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Treatment of heging loss

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Devanshu Motwani

student

31 Points Posted on 29 November 2014

A client who is dealer in commodities such as cottonseed cake, soyabean, etc, the dealer trades in physical delivery normal business and also enters into contract of commodities on MCX exchange but there is no actual delivery and the contract is settled otherwise than delivery. If there is loss from MCX transactions and profit from nornal trading whhether Loss from MCX transactions would be treated as speculation loss or would be treated along with business. According to dealer the MCX transaction are in the course of business.

So profit/ loss on the same would be treated as speculative income or normal income or any other treatment for income tax purpose?

Replies (1)

Gagan Deep Singh

CHARTERED ACCOUNTANT

1039 Points Posted on 29 November 2014

Derivative transaction in commodity will be considered in normal course of business. As per amendment made in Finance Act 2013 eligible transactions in respect of commodity derivatives carried on recognised stock exchange does not fall under speculative transaction u/s 43(5).

Transaction in this case falls under eligible transaction. Therefore loss from commodity derivatives will be business loss & eligible for set off against other business losses u/s 72.