The Income Tax Appellate Tribunal (ITAT) has ruled that the loss incurred by any assessee because of any fluctuations in the currency rates will be categorized as a Capital Loss under the Income Tax Act, 1961 
Get to know complete guide of TDS provisions under income tax act 1961 at here. Also, we include several topics as TDS returns, TDS due dates. The tribunal said that the loss incurred during the conversion of US Dollars into Swiss Franc is to be considered a capital loss. M/s. Acalmar Oils & Fats Ltd., the appellant, had made a deal for purchasing crude palm oil from Acalpo Wilmar Pte Ltd. for a total of $ 3,674,476. The ICICI Bank had issued a buyer’s credit for a total of Swiss Franc 80,00,000 for the order. The company incurred a total loss of Rs. 8.55 Crores foreign exchange because of a sudden fall in the exchange rates of US Dollars V/S Swiss Currency.
The appellant argued that the loss incurred by them because of the currency rate changes can not be considered as a speculative loss but the assessment officer countered the argument made by the appellant saying that the Reserve Bank of India (RBI) does not expect the companies to indulge in such speculative transactions and thus the same can not be considered as a business loss.
The AO also argued that the rate of depreciation of Indian Rupee against the US Dollar is much more than that compared to Swiss Franc so the conversion of the currency is nothing but a speculative transaction and therefore no purchase obligation is generated as per Swiss Franc. The AO countered that the profit or loss is faced by a party under any transaction after the execution of the contract and hence the loss incurred by the appellate is a type of contingent loss faced by them in the market-to-market transaction.
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The Vice President of the Income Tax Appellate Tribunal, Mr. Rajpal Yadav, was the head of the bench and was associated with an accountant Mr. Amarjeet Singh. The members of the bench found that the AO had rejected the claim for the deduction of the loss incurred by the appellate because of the change in the foreign exchange rate was covered under the foreign exchange rate policy of ICICI Bank which provides provisions related to the procurement of raw material from other countries upon the accounting of the outstanding hedging contract at the end of the year based on the market to market. The bench dismissed the application of the department and ruled that all the losses incurred by the companies because of any fluctuations in the foreign exchange rates should be categorized as a capital loss as is the case in the application. Hence, the conversion of US Dollars into Swiss Franc is a type of capital loss.
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