ACIT, Circle-3, Kolkata, Kolkata V. M/s. Cosmic Ferro Alloys Ltd, Kolkata

ITA 1064/KOL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4749 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 25-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 16-07-2012
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Assessee Lawyers: B C JAIN
• Keywords: Opportunity of being heard; Speculation loss
• Section: 143(3); 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES 'B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI M.BALAGANESH, ACCOUNTANT MEMBER ITA NO. 1064/KOL/2012, (A. Y : 2009-10) THE ACIT, CIR-3, 8/2, ESPLANANDE EAST, DWARLI HOUSE, 2ND FLOOR, KOLKATA - 69 . APPELLANT VS. M/S.COSMOMIC FERRO ALLOYS LTD., 4TH FLOOR, SIKIM COMMERCE HOUSE, 4/1 MIDDLETONE STREET, KOLKATA 400002 PAN:AACCC 1730C . RESPONDENT APPELLANT BY : SHRI NIRAJ KUMAR RESPONDENT BY : SHRI B.C.JAIN DATE OF HEARING : 25/04/2016 DATE OF PRONOUNCEMENT : 31/05/2016 ORDER PER MAHAVIR SINGH, J.M: THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF CIT(A)-I, KOLKATA IN APPEAL NO. 930/CIT(A)-1/C-3/11-12 DATED 03/04/2012. ASSESSMENT WAS FRAMED BY ITO, CIR-3, KOLKATA UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT 'THE ACT') FOR THE ASSESSMENT YEAR 2009-10 VIDE HIS ORDER DATED 27/12/2011. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AG AINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT 2 ITA NO.1064/KOL/2012, (A.Y: 2009-10) OF LOSS CLAIMED ON FOREIGN EXCHANGE FLUCTUATION HOL DING THE SAME AS SPECULATIVE IN NATURE. FOR THIS REVENUE HAS RAISED FOLLOWING GROUNDS NO. 1 & 2:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A)ERRED IN DELETING THE ADDITION OF RS. 6,93,75 ,261/-MADE BY THE AO ON ACCOUNT OF 'FOREIGN EXCHANGE FLUCTUATION LOSS' WITHOUT APPRECIATING THE FACT THAT SUCH LOSSES ARE NOT ALLO WABLE BEING NOTIONAL AND SPECULATIVE IN NATURE AND THEREFORE, T HE ORDER OF THE A O. BE UPHELD. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.6,93,75,261/-M ADE BY THE A.0 ON ACCOUNT OF 'FOREIGN EXCHANGE FLUCTUATION LOSS' W ITHOUT APPRECIATING THE FACT THAT SUCH LOSSES ARE NOT ALLO WABLE AS PER THE PROVISION OF SECTION 43(5)(D) OF THE I. T. ACT, 1961 AND ALSO IN VIEW OF THE CBDT INSTRUCTION NO. 03/2010 DATED 2 3.03.2010. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASS ESSING OFFICER HAS DISALLOWED LOSS ON ACCOUNT OF REVALUATION OF FOREIG N EXCHANGE BY TREATING THE LOSS AS NOTIONAL LOSS AMOUNTING TO RS. 1,76,53,946/-. SIMILARLY, THE ASSESSING OFFICER HAS ALSO DISALLOWE D LOSS DUE TO CANCELLATION OF FORWARD CONTRACT BY TREATING THE TR ANSACTIONS AS SPECULATIVE TRANSACTION UNDER SECTION 43(5) OF THE ACT AMOUNTING TO RS.5,17,21,315/-. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER:- 'AFTER CAREFUL CONSIDERATION OF THE ASSESSMENT ORDE R AND THE WRITTEN SUBMISSION MADE BY THE ASSESSEE, IT IS NOTI CED THAT THE ASSESSING OFFICER MADE ADDITION OF RS.6,93,75,2 61/- ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACTS AND RE VALUATION OF TERM LOAN AS ON 21.03.2009 UNDER SECTION 43(5)(D } OF THE I. T. ACT, 1961.THE ASSESSEE AS AN EXPORTER WITH TH E TURNOVER OF RS.194 CRORE AND WAS CONSISTENTLY FOLLOWING ACCO UNTING STANDARD-11 IN ACCOUNTING OF FOREIGN CURRENCY TRANS ACTIONS IN ACCORDANCE WITH THE NORMS OF RBI. IN EARLIER YEAR, THE COMPANY HAS SHOWN A PROFIT OF RS.2.32 CRORE WHICH W AS DULY CREDITED IN PROFIT & LOSS A/C IN LAST YEAR. THE A/R FURTHER RELIED UPON SUPREME COURT CASE CIT VS. WOODWARD GOV ERNER 3 ITA NO.1064/KOL/2012, (A.Y: 2009-10) INDIA PVT. LTD. (179 TAXMAN 326) (SC) AND RULE 115( 1) EXPLANATION 2{C} OF THE I. T. RULES, 1962 IN SUPPOR T OF ITS CLAIM. KEEPING IN VIEW THESE FACTS AND CIRCUMSTANCE S, GROUND NO.2 IS ALLOWED.' AGGRIEVED, NOW REVENUE IS IN SECOND APPEAL BEFORE T HE TRIBUNAL. 3. AT THE OUTSET, LD. SR. D.R STATED THAT THE ASSE SSEE IS UNABLE TO PROVE THAT THE LOSS CLAIMED BY IT ON REVALUATION OF TERM LOAN OF US DOLLAR TO THE TUNE OF RS.L,76,53,946/- AND FURTHER LOSS ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACT TO THE TUNE OF RS. 5,17,21,315/- IS TO BE TREATED AS SPECULATIVE LOSS IN TERM OF SECTION 4 3(5)(D) OF THE ACT AND NOT BUSINESS LOSS. LD. SR. D,R STATED THAT ASSE SSEE ONLY CLAIMED THAT THE LOSS SUFFERED ON FLUCTUATION, HEDGING AGAI NST REALIZABLE OR PAYABLE IS SPECULATIVE IN NATURE BUT FAILED TO ADDU CE HOW THESE LOSSES ARE ON ACCOUNT OF BUSINESS OF THE ASSESSEE I.E. IMP ORT OF BASIC RAW MATERIAL I.E. FERRO ALLOYS AND ALLIED PRODUCTS. ON THIS LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO ASSESSEE'S P APER BOOK, WHEREIN COMPLETE DETAILS ABSTRACT FROM SALES ACCOUNT SHOWIN G HIGHER SALES REALIZATION FROM THE PARTIES, ABSTRACT FROM BANK ST ATEMENT SHOWING LOSS OF FUNDS DUE TO CANCELLATION OF FOREIGN CURREN CY, DETAILS OF LOSS ON FCNR LOANS DUE TO CHANGE IN RUPEE VALUE, COPIES OF SANCTION LETTER OF FCNR LOANS WAS PROVIDED AT PAGES TO 2 TO 7. WHEN A QUERY WAS PUT TO THE LD. COUNSEL FOR THE ASSESSEE WHETHER TRANSACTIO N-WISE CO-RELATION OF LOSS AGAINST HEDGING OF PARTICULAR TRANSACTION I S CO-RELATED OR NOT LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT IT WAS NOT DONE AS ENTIRE INFORMATION WAS AVAILABLE WITH THE ASSESSING OFFICER. WE FIND THAT NEITHER THE ASSESSING OFFICER NOR THE CIT(A) H AS CARRIED OUT THE EXERCISE OF CO-RELATION OF HEDGING TRANSACTION WITH EACH CONTRACT OF IMPORT AND LOSS SUFFERED ON THE SAME. HOWEVER, LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE IS FOLLOWING THIS SYSTEM OF 4 ITA NO.1064/KOL/2012, (A.Y: 2009-10) ACCOUNTING SINCE BEGINNING AND WHICH IS ALLOWED BY REVENUE SINCE LONG. FOR THE SAKE OF CONSISTENCY, LD. COUNSEL FOR THE AS SESSEE STATED THAT THIS LOSS SHOULD BE ALLOWED. 4. WE HAVE CONSIDERED THE PLEA OF BOTH SIDES AND N OTICED THAT PRINCIPALLY THE TRANSACTION OF HEDGING AND FOREIGN EXCHANGE VARIATION LOSS IS TO BE ALLOWED TO THE ASSESSEE. THE ASSESSEE HAS TO CO-RELATE THE TRANSACTION OF HEDGING AND FOREIGN EXCHANGE VAR IATION WITH THAT OF IMPORT TRANSACTION, WHICH WERE CANCELLED AND LOSS I NCURRED ON THE SAME IS NOT EXAMINED BY LOWER AUTHORITIES. IN TERM OF TH E ABOVE, WE RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER AN D ALLOW OPPORTUNITY TO THE ASSESSEE AS WELL AS REVENUE TO CO-RELATE THE TRANSACTION OF HEDGING WITH IMPORTS WHERE LOSS HAS OCCURRED TO THE ASSESSEE. IN TERM OF THE ABOVE, THE ASSESSING OFFICER WILL DECIDE THE ISSUE AFRESH AFTER ALLOWING REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. THE MATTER IS REMANDED BACK TO THE FILE OF ASSESSING OF FICER. 5. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 31 /05/ 20 16. SD/- SD/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER KOLKATA, DATED 31/05/2016 VM, SR. PS 5 ITA NO.1064/KOL/2012, (A.Y: 2009-10) COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE CIT(A)- 4. CIT 5. DR, ITAT, KOLKATA 6. GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT. REGISTRAR ITAT, KOLKATA.