The assessee as a matter of commercial expediency because of unexpected fluctuations in foreign exchange currency was compelled to settle the derivative loss during the year under consideration and claimed the loss as business expenditure. The intention of the assessee was to hedge the transaction for securing business loss. Such transactions were recognized as per law in India. Therefore, the transaction entered into by the assessee was not speculative transaction. It was incidental to the assessee’s business and hence allowable. (AY. 2011-12).
Oswal Woollen Mills Ltd. v. Add. CIT (2022)98 ITR 521 (Chd) (Trib)
S. 43(5) : Speculative transaction-Raising funds through foreign currency convertible bonds for manufacturing-Entering into hedging transaction to cover expected loss from fluctuation of foreign currency-Commercial expediency-Transaction incidental to business-Loss allowable. [S. 37(1)]