DCIT, CIR-10(1), KOLKATA, Kolkata V. M/s Arena Machineries Ltd., Kolkata

ITA 1103/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1413 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 14-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: S K AGARWALA
• Keywords: Speculation loss
• Section: 143(3); 43(5); 10B

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1103 / KOL / 2015 ASSESSMENT YEAR :2007-08 DCIT, CIRCLE-10(1), P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKTA-69 V/S . M/S ARENA MACHINES LTD., BIKANEER BUILDING, 8B LAL BAZAR STREET, KOLKATA-001 [ PAN NO.AAECA 4229 N ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SAURABH KUMAR, ADDL. CIT-DR /BY RESPONDENT SHRI S.K. AGARWALA, FCA /DATE OF HEARING 13-09-2017 !' /DATE OF PRONOUNCEMENT 22-09-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-4, KOLKATA DAT ED 30.12.2009. ASSESSMENT WAS FRAMED BY ITO WARD-10(2), KOLKATA U/ S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 30.12.2009 FOR ASSESSMENT YEAR 2007-08. GROUNDS RAI SED BY REVENUE PER ITS APPEAL REPRODUCED BELOW:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT BY ALLOWING FOREIGN EXCHANGE FLUCTUATION LOSS AS BUSINESS LOSS WHEREAS AO TREATED THE SAME AS SPECULATION LOSS. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT AS SECTION 10B CLEARLY SAYS THAT PROFIT OF THE 100% EXPORT ORI ENTED UNIT SHALL BE ALLOWED TO BE DEDUCTED FROM THE TOTAL INCOME OF THE ASSESSEE. ITA NO.1103/KOL/2015 A.Y. 2007-08 CIT, CIR-10(1) KOL. VS. M/S ARENA MAC HIERIES LTD. PA GE 2 3. THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELE TE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. SHRI SAURABH KUMAR, LD. DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE AND SHRI S.K. AGARWAL, LD. AUTHORIZED RE PRESENTATIVE APPEARED ON BEHALF OF ASSESSEE. 2. FIRST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER FOR 1,04,82,800/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A LIMI TED COMPANY AND ENGAGED IN TOOLS MANUFACTURING, EXPORT OF MACHINERIES AND T RADING IN TEXTILES. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAS CL AIMED A LOSS OF 1,04,82,800/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCT UATION. HOWEVER, AO TREATED THE SAME AS SPECULATION LOSS IN ACCORDANCE WITH THE EXPLANATION TO SECTION 73 OF THE ACT. THUS, THE AO ADDED THE IMPUG NED LOSS TO THE TOTAL INCOME OF ASSESSEE ON THE GROUND THAT IT CANNOT BE SET OFF FROM THE NON- SPECULATION BUSINESS. THEREFORE, THE AO ALLOWED THE SPECULATION LOSS TO BE CARRIED FORWARD AND ADDED THE SPECULATION LOSS TO T HE TOTAL INCOME OF ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT IT RECEIV ED A CONTRACT FOR THE EXPORT OF MACHINERIES. ACCORDINGLY, IT HAS TAKEN A FORWARD CONTRACT AGAINST THE EXPORT OF MACHINERIES BUT THE EXPORT CONTRACT WAS NOT EXEC UTED. THEREFORE THE FORWARD CONTRACT WAS CANCELLED. AS A RESULT OF CANC ELLATION OF FORWARD CONTRACT ASSESSEE HAS INCURRED LOSS OF 1,04,82,800/- ONLY. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- 6.2.1 FIRST POINT IS THAT THE FOREX LOSS WAS IN CO NNECTION WITH EXPORT, I.E., THE AFFAIRS OF THE EPOOU UNIT. THEREFORE THE LOSS S HOULD HAVE BEEN BOOKED IN THE P & L A/C OF THE EOU UNIT, AND NOT IN THE CONSOLIDATED P & L A/C. THE AO IN THE ASSESSMENT ORDER AT PARA 4(D ) HAS POINTED OUT THIS ASPECT. I CONCUR WITH THE AO. 6.2.2 NOW AS TO THE TREATMENT THEEOF, THE FORWARD C ONTRACT WAS CONNECTED WITH EXPORT ORDER. THUS, AS POINTED OUT B Y THE LD. AR, THIS ITA NO.1103/KOL/2015 A.Y. 2007-08 CIT, CIR-10(1) KOL. VS. M/S ARENA MAC HIERIES LTD. PA GE 3 INSTANCE IS COVERED BY EXCEPTION IN CLAUSE (A) TO S ECTION 43(5) WHICH READS: (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (B) 6.2.3 THUS, I HOLD THAT THE LOSS IS A BUSINESS LOSS ; HOWEVER, BEING CONNECTED TO THE EXPORTS IT THEREFORE MUST FIRSTLY BE ACCOUNTED FOR IN THE P & L A/C OF THE EOU UNIT, AND THEN MERGED IN THE C ONSOLIDATED P & L A/C. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 5. BEFORE US LD. DR FOR THE REVENUE HEAVILY RELIED ON THE ORDER OF AO. ON THE OTHER HAND, LD. AR FOR THE ASSESSEE FILED PAPER BOOK WHICH IS RUNNING PAGES 1 TO 100 AND DREW OUR ATTENTION ON THE EXPORT ORDER RECEIVED BY ASSESSEE WHICH IS PLACED ON PAGES 19 TO 64 OF THE P APER BOOK. HE FURTHER SUBMITTED THAT ASSESSEE HAS TAKEN A FORWARD CONTRAC T FROM UCO BANK FOR 50 LAKH US$ TO HEDGE THE EXPORT ORDER. THE COPY OF THE SAID FORWARD CONTRACT IS ENCLOSED ON PAGE 55 OF THE PAPER BOOK. HOWEVER, SUB SEQUENTLY, FORWARD CONTRACT WAS CANCELLED DUE TO THE CANCELLATION OF E XPORT ORDER. THUS THE ASSESSEE HAS INCURRED A LOSS OF 1,04,82,800/- ON ACCOUNT OF CANCELLATION OF SAID FORWARD CONTRACT. THE COPY ISSUED BY UCO BANK FOR THE CANCELLATION OF SAID FORWARD CONTRACT IS PLACED ON PAGE 66 OF THE P APER BOOK. HE RELIED ON THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS OF THE CASE ARE NOT IN DISPUTE THEREFORE WE ARE NOT INCLINED TO REPEAT THE SAME FOR THE SAKE OF BREVITY. IN THE INSTANT CASE, ASSESSEE TOOK A FORWARD CONTRACT AGAINST THE EXPORT OF GOODS AS EVIDENT FROM THE COPY OF THE CONTRACT WHICH IS PLACED ON PA GES 19 TO 64 OF THE PAPER BOOK. THE RELEVANT EXTRACT OF THE CONTRACT COPY IS REPRODUCED BELOW:- THE DIRECTOR ARENA MACHINERIES LIMITED 103D/1 BLOCK F, NEW ALIPORE KOLKATA, INDIA ITA NO.1103/KOL/2015 A.Y. 2007-08 CIT, CIR-10(1) KOL. VS. M/S ARENA MAC HIERIES LTD. PA GE 4 PIN 700053 DATED 28 TH APRIL 2005 SUB ; SUPPLY OF PILFER PROOF CLOSURE MANUFACTURING LINE DEAR, SIR, PLEASE REFER TO THE DISCUSSION THE UNDERSIGNED HAVE BEEN HAVING WITH YOU REGARDING THE SCOPE OF SUPPLY OF COMPLETE LINE OF PILFER PROO F CLOSURE. WE ARE PLEASED TO INFORM YOU THAT WE HAVE DECIDED TO PURCHASE THE SAME FROM YOUR END. PLEASE SUPPLY THE COMPLETE LINE OF EQUIPMENTS FOR P RODUCTION OF CAPS OF FOLLOWING SIZES: 28 X 15 MM 30 X 44 MM 30 X 60 MM COMPLETE LINE FOR SIDE PRINTING (METAL CAP DECORATI VE LINE) FOR THE CAP SIZE 30 X 44 MM AND 30 X 60 MM THE PRICE AGREED UPTO IS US$ 6,500,000 ON CIF ALMAT Y, KAZAKHSTAN BASIS. THE PRICE ALSO INCLUDES SUPERVISION OF INSTALLATION, ERECTION , COMMISSIONING AND TRAINING OF PERSONNEL. PLEASE FIND HEREWITH ENCLOSED THE LIST OF ALL THE E QUIPMENTS FOR INDIVIDUAL LINES TO BE PROVIDED TO US. PLEASE ALSO INTIMATE US THE DELIVER Y SCHEDULE ETC. THANKING YOU FOR TOO ARMANOV AFTER GONE THROUGH THE COPY OF SAID CONTRACT THERE REMAINS NO DOUBT THAT THE ASSESSEE HAS RECEIVED A CONTRACT FROM CIF ALMATY, K AZAKHSTAN FOR THE EXPORT OF GOODS. ACCORDINGLY, FORWARD CONTRACT WAS TAKEN BY ASSESSEE AGAINST THE EXPORT ORDER FROM THE UCO BANK. HOWEVER, THE FORWARD CONTRACT WA S SUBSEQUENTLY CANCELLED AS EVIDENT FROM THE LETTER WRITTEN BY UCO BANK. THE RELEVANT EXTRACT OF THE LETTER IS REPRODUCED BELOW:- TO M/S ARENA MACHINERIES LIMITED, 103D/1, BLOCK F, NEW ALIPORE, KOLKATA 700 053. DEAR SIRS, SUB : CANCELLATION OF FORWARD CONTRACT NO.MFP/050 407/ 2005 OF OUR INTERNATIO NAL BANKING BR., KOLKATA AT YOUR REQUEST, WE REQUESTED OUR INTERNATIONAL BAN KING BRANCH TO BOOK FORWARD CONTRACT AGAINST PAYMENT OF YOUR IMPORT BILL. OUR I NTERNATIONAL BANKING BRANCH VIDE THEIR LETTER NO IBB/EX./2006 DTD. 11 TH AUGUST, 2006, HAS ADVISED US THAT THEY HAVE DEBITED OUR A/C. FOR RS.1,04,82,800/- BEING THE CHA RGES FOR CANCELLATION OF FORWARD CONTRACT NO.MFP/050407/2005 BOOKED N THE NAME OF OU R COMPANY. AS PER TERMS OF CONTRACT, THE CANCELLATION CHARGE IS PAYABLE BY YOU . AS SUCH, WE WOULD REQUEST YOU TO REMIT THE FUND IMM EDIATELY FOR OUR OUTSTANDING ENTRY WITHOUT FURTHER LOSS OF TIME. IF WE DO NOT RE CEIVE ANY RESPONSE FROM YOUR END WITHIN SEVEN DAYS FROM THE DATE OF RECEIPT OF THIS LETTER, WE SHALL BE CONSTRAINED TO DEBIT YOURE A/C. WITHOUT SHOWING ANY REASON WHATSO EVER. ITA NO.1103/KOL/2015 A.Y. 2007-08 CIT, CIR-10(1) KOL. VS. M/S ARENA MAC HIERIES LTD. PA GE 5 IN VIEW OF ABOVE, IT CAN BE CONCLUDED THAT IMPUGNED LOSS WAS INCURRED BY ASSESSEE IN RELATION TO ITS BUSINESS ACTIVITY TO SA FEGUARD THE LOSS AND THUS IT CANNOT BE HELD SPECULATION LOSS. IN HOLDING SO, WE FIND GUIDANCE AND SUPPORT FROM THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN TH E CASE CIT VS WOODWARD GOVERNOR INDIA PRIVATE LIMITED [2007] 294 ITR 451 (DEL) WHERE IT WAS HELD THAT:- WE AFFIRM THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL IN OIL AND NATURAL GAS CORPORATION LTD. V. DEPUTY CIT (ASSTT.) [2003] 261 ITR (AT) 1 (DELHI) WHICH RIGHTLY FOLLOWS THE SETTLED POSITION AS EXPLAINED IN THE JU DGMENT OF THE HON'BLE SUPREME COURT WHICH WE HAVE REFERRED TO. WE, THEREFORE, REJ ECT THE SUBMISSION OF THE APPELLANT IN THESE APPEALS THAT THE INCREASE IN LIA BILITY ON ACCOUNT OF THE FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE REMAINING ON THE LAST DAY OF THE FINANCIAL YEAR IS NOTIONAL OR CONTINGENT AND, THEREFORE, CANNOT BE ALLOWED AS A DEDUCTION. BESIDES THE ABOVE, WE ALSO FIND THAT A CONTRACT WHI CH IS TAKEN AGAINST THE RAW MATERIALS/ MERCHANDISE CANNOT BE HELD AS SPECULATIV E TRANSACTIONS IN ACCORDANCE WITH THE PROVISION OF CLAUSE (A) OF SECT ION 43(5) OF THE ACT WHICH IS READS AS UNDER:- DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOME FRO M PROFITS AND GAINS OF BUSINESS OR PROFESSION. 43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLESS T HE CONTEXT OTHERWISE REQUIRES- (1) (2) (3) (4) (5). SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING ST OCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPTS: (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERC HANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATION S IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR A PLAIN READING OF THE SAID SECTION MAKES IT CLEAR THAT THE IMPUGNED LOSS CANNOT BE REGARDED AS SPECULATION. LD. DR HAS NOT B ROUGHT ANYTHING CONTRARY TO THE DECISION OF LD. CIT(A). IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). WE HOLD ACCOR DINGLY. THIS GROUND OF REVENUES APPEAL IS DISMISSED. ITA NO.1103/KOL/2015 A.Y. 2007-08 CIT, CIR-10(1) KOL. VS. M/S ARENA MAC HIERIES LTD. PA GE 6 7. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS T HAT LD. CIT(A) ERRED IN GRANTING THE RELIEF TO ASSESSEE U/S. 10B OF THE ACT . 8. AT THE OUTSET IT WAS OBSERVED THAT REVENUE HAS N OT REPORTED ANY INFIRMITY IN ITS GROUND NO. 2 AS DISCUSSED ABOVE. O N QUESTION TO LD. DR ABOUT THE GRIEVANCE OF THE REVENUE, HE ALSO FAILED TO BRI NG THE EXACT ISSUE RAISED AGAINST THE ORDER OF LD. CIT(A). HENCE, WE HAVE NO ALTERNATE EXCEPT TO CONFIRM THE ORDER OF LD. CIT(A). THUS WE TREAT THE GROUND R AISED BY REVENUE AS INFRUCTUOUS. HENCE, THIS GROUND OF REVENUE IS DISMI SSED AS INFRUCTUOUS. 9. LAST GROUND OF REVENUES APPEAL IS GENERAL IN NA TURE AND DOES NOT CALL FOR ANY ADJUDICATION. 10. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 22/ 10/2017 SD/- SD/- ($%&) ( %&) (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S (%)*- 22 / 09 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIRCLE-10(1), P-7, CHOWRINGHEE SQU ARE, 3 RD FLOOR, KOLKATA-69 2. /RESPONDENT-M/S ARENA MACHINERIES LTD.,BIKANEER BUI LDING,8BLALBAZAR ST. KOL-001 3.)2)3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5.789$$3 , 3 , / DR, ITAT, KOLKATA 6.9;<=> / GUARD FILE. BY ORDER/ %, /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3 ,