I.  Today's Headlines:    

II.  Direct Tax Case laws:

1.  Dr. Rahul Doctor Vs. ACIT, ITA No. 827/Mum/2012, Date of Pronouncement: 12.06.2013, ITAT - Mumbai

Whether reshuffling of portfolio in a short period is considered as an activity of trading where the intention was to reduce the risk of loss of capital.

The assessee’s repetitive transactions in shares cannot ipso-facto make him a trader. It is an accepted fact and practice that in order to reduce the risk of loss of capital/income, investor may diversify the investment. There may be a case of reshuffling of portfolio by selling of some scrips and buying of some scrips to mitigate the loss of capital or income. Therefore the reshuffling in a short period is not necessarily to be taken as an activity of trading when the intention was to reduce the risk of loss of capital.

(Please click here for judgment)

2.  CIT (A) Vs. Panchmahal Steel Ltd., Tax Appeal No. 131 of 2013, Date : 28.03.2013, High Court of Gujarat at Ahmedabad

Section 43(5) of the Income Tax act, 1961

Whether disallowance made on account of loss on cancellation of forward contract claimed by a manufacturer/exporter is a speculative loss.

Held: No

The assessee, an exporter has entered into forward contracts with Bankers to hedge against any loss arising out of fluctuation in foreign currency and suffered a loss on account of cancellation of such contracts. The AO and CIT (A) disallowed the loss holding it as speculative in nature and therefore covered u/s 43(5) of the Act. On appeal, the Tribunal upheld the assessee’s claim.

The Hon’ble high court held that since the assessee was an exporter and not a dealer in foreign exchange. The assessee entered into forward contracts with banks for the purpose of hedging the loss due to fluctuation in foreign exchange while implementing the export contracts. Therefore, forward contracts were booked only as incidental to regular course of business. Thus, the loss on account of foreign currency forward contracts by an exporter is “hedging loss” and not a “speculation loss”.

Case followed: CIT vs. Friends and Friends Shipping Pvt Ltd, 251 of 2010, High Court of Gujarat at Ahmedabad

(Please click here for judgment)

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