Knitwear exporters, who reportedly suffered Rs. 300 crore loss after being persuaded by banks to purchase ‘exotic forex derivative products’ to hedge against rupee-dollar fluctuations, are now looking for certain Income Tax rules amendments to set off the losses against the business income.
“We are placing our hopes on the new Union Government for amendments in the Section 43(5) of the Income Tax Act that has been disallowing any set off of derivative losses against the regular export income.
“The exporters here purchased the products from one nationalised bank and four private sector new generation banks only because of the heavy advertisements given by those financial institutions for hedging the currency fluctuations experienced in 2007-08 fiscal,” Raja Shanmugam, exporter and president of Forex Derivatives Consumer Forum (FDCF), formed of aggrieved exporters, told The Hindu , after meeting the officials in Finance Ministry.
It should be noted that Central Bureau of Investigation had even commenced an investigation into the overall forex derivative scam following an Orissa High Court order based on a Public Interest Litigation filed by Pravajan Patra of Odisha, in which the Tirupur-based exporters too gave their versions to the country’s premier investigation agency.
Though the Fixed Income Money Market Derivatives Association comprising bankers obtained a stay on the investigation from Supreme Court, the exporters were now trying to vacate the stay.
Mr. Patra’s petition was mainly on the concept that the banks sold unsuitable derivative products against RBI norms.
Even though investigation was stalled, the main consolation for the exporters in the issue came when the RBI slapped fines on 19 banks for selling derivatives to exporters who did not understand them.
S. Dhananjayan, consultant to the FDCF, said that the rationale behind asking for IT amendments to set off the losses against business income was that the decision to opt for exotic derivative products had been taken to more effectively hedge the currency fluctuations and done only on the advice of the banks.
“So, it is a pure business decision from the point of view of the exporters though IT officials till now were of the stance it has been speculative of nature,” he added.
