CBDT Instruction on Loss of Trading in Foreign Exchange Derivatives not applicable on Forward Contracts entered not as Trading per se: Delhi HC [Read Order]

The Delhi High Court held that CBDT Instruction on loss of trading in foreign exchange derivatives is not applicable on forward contracts entered not as trading per se.

The petitioner, the commissioner of Income Tax challenged the Order dated 14th October 2019 passed by the Income Tax Appellate Tribunal (ITAT) in favour of the assessee, Emmsons International Ltd.

Counsel for the Appellant states that the ITAT has erred in deleting the Notional Forex Loss disallowed by the Assessing Officer by relying upon the decision of the Supreme Court in the case of CIT Vs. Woodward Governor India Ltd., which was rendered in respect of actual transactions in contradiction to notional transactions in the case of Assessee.

Further submitted that the ITAT has erroneously held that the CBDT Circular/Instruction is contrary to the decision of the Supreme Court in the case of CIT Vs. Woodward Governor India Ltd (supra).

On the finding of the ITAT “that the CBDT Circular No.3/2010 dated 23rd March 2010 is contrary to the judgment of the Supreme Court in Oil and Natural Gas Corporation Ltd., Dehradun through Managing Director Vs. The Commissioner of Income Tax, Dehradun (supra) and CIT Vs. Woodward Governor India Ltd (supra),” the HC Court viewed that the same was not called for.

The said CBDT Instruction has been issued in respect of loss on account of trading in foreign exchange derivatives. The assessee had entered into derivative contracts to hedge its exchange risk in respect of export proceeds receivable by it in foreign exchange.

The HC bench Justice Manmohan and Justice Manmeet Pritam Singh Arora have held that “forward contracts entered into by the assessee were not by way of trading per se in foreign exchange derivatives. Consequently, CBDT Circular No.3/2010 dated 23rd March 2010 has no application to the facts of the present case.”

The Delhi HC dismissed the appeal as there was no substantial question of law.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates