Messung Systems Private Ltd., Pune V. Pr. Commissioner of Income-tax : 6,

ITA 1166/PUN/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9570 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-12-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 31-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Assessee Lawyers: P D KUDWA
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO , AM AND SHRI VIKAS AWASTHY, JM . / I TA NO. 1166 /PUN/201 6 / ASSESSMENT YEAR : 20 1 1 - 1 2 MESSUNG SYSTEMS PRIVATE LTD., LUNKAD SKYVISTA, SR. NO.230/A/32, VIMAN NAGAR, PUNE. PAN : AABCM1832E ....... / APPELLANT / V/S. PR. CIT - 6, PUNE / RESPONDENT A SSESSEE BY : SHRI NIKHIL PATHAK & SHRI P. D. KUDWA REVENUE BY : SHRI S. B. PRASAD, CIT / DATE OF HEARING : 03 . 1 2 .2018 / DATE OF PRONOUNCEMENT : 17 . 12 .2018 / ORDER PER D. KARUNAKARA RAO , AM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF PR. CIT - 6, PUNE DATED 22 .0 3 .2016 PASSED U/S 263 OF THE ACT. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE EXTRACTED HEREUNDER : - 1. THE HONBLE PR. CIT ERRED IN HOLDING THAT THE AO FAILED TO MAKE NECESSARY ENQUIRY/ VERIFICATION WHILE ALLOWING THE ASSESSEES CLAIM OF LOSS ON FORWARD CONTRACT OF RS.33,58,118/ - IN THE ASSESSMENT ORDER DATED 28/03/2014 PASSED U/S. 143(3) OF THE IT ACT, 1961; WHEN FULL PARTICULARS OF THE TRANSACTION WERE ON RECORD AND PROPERLY EXPLAINED. 2. THE HON. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAD NO FORWARD CONTRACTS OUTSTANDING ON 31/03/2011 AND THERE WERE NO NOTIONAL LOSSES IN RESPECT THEREOF CLAIMED IN YE 31/03/2011. 3. THE HON. P R. CIT FAILED TO APPRECIATE THAT INSTRUCTION NO.03/2010 DATED 23/03/2010 PROVIDED GUIDELINES WITH REGARD TO MARKED TO MARKET TRANSACTIONS (SO THAT NOTIONAL LOSSES OF CONTINGENT NATURE COULD NOT BE SET OFF AGAINST TAXABLE INCOME) AND IN RESPECT OF SPECULATI VE TRANSACTIONS 2 ITA NO. 1166 /PUN/201 6 WHEREAS IN THE ASSESSEES CASE THERE WERE REAL TRANSACTIONS WHERE NO NOTIONAL GAIN OR LOSS WAS CLAIMED. 4. THE HON. PR. CIT ERRED IN DIRECTING THE AO TO REFRAME THE ASSESSMENT ORDER BY SETTING ASIDE THE ORDER OF THE AO WITHOUT POINTING OUT HOW THE ORDER OF ASSESSMENT WAS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. THE ORDER OF THE PR. CIT UNDER SEC. 263 OF THE IT ACT, 1961 IS NOT TENABLE IN LAW. 6. THE APPELLANT PLEADS THAT HIS APPEAL BE ALLOWED AND CRAVES LEAVE TO ADD TO, AL TER, AMEND, MODIFY OR WITHDRAW ANY OR ALL GROUNDS OF APPEAL. 3 . BRIEFLY STATED THE RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF PROGRAMMABLE LOGIC CONTROLLERS (PLC) AND PARTS THEREOF. THE ASSESSEE FILED THE RETURN O F INCOME ON 30.09.2011 DECLARING TOTAL INCOME OF RS.15,11,04,121/ - . IN THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME OF RS. 15,14,70,020/ - . 4. ON PERUSAL OF THE ASSESSMENT ORDER AND THE RECORDS, THE PR.CIT NOTICED THAT THE ASSESSING OFFICER DID NOT MAKE ANY ENQUIRY OR INVESTIGATION INTO THE CLAIM OF EXPENDITURE OF RS.33,58,118/ - ON ACCOUNT OF LOSS ON ACCOUNT OF THE FORWARD CONTRACTS. ACCORDINGLY, THE PR.CIT ISSUED A SHOW - CAUSE NOTICE, COPY OF WHICH I S PLACED AT PAGE 77 OF THE PAPER BOOK. PARAS 3 AND 4 OF THE SAID LETTER DATED 11.12.2015 ARE RELEVANT TO EXTRACT IN THIS REGARD AND THE SAME ARE EXTRACTED HEREUNDER : - 03. IN RESPECT OF ABOVE MENTIONED ASSESSMENT YEAR, IT IS OBSERVED THAT THE ALLOWABILIT Y OF LOSS ON FORWARD CONTRACT OF RS.33,58,118/ - CLAIMED BY THE ASSESSEE IN HIS P&L A/C HAS NOT BEEN EXAMINED AS PER THE GUIDELINES ISSUED BY CBDT VIDE INSTRUCTION NO.03/2010 DATED 23.3.2010. 04. FOR THE REASON STATED HEREINABOVE, THE ORDER DATED 28.03.2014 MADE BY THE ASSESSING OFFICER IN YOUR CASE FOR THE A.Y. 2011 - 12 APPEARS TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY BY VIRTUE OF THE POWER VESTED IN THE UNDERSIGNED AS PER THE PROVISIONS OF SECTION 263 OF TH E INCOME TAX ACT, 1961, THE SAID ORDER IS PROPOSED TO BE REVISED UNDER THE SAID SECTION. 3 ITA NO. 1166 /PUN/201 6 5 . FROM THE ABOVE EXTRACT, IT IS EVIDENT THAT THE ALLOWABILITY OF LOSS OF RS.33,58,118/ - IN THE LIGHT OF INSTRUCTION NO.03/2010 DATED 23.03.2010 IS THE ISSUE RAISED BY THE PR.CIT FOR ASSUMING JURISDICTION U/S 263 OF THE ACT. THE ASSESSEE REPLIED TO THE SAID SHOW - CAUSE NOTICE STATING THAT THE CLAIM OF LOSS OF RS.33,58,118/ - IS THE DIFFERENCE BETWEEN THE GAINS AROSE ON CONCLUDED FORWARD CONTRACTS AND THE LOSS INCURRED ON SUCH CONTRACTS IN THE YEAR UNDER CONSIDERATION. FURTHER, THE ASSESSEE EXPLAINED THAT THE SUBJECT - MATTER OF THE SAID INSTRUCTION NO.03/2010 (SUPRA) WAS NEITHER THE LOSS CLAIMED BY THE ASSESSEE NOR ANY PROVISION CREATED BY THE ASSESSEE. ASSESSEE ALSO EX PLAINED THE LOSS MENTIONED IN THE SAID INSTRUCTION RELATES TO THE NOTIONAL LOSS ARRIVED AT THE END OF THE YEAR ON THE NON - CONCLUDED FORWARD CONTRACTS. WHEREAS, THE LOOS DEBITED TO PROFIT & LOSS ACCOUNT RELATES TO THE CONCLUDED CONTRACTS AND THE ACTUAL LOS S ARRIVED ON THE CONCLUDED CONTRACTS. THIS IS THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE. THEREFORE, INSTRUCTION NO.03/2010 (SUPRA) IS NO T APPLICABLE TO THE FACTS OF THE LOSS DEBITED TO THE PROFIT & LOSS ACCOUNT. THE CONTENTS OF PARA 3 AND 4 OF THE REPLY DATED 21.03.2016 IS RELEVANT TO EXTRACT AND THE SAME IS EXTRACTED HEREUNDER : - 3. WE WISH TO POINT OUT THAT IN ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FURNISHED DETAILS OF SUCH LOSS AND HAS ALSO EXPLAINED THE SAME. WE ARE ENCLOSING A COPY OF THE ACCOUNT EXTRACT OF LOSS ON FORWARD CONTRACTS OF RS.3358118 FOR READY REFERENCE. 4. THE SUMMARY OF GAIN/LOSS ON FORWARD CONTRACT IS AS UNDER: PARTICULARS RS. - GAINS ARISING ON FOREIGN PAYMENT TRANSACTIONS 49,88,760 - LOSS INCURRED ON FOREIGN P AYMENT TRANSACTIONS 83 , 46 , 878 NET LOSS ON FORWARD CONTRACT 33,58,118 6 . FURTHER, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE WELL REASONED ORDER OF THE PR.CIT AND SUBMITTED THAT THE PR.CIT DIRECTED THE ASSESSING OFFICER TO DISALLOW THE SU M OF RS.33,58,118/ - WHEN THE SUM IS OTHERWISE AN ALLOWABLE BUSINESS LOSS . REFERRING TO THE CONTENTS 4 ITA NO. 1166 /PUN/201 6 OF PARA 3 OF THE ORDER OF PR.CIT , LD. COUNSEL SUBMITTED THAT THE PR.CIT ERRONEOUSLY RELIED ON THE INSTRUCTION NO.03/2010 (SUPRA) AND DIRECTED THE ASSESSI NG OFFICER TO APPLY THE SAID INSTRUCTION (SUPRA) FOR DISALLOWING THE SUM OF RS.33,58,118/ - WHEN THE ORDER OF THE ASSESSING OFFICER DOES NOT SUFFER FROM ANY ERROR ON FACT OR LAW. 7 . ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF T HE PR.CIT. 8 . WE HAVE HEARD BOTH SIDES ON THIS ISSUE AND FIND THE SAID INSTRUCTION NO.03/2010 (SUPRA), COPY OF WHICH IS PLACED AT PAGE 73 OF THE PAPER BOOK, DEALS WITH THE MARKED TO MARKET LOSS ON ACCOUNT OF FOREX DERIVATIVES AND ALLOWABLE AGAINST THE T AXABLE INCOME OF THE ASSESSEE. EXPLAINING THE MEANING OF MARKED TO MARKET , LD. AR SUBMITTED THAT THE METHOD OF ASSIGNING VALUE TO A POSITION HELD IN A FINANCIAL INSTRUMENT METHOD OF ASSIGNING VALUE TO A POSITION HELD IN A FINANCIAL INSTRUMENT BASED ON ITS MARKET PRICE ON THE CLOSING DAY OF THE ACCOUNTING OR REPORTING RECOR D AND THE SAME IS APPLICABLE TO THE EXISTING LINE FORWARD CONTRACTS AND IS NOT APPLICABLE TO THE CONTRACTS ALREADY CONCLUDED AND WHERE THE MARKET VALUES ARE RIGHTLY RECOGNIZABLE . REFERRING TO THE LOSS IN THE PRESENT CASE , LD. AR SUBMITTED THAT THE SAME IS DETERMINED ON THE CONCLUDED FORWARD CONTRACTS OF THE DERIVATIVES . T HEREFORE, THE NET LOSS IS AN ALLOWABLE EXPENDITURE. T HERE IS NO DISPUTE ABOUT THE DETERMINATION OF MARKET PRICE ON THE CLOSING DAY OF ACCOUNTING PERIOD IN RESPECT OF THE CONCLUDED CONTRA CTS . CONSEQUENTLY, THE ORDER OF THE ASSESSING OFFICER DOES NOT SUFFER FROM ANY ERROR LEAVE ALONE THE LOSS OF REVENUE ON PERUSAL OF THE INSTRUCTION ON ONE SIDE AND FACTS OF THE CASE ON THE OTHER. THEREFORE, W E ARE OF THE OPINION THAT THE SAID SUM OF RS.33 ,58,118/ - IS THE NET LOSS AFTER ADJUSTING THE LOSS EARNED BY THE ASSESSEE ON ACCOUNT OF 5 ITA NO. 1166 /PUN/201 6 FORWARD CONTRACT AGAINST THE GAIN EARNED BY THE ASSESSEE IN THE SAME CONTEXT. THIS METHOD IS BEING FOLLOWED BY THE ASSESSEE OVER THE YEARS CONSISTENTLY AND THE SAME IS UNDISTURBED BY THE REVENUE. THEREFORE, IN OUR OPINION, THE PR.CIT ERRED IN ASSUMING THE JURISDICTION U/S 263 OF THE ACT IN RESPECT OF THE SAID ISSUE OF CLAIM OF LOSS OF RS.33,58,118/ - WHICH IS RIGHTLY ALLOWED BY THE ASSESSING OFFICER IN HIS ORDER . ACCOR DINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRO NOUNCED ON 17 TH DAY OF DECEMBER , 201 8 . SD/ - SD/ - ( / VIKAS AWASTHY ) ( . / D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 17 TH DECEMBER , 2 01 8 . SUJEET SUJEET / COPY OF THE ORDER FORWAR DED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE PR.CIT - 6 , PUNE. 4 . , , , / DR, ITAT, A BENCH, PUNE. 5 . / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE .