D.C.I.T Cir - 4,kolkata, Kolkata V. M/s Asian Tea & Exports Ltd, Kolkata

ITA 1241/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4969 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJOY MUKHERJEE
• Assessee Lawyers: S D VERMA; SANJEEV
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B, KOLKATA [BEFORE SHRI P..M.JAGTAP, AM & SHRI S.S.VISWANETHRA RAVI, JM ] ITA NO. 1241/KOL/2013 : ASSTT. Y EAR : 2009-10 DCIT, CIRCLE-4, KOLKATA VS M/S. ASIAN TEA & EXPORTS LTD. PAN : AACCA 4877C (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SANJOY MUKHERJEE , JCIT, SR.DR FOR THE RESPONDENT : SHRI S.D.VERMA, ADVOCAT E & SRI SANJEEV KADEL, FCA DATE OF HEARING : 08.02.2016 DATE OF PRONOUNCEMENT : 29.04.2016 ORDER PER SHRI S.S.VISWANETHRA RAVI, JM THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER DATED 28.02.2013 PASSED BY THE CIT(APPEALS)-IV, KOL KATA FOR THE ASSESSMENT YEAR 2009-10 FRAMED UNDER SECTION 143(3) OF THE I.T.ACT. 2. THE APPELLANT REVENUE RAISED THE FOLLOWING GROUN DS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) HAS JUSTIFIED IN LAW AS WELL AS ON T HE FACTS IN DIRECTING THE A.O. TO DELETE THE ADDITION OF RS.2,12,617/- ON ACCOUNT OF SUBSCRIPTIONS ETC. PAID TO CLUB THOUGH THESE WERE NOT PROVED TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS JUSTIFIED IN LAW AS WELL AS ON THE F ACTS IN ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 2 DIRECTING THE A.O. TO DELETE THE ADDITION OF RS.54, 23,955/- ON MARKED TO MARKET LOSS ON UNEXPLAINED FOREX CONTR ACTS. 3. THAT WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS JUSTIFIED IN LAW AS WELL AS ON THE FACTS IN DIRECTING THE A.O. TO DELETE THE ADDITION OF RS.54,23,955/- IS WITHOUT ANY BASIS AND IN CONTRAVE NTION TO THE CBDTS INSTRUCTION NO.03/1010 DATED 23.03.20 10. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A LISTED COMPANY WITH STOCK EXCHANGE AND ENGAGED IN THE BUSI NESS OF TRADING AND EXPORT OF TEA. THE ASSESSEE DECLARED ITS TOTAL INCOME OF RS.98,55,307/- THROUGH ONLINE RETURN ON 24.09.2009. THE NOTICES UNDER SECTION 143(2) AND 142(1) OF THE ACT ISSUED F OR SCRUTINY. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAS PAID RS.2,12,617/- FOR MEMBERSHIP SUBSCRIPTIONS FOR ITS STAFF IN N.C. PLANTERS CLUB. THE AO WAS OF THE VIEW THAT THE SAID EXPENDITURE IS NOT INCIDENTAL TO THE BUSINESS EXPEN DITURE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. LD. CIT(A) DELETED THE ADDITION BY RELYING ON OR DERS IN CIT- VS- SAMTEL COLOUR LTD. AND DCIT VS- BANK OF AMERIC A SECURITIES (INDIA) (P) LTD. OF DELHI AND BOMBAY TRIBUNALS. 6. THE LD. DR RELIED ON AOS ORDER REGARDING THE GR OUND NO.1 AND LD. A.R. RELIED ON CIT(A)S ORDER. ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 3 7. HEARD BOTH AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE QUESTION THAT AROSE FOR CONSIDERATION BEFORE US AS TO WHETHER THE SUBSCRIPTION PAID TO A CLUB FOR MEMBERSHIP OF STAFF MEMBER IS A BUSINESS EXPENDITURE OR NOT. 8. LD. CIT(A), DURING APPELLATE PROCEEDINGS, OPINED THAT SUBSCRIPTION AMOUNT PAID FOR CLUB MEMBERSHIP IS AN ALLOWABLE BUSINESS EXPENDITURE AS PER THE EXPRESS PROVISIONS OF SECTION 37(1) OF THE ACT. 9. WE MAY REFER TO THE PROVISION OF SECTION 37 WHIC H IS REPRODUCED HEREIN BELOW FOR THE BENEFIT OF BETTER UNDERSTANDING OF TH E SAME IN THE CONTEXT OF CASE ON HAND. 37. (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PRO FESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD ' PROFITS AND GAINS OF BUSINESS OR PROFESSION'. 10. THE BARE READING OF THE ABOVE SUGGESTS THAT IN ORDER TO QUALIFY OR THE TRUE TEST FOR QUALIFICATION OF EXPENDITURE UNDER S. 37 O F THE ACT IS THAT IT SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND THE EXPENDITURE SHOULD NOT BE TOWARDS CAPITAL ACCOUNT . 11. THE HONBLE HIGH COURT OF DELHI IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SAMTEL COLOR LTD REPORTED IN 326 ITR 0425, THE ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 4 FACTS INVOLVED THEREIN WAS THAT THE ASSESSEE HAS PA ID CORPORATE MEMBERSHIP FEE TO INDIAN HABITAT CENTRE AND SPORTS & CULTURAL CLUB, N OIDA AMOUNTING TO RS. 5 LAKHS AND RS. 1 LAKH RESPECTIVELY. THE AO DISALLOWE D THE EXPENDITURE AS IT DOES NOT BEAR ANY NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE AND THE CIT(A), ON APPEAL, DIRECTED THE AO TO DISALLOW 20% OF RS. 6 LAKHS AND ALLOW THE BALANCE AMOUNT AS REVENUE EXPENDITURE ON THE GROUND THAT TH E ENTIRE EXPENDITURE WAS NOT INCURRED FOR BUSINESS PURPOSES. THE TRIBUNAL CONCLU DED THAT SINCE MEMBERSHIP ALLOWED THE EMPLOYEES TO INTERACT WITH ITS CUSTOMER S AND THE EXPENSES WERE FOR BUSINESS PURPOSES. THE HONBLE HIGH COURT HELD AS F OLLOWS: 5.1 THE EXPENDITURE INCURRED TOWARDS ADMISSION FEE, AD MITTEDLY, WAS TOWARDS CORPORATE MEMBERSHIP. AS CORRECTLY HELD BY THE TRIBUNAL, THE NATURE OF THE EXPENDITURE WAS ONE FOR THE BENEFIT O F THE ASSESSEE. THE 'BUSINESS PURPOSE BASIS ADOPTED FOR ELIGIBILITY OF EXPENDITURE UNDER S. 37 OF THE ACT WAS THE CORRECT APPROACH. THIS IS MORE S O IN VIEW OF THE TRIBUNALS FINDINGS THAT IT WAS THE ASSESSEE WHICH NOMINATED THE EMPLOYEE WHO WOULD AVAIL THE BENEFIT OF THE CORPORATE MEMBER SHIP GIVEN TO THE ASSESSEE. 12. IN THE INSTANT CASE, THE SUBSCRIPTION PAID TOWA RDS MEMBERSHIP FOR A PERIOD OF FIVE YEARS AND THE SAME IS BEING PAID ANNUALLY, THUS, IN THE LIGHT OF AFORESAID DECISION, IS AN EXPENDITURE INCURRED WHOLLY AND EXC LUSIVELY FOR THE PURPOSES OF BUSINESS AND NOT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITATES SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A BUSINESS ENTERPRISE. APPLYING THE PR INCIPLE LAID DOWN ABOVE, WE HOLD THAT SUBSCRIPTION AMOUNT PAID TOWARDS MEMBERSH IP IN N.L.PLANTERS CLUB FOR A PERIOD OF FIVE YEARS IS AN EXPENDITURE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 5 13. THE MUMBAI 'B BENCH OF ITAT IN THE CASE OF DEP UTY COMMISSIONER OF INCOME TAX VS. BANK OF AMERICA SECU RITIES (INDIA) (P) LTD REPORTED IN (2011) 136 TTJ 0441, T HE FACTS INVOLVED THEREIN WAS THAT THE ASSESSEE HAS MADE PAYMENT OF ENTRANCE FEE TO A CLUB NAMELY BOMBAY GYMKHANA AMOUNTING TO RS. 16 LACS. THE AO DI SALLOWED RS. 16 LACS AS CAPITAL OUTLAY AND ADDED TO THE INCOME OF THE ASSES SEE. THE CIT(A) DELETED THE ADDITION OF RS. 16 LACS MADE BY THE AO BEING ENTRAN CE FEE TO BOMBAY GYMKHANA CLUB. THE RELEVANT PORTIONS OF TRIBUNALS ORDER AS FOLLOWS: 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE FACTS ARE NOT IN DISPUTE IN AS MUCH AS IT HAS BEEN RIGHTLY OBSERVED BY THE LEARNED CIT(A) THE AO HAS NOT DISPUTED THE FACT THAT THE EXPENDITU RE OF CLUB MEMBERSHIP FEES RS. 16 LACS HAS BEEN INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. FURTHE R WE FIND NO MERIT IN THE PLEA OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THA T THE DECISION IN ALEMBIC CHEMICAL WORKS CO. LTD. (SUPRA), IS NOT APP LICABLE TO THE FACTS OF THE ASSESSEES CASE. IN FACT, THEIR LORDSHIPS REFER RED TO VARIOUS DECISIONS PARTICULARLY THE DECISION IN THE CASE OF CITY OF LO NDON CONTRACT CORPORATION VS. STYLES (1987) 2 TAX CASES 239 WHERE IN BROAD AREA OF DISTINCTION IS POINTED OUT. IT IS HELD IN THAT CASE THAT THE OUTLAY ON THE ACQUISITION OF THE CONCERN WOULD BE CAPITAL WHILE AN OUTLAY IN CARRYING ON THE CONCERN IS REVENUE. THE COURT FURTHER REFER RED TO THE FOLLOWING OBSERVATIONS IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD. VS. CIT (1955) 27 ITR 34 (SC) : TC 16R.841 : 'IF THE EXPENDITURE I S MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FO R THE ENDURING BENEFIT OF THE BUSINESS IT IS PROPERLY ATTRIBUTABLE TO CAPI TAL AND IS OF THE NATURE OF CAPITAL EXPENDITURE. IF, ON THE OTHER HAND, IT IS M ADE NOT FOR THE PURPOSE OF BRINGING INTO EXISTENCE ANY SUCH ASSET OR ADVANTAGE BUT FOR RUNNING THE BUSINESS OR WORKING IT WITH A VIEW TO PRODUCE THE P ROFITS, IT IS A REVENUE EXPENDITURE. THE AIM AND OBJECT OF THE EXPENDITURE WOULD DETERMINE THE CHARACTER OF THE EXPENDITURE WHETHER IT IS A CAPITA L EXPENDITURE OR A REVENUE EXPENDITURE.' ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 6 13. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT AND THE TRIBUNAL IN THE A SSESSEES OWN CASE AND FOR THE REASONS AS MENTIONED IN PARA 5.3 IN THE CAS E OF SAMTEL COLOR LTD. (SUPRA), WE ARE OF THE VIEW THAT ADMISSION FEES PAI D TOWARDS CORPORATE MEMBERSHIP OF THE CLUB IS AN EXPENDITURE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITATES SMOOTH AND EFFICIENT RUNNING OF A BUSIN ESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A BUSINE SS ENTERPRISE AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING O F THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE OF RS. 16 LACS MADE BY TH E AO. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. 14. IN THE PRESENT CASE, THE ASSESSEE CONTENDED THA T THE SUBSCRIPTION PAID ANNUALLY TOWARDS MEMBERSHIP OF THE SAID CLUB FOR A PERIOD OF FIVE YEARS AND IT IS NOT BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR T HE ENDURING BENEFIT OF THE BUSINESS OF ASSESSEE OR TO ITS STAFF TO TREAT THE SAME AS C APITAL EXPENDITURE. THE CLUB MEMBERSHIP, IT ONLY FACILITATES SMOOTH AND EFF ICIENT RUNNING OF A BUSINESS OF THE ASSESSEE. THEREFORE, WE HOLD THAT THE FACTS AND CIRCUMSTANCES OF THE AFORESAID CASE LAW ARE APPLICABLE TO THE PRESENT CASE AND THE CLUB SUBSCRIPTION FEE PAID FOR STAFF IS AN ALLOWABLE EXPENDITURE. 15. IN THE LIGHT OF ABOVE, RESPECTABLY FOLLOWING TH E ABOVE, WE DISMISS THE GROUND NO-1 RAISED BY THE APPELLANT REVENUE. 16. GROUND NO.2 IS AGAINST THE DELETION OF ADDITION OF RS.54,23,955/- MADE BY THE AO. THE AO WAS OF THE VI EW THAT THE MARKED TO MARKET LOSS IS A NOTIONAL LOSS, CONTINGEN T IN NATURE AND IT IS NOT ALLOWED TO BE SET OFF AGAINST THE TAXABLE IN COME. THE CIT(A) DELETED THE ADDITION BASING ON THE ORDER OF SPECIAL BENCH C OF ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 7 MUMBAI BENCH OF ITAT IN THE CASE OF DCIT-VS- BANK O F BAHRAIN & KUWAIT REPORTED IN (2010) 41 SOT 0290. 17. LD. DR SUBMITS BEFORE US, THAT THE CBDT ISSUED GUIDELINES VIDE ITS INSTRUCTION NO.03/2010 DATED 23.03.2010 TO ALL ASSESSING OFFICERS KEEPING IN VIEW OF COMPLEXITY IN THE FOREI GN EXCHANGE MARKET WHERE ASSESSEES REPORTING LOSSES ON MARKED T O MARKET OR IN ACCOUNTING STANDARD ISSUED BY THE INSTITUTE OF CHAR TERED ACCOUNTANTS. THE ASSESSING OFFICERS WERE GUIDED BY THE SAID INST RUCTION TO MAKE A SPECIFIC QUERY TO SUBMIT TO BREAK UP OF ANY LOSS ON MARKED TO MARKET METHODOLOGY, ON FOREX DERIVATIVES. PURSUANC E OF THE SAME, THE ASSESSEE CLAIMED A SUM OF RS.54,23,955/- AS NOT IONAL LOSS AS MARKET TO MARKET FOR ASSESSMENT YEAR 2009-2010. SIN CE IT IS A NOTIONAL LOSS AS CLAIMED AND IT IS CONTINGENT IN NA TURE AND IT CANNOT BE ALLOWED AS SET OFF AGAINST THE TAXABLE AS PER TH E INSTRUCTION ISSUED BY THE CBDT. FURTHER RELIED ON AOS ORDER AND SOUGH T TO ALLOW THE APPEAL. IN REPLY, LD. A.R. REITERATED THE SUBMISSIO NS MADE BEFORE THE LD. CIT(A). 18. A PERUSAL OF ORDER OF CIT(A) SHOWS THAT THE ASS ESSEE INCURRED A LOSS OF RS.54,23,955/- AND CLAIMED THE SAME AS LOSS ON ACCOUNT OF VALUATION AS PER ACCOUNTING STANDARD-11 AND 30 FOR ASSESSMENT YEAR 2009-2010 UNDER CONSIDERATION AND ASSESSEE CLAIMED A LOSS OF RS.85,70,425/- FOR ASSESSMENT YEAR 2010-2011. THE S UBMISSION AND MATERIAL ON RECORD SHOWS THAT THE ASSESSEE INCURRED A TOTAL LOSS OF RS.1,39,94,380/- ON ACCOUNT OF CANCELLATION OF FIVE FORWARD CONTRACTS FOR ASSESSMENT YEARS 2009-2010 AND 2010-2011. IT IS PERTINENT TO ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 8 NOTE THAT THE ASSESSMENT FOR 2010-2011 WAS COMPLETE D, WHERE THE AO THEREIN ALLOWED THE LOSS OF RS.85,70,425/- AS CL AIMED BY THE ASSESSEE ON ACCOUNT OF FIVE UNEXPIRED FOREX FORWARD CONTRACTS. THE LD. DR CONTENDS THAT THE LOSS CLAIMED BY THE ASSESS EE IS A NOTIONAL LOSS AS NO SALE/CONCLUSION/ SETTLEMENT OF CONTRACT HAS TAKEN PLACE AND THE ASSET CONTINUES TO BE OWNED BY THE COMPANY IN A CCORDANCE WITH PARA 2 OF INSTRUCTION NO.03/2010. THUS, IT IS A CON TINGENT LOSS AND THERE IS NO DEFINITION FOR CONTINGENCY IN THE ACT A ND IT CANNOT BE ALLOWED. 19. THE ASSESSEES CASE IS THAT AS PER THE RECOMMEN DATIONS ACCOUNTING STANDARD 30, ALL THE COMPANIES ARE UNDER MANDATE TO ACCOUNT FOR MARKED TO MARKET LOSSES IN THEIR BOOKS DESPITE THE FACT THAT THE CONTRACT HAS NOT YET MATURED AS AT THE TIM E OF BALANCE SHEET. FURTHER, THE ASSESSEE BEING A COMPANY FOLLOWING THE ACCOUNTING STANDARDS ISSUED BY ICAI WHICH ARE SPECIFIED ACCOUN TING STANDARD AS PER COMPANIES ACT. IN THIS REGARD, THE CIT(A) DERIV ED SUPPORT FROM THE ORDER OF SPECIAL BENCH C OF MUMBAI ITAT IN TH E CASE OF DCIT-VS- BANK OF BAHRAIN & KUWAIT WHEREIN IT HELD T HAT LOSS INCURRED ON ACCOUNT OF REVALUATION OF CONTRACT ON L AST DAY OF ACCOUNTING PERIOD BEFORE DATE OF MATURITY OF FORWAR D CONTRACT IS AN ALLOWABLE DEDUCTION. 20. A SIMILAR ISSUE WAS DEALT BY THE ITAT, MUMBAI ' C SPECIAL BENCH DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) VS. BANK OF BAHRAIN & KUWAIT REPORTED IN 41 SOT 0290 SUPRA AS RELIED BY THE CIT-A WHERE THE FACTS ARE THAT TH E ASSESSEE IS A NON- ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 9 RESIDENT COMPANY CARRYING ON BANKING BUSINESS IN IN DIA. IT ENTERS INTO FORWARD CONTRACTS WITH ITS CLIENTS TO BUY OR SELL FOREIGN E XCHANGE AT AN AGREED PRICE ON A FUTURE DATE. ON THE DATE OF MATURITY, THE CONTRACT IS EXECUTED WHICH MAY RESULT IN THE PROFITS OR LOSSES TO THE ASSESSEE. 21. DURING THE ASSESSMENT PROCEEDINGS THAT THE AO N OTICED THAT THE ASSESSEE HAD BOOKED A LOSS ON REVALUATION OF FORWARD FOREIGN EXCHANGE CONTRACTS, WHICH WERE UNMATURED ON THE DATE OF BALANCE SHEET OF AN A MOUNT OF RS. 12,42,648. HE NOTED THAT THE ASSESSEE ENTERS INTO FORWARD CONTRAC TS WITH CLIENTS TO BUY OR SELL FOREIGN EXCHANGE AT AN AGREED PRICE ON A FUTURE DAT E. THIS FUTURE PRICE WAS ESTIMATED ACCORDING TO CERTAIN NORMS SUCH AS FORWAR D PREMIUM RATES FOR CERTAIN CURRENCIES AND THE AO DISALLOWED THE LOSS OF RS. 12 ,42,648 TREATING THE SAME AS NOTIONAL LOSS. THE AO, HOWEVER, ALLOWED THE AMOUNT WHICH WAS DISALLOWED ON THIS COUNT IN EARLIER YEARS. THE CIT(A) ALLOWED THE ASSESSEES APPEAL, INTER ALIA, OBSERVING THAT THE ASSESSEE WAS OFFERING PROFITS RE SULTING FROM SUCH REVALUATION AS AND WHEN THEY SO ARISE AND THE AO HAD NEVER OBJE CTED TO THE PROFITS WHICH WERE SHOWN ON REVALUATION OF OUTSTANDING FOREIGN EX CHANGE FORWARD CONTRACTS. 22. THE SPECIAL BENCH, WHILE DEALING WITH SIMILAR I SSUE AS IT WAS REFERRED TO IT TO DECIDE 'WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, CA N IT BE SAID THAT WHERE A FORWARD CONTRACT IS ENTERED INTO BY THE ASS ESSEE TO SELL THE FOREIGN CURRENCY AT AN AGREED PRICE AT A FUTURE DATE FALLIN G BEYOND THE LAST DATE OF ACCOUNTING PERIOD, THE LOSS IS INCURRED TO THE ASSE SSEE ON ACCOUNT OF EVALUATION OF THE CONTRACT ON THE LAST DATE OF THE ACCOUNTING PERIOD I.E., BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT.' AND APPLIED RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD REPORTED (2009) 312 ITR 254 FOR THE PROPOSITION THAT AN A NTICIPATED LOSSES ON ACCOUNT OF EXISTING OBLIGATION AS ON 31ST MARCH, DE TERMINABLE WITH REASONABLE ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 10 ACCURACY, BEING IN THE NATURE OF EXPENDITURE/ACCRUE D LIABILITY, HAVE TO BE TAKEN INTO ACCOUNT WHILE PREPARING FINANCIAL STATEMENTS 23. THE SPECIAL BENCH ALSO APPLIED THE PRINCIPLE EN UNCIATED BY THE HONBLE SUPREME COURT IN THE CASE OF CHALLAPALLI SUGARS LTD. VS. CIT (1975) 98 ITR 167 (SC) THAT THE ACCOUNTING STANDARDS ISSUED BY ICAI W HICH ARE MANDATORY FOR PREPARATION OF FINANCIAL STATEMENTS HAVE TO BE FOLL OWED IN AS MUCH AS THE DEVIATION FROM THE SAME IS TO BE REPORTED IN THE AU DIT REPORT. AS-11 MANDATES THAT IN A SITUATION LIKE IN THE PRESENT CASE, SINCE THE TRANSACTION IS NOT SETTLED IN THE SAME ACCOUNTING PERIOD, THE EFFECT OF EXCHANGE DIFFERENCE HAS TO BE RECORDED ON 31ST MARCH 24. THE SPECIAL BENCH, IN VIEW OF THE DECISIONS SUPRA ANSWERED THE REFERENCE IN FAVOUR OF ASSESSEE THE RELEVANT OBSERVATION IS A T PARA-58 OF WHICH REPRODUCED AS UNDER: 58. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THE ASSE SSEES APPEAL FOR THE FOLLOWING REASONS : (I) A BINDING OBLIGATION ACCRUED AGAINST THE ASSESS EE THE MINUTE IT ENTERED INTO FORWARD FOREIGN EXCHANGE CONTRACTS. (II) A CONSISTENT METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE CANNOT BE DISREGARDED ONLY ON THE GROUND THAT A BETTER METHOD COULD BE ADOPTED. (III) THE ASSESSEE HAS CONSISTENTLY FOLLOWED THE SA ME METHOD OF ACCOUNTING IN REGARD TO RECOGNITION OF PROFIT OR LOSS BOTH, IN RESPECT OF FORWARD FOREIGN EXCHANGE CONTRACT AS PER THE RATE PREVAILIN G ON 31ST MARCH. (IV) A LIABILITY IS SAID TO HAVE CRYSTALLISED WHEN A PENDING OBLIGATION ON THE BALANCE SHEET DATE IS DETERMINABLE WITH REASONA BLE CERTAINITY. THE CONSIDERATIONS FOR ACCOUNTING THE INCOME ARE ENTIRE LY ON DIFFERENT FOOTING. ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 11 (V) AS PER AS-11, WHEN THE TRANSACTION IS NOT SETTL ED IN THE SAME ACCOUNTING PERIOD AS THAT IN WHICH IT OCCURRED, THE EXCHANGE DIFFERENCE ARISES OVER MORE THAN ONE ACCOUNTING PERIOD. (VI) THE FORWARD FOREIGN EXCHANGE CONTRACTS HAVE AL L THE TRAPPINGS OF STOCK-IN-TRADE. (VII) IN VIEW OF THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. (SUPRA), THE ASSES SEES CLAIM IS ALLOWABLE. (VIII) IN THE ULTIMATE ANALYSIS, THERE IS NO REVENU E EFFECT AND IT IS ONLY THE TIMING OF TAXATION OF LOSS/PROFIT. 25. APPLYING THE ABOVE OBSERVATIONS TO THE FACTS AN D CIRCUMSTANCES OF PRESENT CASE, WE FIND THAT THE CLAIMED LOSS UNDER CONSIDERA TION OCCURRED TO THE ASSESSEE ON ACCOUNT OF FIVE UNEXPIRED FOREX FORWARD CONTRACT S I.E IS A LOSS INCURRED ON ACCOUNT OF REVALUATION OF CONTRACT ON LAST DAY OF A CCOUNTING PERIOD BEFORE DATE OF MATURITY OF FORWARD CONTRACT. THE LD.CIT-A OBSERVED THAT THE ASSESSEE HAS BEEN FOLLOWING A CONSISTENT ACCOUNTING POLICY FOR DETERM INING LOSS UNDER AS-11 AND AS-30 AS REQUIRED UNDER COMPANIES ACT AND IT IS TO BE NOTED THAT THE ACCOUNTING STANDARDS WERE ISSUED BY THE ICAI WHICH HAS RECEIVE D JUDICIAL RECOGNITION. ACCORDINGLY THE ASSESSEE, THE GAIN OR LOSS ON REVALUATION OF THE OUTSTANDING CONTRACTS WAS BOOKED IN THE P&L A/C AS PER THE MAND ATORY REQUIREMENTS OF RBI GUIDELINES. THE HONBLE SUPREME COURT IN THE CASE O F WOODWARD GOVERNOR INDIA (P) LTD. (SUPRA) HAS OBSERVED AT P. 265 PARA 17 THAT THE CENTRAL GOVERNMENT HAS MADE AS-11 MANDATORY. DURING THE COURSE OF FIRS T APPELLATE PROCEEDINGS THAT THE CIT-A NOTICED THAT THE AO ALLOWED THE LOSS OF R S.85,70,425/- FOR 2010-11 WHICH SUPPORTS TO SHOW THAT THE ASSESSEE HAS BEEN F OLLOWING CONSISTENTLY ACCOUNTING STANDARDS AND THE LIABILITY HAS BEEN ACC RUED FOR A PENDING OBLIGATION FOR EVERY YEAR I.E THE DIFFERENCE WAS ARISING FOR M ORE THAN ONE ACCOUNTING PERIOD. ITA NO. 1241/KOL/2013 ASIAN TEA & EXPORTS LTD. 12 26. WE, ACCORDINGLY, HOLD THAT DISALLOWANCE MADE BY THE AO TREATING THE IMPUGNED AMOUNT OF RS. 54,23,955/- FOR A.Y 2009-10 AS CONTINGENT AND NOTIONAL LOSS IS NOT JUSTIFIED AND THAT THE LOSS INCURRED T O THE ASSESSEE ON ACCOUNT OF FIVE UNEXPIRED FOREX FORWARD CONTRACTS ON THE LAST DATE OF THE ACCOUNTING PERIOD I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT IS NOT CONTINGENT AND IT IS A ACTUAL LOSS, IS ALLOWABLE. THUS, RESPECTFULLY FOLLO WING THE OBSERVATIONS MADE BY THE SPECIAL BENCH SUPRA, THE GROUND NO -2 RAISED BY THE APPELLANT REVENUE FA ILS AND THE ORDER OF CIT-A IS JUSTIFIED, CONSEQUENTLY G ROUND NO-2 IS DISMISSED. 27. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.04.2016 SD/- SD/- (P. M. JAGTAP) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/04 /2016 TALUKDAR (SR.PS) COPY OF THE ORDER FORWARDED TO: 1. M/S. ASIAN TEA & EXPORTS LTD., 4/1, MIDDLETON ST REET, SIKKIM COMMERCE HOUSE, KOLKATA 700 071. 2 DCIT, CIRLE-4, KOLKATA 3. THE CIT-I, 4. THE CIT(A)-I, 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES