed as Speculative Transaction having regard to exception provided in clause (d) to proviso to Section 43(5) of the Act. 14. In the light of the factual and legal submissions canvassed on behalf of the assessee we are of the considered view that the assessee in the instant case has complied with all the conditions of clause (d) and Explanation-1 to Section 43(5) of the Act cumulatively so as to treat such currency derivative transaction as eligible transaction for the purposes of exclusion from the ambit of speculative transaction defined under Section 43(5) of the Act. This being the position, the loss arising from derivative transaction has been incorrectly disallowed by the Assessing Officer for being set off and carried forward against non-speculative business income in accordance with law and wrongly confirmed by the CIT(A). The action of the CIT(A) is accordingly set aside and the Assessing Officer is directed to restore the claim of the assessee to be non- speculative in nature. Printed from counselvise.com Page | 7 ITA No.947/KOL/2025 Ridhi Vincom Pvt. Ltd.; Ay 2013-14 06. Similarly, in case of IVF Advisors Private Limited Vs. ACIT in Ita No. 4798/MUM/2012 for A.Y. 2009-10 vide order dated 13.02.2015, the co-ordinate bench has held as under: - “7.4 Considering the relevant provisions of the relevant Acts, discussed herein above in the light of Hon’ble Madras High Court and the answers given to frequently asked questions by the SEBI and the incorporation of exchange traded currency derivative from August, 2008, there remain no iota of doubt that the transaction of the assessee cannot be treated as speculative transaction. We have also gone through the copies of the contract notes incorporated in the paper book filed before us. A perusal of the contract note shows that the assessee has either entered into call option or put option and on the settlement day the transaction has been settled by delivery, either the assessee has paid US dollar on the settlement day or has taken delivery of US dollar. 7.5 To sum up, the derivatives include foreign currency and call option/ put option, are transactions of derivative markets and cannot be termed as speculative in nature. Considering the totality of the facts and in the light of the judicial discussion herein above, we have no hesitation in setting aside the order of Ld. CIT(A). Appeal filed by the assessee is accordingly allowed.” 07. Therefore, considering the facts of the assessee’s case in the light of aforesaid decisions, we are of the view that loss incurred by the assessee in trading in commodity on foreign currency is not speculative loss. Accordingly, we allow the ground no.1 by setting aside the order of the learned CIT (A). 08. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 15.10.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 15.10.2025 Sudip Sarkar, Sr.PS Printed from counselvise.com Page | 8 ITA No.947/KOL/2025 Ridhi Vincom Pvt. Ltd.; Ay 2013-14 Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "