DCIT 5(2), MUMBAI V. LONDON STAR DIAMOND CO. INDIA P.LTD, MUMBAI

ITA 1359/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1978 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKASH KUMAR AGARWAL
• Keywords: Business income; Speculation loss; Onus to prove
• Section: 143(3); 5(2); 80HHC; 43(5); 28

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 1359 /MUM/2014 ( / ASSESSMENT YEAR : 2010-11) THE DEPUTY COMMISSIONER OF INCOME TAX 5(2) ROOM NO. 571, AAYAKAR BHAWAN, M K ROAD, MUMBAI- 400 020 / V. LONDON STAR DIAMOND COMPANY (INDIA) PRIVATE LIMITED 1610/1611 , PRASAD CHAMBERS, OPERA HOUSE, MUMBAI-400 004 ./ PAN : AAACL0576B ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SH. VIKASH KUMAR AGARWAL ASSESSEE BY : SHRI HARSH KOTHARI / DATE OF HEARING : 06-10-2016 / DATE OF PRONOUNCEMENT : 07-11-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 1 359/MUM/2014, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 21 ST MARCH 2013 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 9, MUMBAI (HE REINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2010-11, THE APPE LLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDE R DATED 26 TH FEBRUARY, 2013 PASSED BY THE LEARNED ASSESSING OFFICER (HEREI NAFTER CALLED THE AO) U/S 143(3) OF THE INCOME-TAX ACT,1961 (HEREINAFTER CALL ED THE ACT). ITA 1359/MUM/2014 2 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN A PPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL(HEREINAFTER CALLED T HE TRIBUNAL) READ AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE ASSES SEES APPEAL REGARDING LOSS ON FORWARD CONTRACTS IN FOREIGN EXCHANGE WHEN THE ASSESSEE DOES NOT DEAL IN FOREIGN EXCHANGE AND IS A DIAMOND MERCH ANT.? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT FOLLOWING DECI SION OF CO-ORDINATE BENCH OF ITAT IN THE CASE OF M/S. VINODKUMAR DIAMON DS PVT. LTD. IN ITA NO. 506/MUM/2013 EVEN WHEN THE IDENTICAL ISSUE WAS DECIDED BY ITA IN FAVOUR OF REVENUE IN THAT CASE? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING LOSS ON C ANCELLATION OF FORWARD CONTRACTS IN FOREIGN EXCHANGE EVEN WHEN THE ASSESSE E WAS UNABLE TO ESTABLISH ONE TO ONE RELATION BETWEEN ITS EXPORT IN VOICES AND THE FOREIGN CURRENCY TRANSACTIONS? 3.THE BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT AND IMPORT OF DIAMONDS. IT WAS OBSERVED BY T HE AO FROM THE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAS DEBITED A AMOUNT OF RS.85,88,209/- ON ACCOUNT OF EXCHANGE DIFFERENCE. THE ASSESSEE ON BEI NG ASKED SUBMITTED THAT THE LOSS OF RS. 85,88,209/- WAS INCURRED BY THE ASS ESSEE ON CANCELLATION OF FORWARD CONTRACTS WHICH CANNOT BE CONSIDERED AS SPE CULATION LOSS AND HENCE SHOULD BE SET OFF AGAINST THE PROFITS ARISING TO TH E ASSESSEE FROM ITS NORMAL COURSE OF BUSINESS. THE ASSESSEE SUBMITTED THAT THE SAID LOSS IS COVERED BY PROVISIONS OF SUB-CLAUSE (C) OF SECTION 43(5) OF TH E ACT AND IS TO BE CONSIDERED AS NORMAL BUSINESS LOSS. THE AO OBSERVED THAT THESE ARE FOREX DERIVATIVES LOSSES WHICH HAVE BEEN INCURRED BY WAY OF SETTLING THE DIFFERENCE AT THE END OF THE EXPIRY OF PERIOD OF DERIVATIVE CONTRACT OR ITS TERMINATION. THE AO OBSERVED ITA 1359/MUM/2014 3 THAT THE FORWARD CONTRACTS UNDERTAKEN BY THE ASSESS EE DO NOT COMPLY WITH THE CONDITIONS OF SUB-CLAUSE (D) OF SECTION 43(5) OF TH E ACT. THE AO ALSO HELD THAT THE DERIVATIVE TRANSACTIONS UNDERTAKEN BY THE ASSES SEE ARE NOT HEDGING TRANSACTION AS THE HEDGING INVOLVES TAKING AND OFFS ETTING POSITION IN A DERIVATIVE IN ORDER TO BALANCE ANY GAINS AND LOSSES TO THE UNDERLYING ASSET AND IT WAS REQUIRED ON THE PART OF THE ASSESSEE TO SHOW AS TO HOW SUCH LOSS HAS BEEN INCURRED , AS THE GAIN ON THE HEDGING SHOU LD HAVE COUNTERED THE LOSS AND VICE-VERSA. IT WAS OBSERVED BY THE AO THAT IN ORDER TO BE GENUINE AND VALID HEDGING CONTRACT OF SALE, THE TOTAL OF SUCH T RANSACTIONS SHOULD NOT EXCEED THE TOTAL STOCK OF RAW MATERIAL OR MERCHANDI SE IN HAND AND IN ORDER TO BE GENUINE AND VALID HEDGING CONTRACT OF PURCHASE , THERE SHOULD BE AN EXISTING FORWARD CONTRACT OF SALE BY ACTUAL DELIVER Y . IT WAS OBSERVED BY THE AO THAT ALL THE ABOVE CONDITIONS ARE TO BE FULFILLED C UMULATIVELY, IF DERIVATIVE LOSS IS CLAIMED AS HEDGING LOSS AND ALLOWABLE AS BUSINES S LOSS. IT WAS HELD BY THE AO THAT THE KEEPING IN VIEW FACTS AND CIRCUMSTANCES OF THE CASE , THE ASSESSEES CASE IS NOT COVERED BY ANY OF EXCEPTIONS (A) TO (D) OF SECTION 43(5) OF THE ACT NOR IT IS PROVED BY THE ASSESSEE THAT THE T RANSACTIONS ARE IN THE NATURE OF HEDGING TRANSACTIONS. THUS, IT WAS HELD BY THE A O THAT THE LOSS OF RS. 85,88,209/- INCURRED BY THE ASSESSEE IS IN THE NATU RE OF SPECULATION LOSS AND NOT A BUSINESS LOSS COVERED UNDER THE PROVISIONS O F SECTION 43(5) OF THE ACT OR HEDGING LOSS AND THE SAME WAS THEREFORE DISALLOW ED BY THE AO, VIDE ASSESSMENT ORDER DATED 26-02-2013 PASSED BY THE AO U/S 143(3) OF THE ACT. THE AO ALSO OBSERVED THAT IN THE PRECEDING ASSESSME NT YEAR 2009-10, THE AO DISALLOWED THE SIMILAR LOSS CLAIMED BY THE ASSESSEE OF RS. 4,69,42,680/- WHICH WAS CONFIRMED BY LEARNED CIT(A). 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 26-02-20 13 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE FILED APPEAL WITH T HE LEARNED CIT(A), WHICH APPEAL WAS ALLOWED BY THE LEARNED CIT(A) BY FOLLOWI NG THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN IMMEDIATELY PREC EDING ASSESSMENT YEAR ITA 1359/MUM/2014 4 2009-10 IN ITA NO. 6169/MUM/2012 VIDE ORDERS DATED 11.10.2013, WHEREIN THE LEARNED CIT(A) HELD AS UNDER: 5.2 ON EXAMINATION OF THE FACTS OF THE APPELLANT U NDER THE YEAR UNDER CONSIDERATION IN THE LIGHT OF THE AFOREMENTIONED DE CISION OF HONBLE ITAT IN APPELLANTS CASE OF PRECEDING YEAR I.E. 200 9-10 , IT IS NOTED THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT H AS EARNED A LOSS OF RS.1,69,98,416/- ON THE TRANSACTIONS WHICH WERE CAN CELLED ON OR AFTER THE DUE DATE OF MATURITY. IN VIEW OF THE DECISION O F HONBLE ITAT IN THE CASE OF THE APPELLANT FOR IMMEDIATELY PRECEDING YEA R SUCH LOSSES ARE GENUINE BUSINESS LOSSES WHICH CANNOT BE TREATED AS SPECULATIVE LOSSES. IT IS ALSO A FACT THAT THE APPELLANT HAS ALSO CANCE LLED SOME OF ITS FOREIGN EXCHANGE FORWARD CONTRACTS BEFORE THE DUE DATE, BUT SUCH TRANSACTIONS HAS RESULTED IN NET PROFIT OF RS. 85,27,033/- ( PRO FIT ON SUCH TRANSACTIONS AS RS.1,17,66,612/- - LOSS ON SUCH TRA NSACTIONS AT RS. 32,39,579/- ) . FOR THE SAKE OF DISCUSSION, EVEN IF SUCH TRANSACTIONS ARE HELD TO BE SPECULATIVE IN NATURE SIMPLY BECAUSE THE APPELLANT HAS CANCELLED THESE TRANSACTIONS BEFORE THE MATURITY DA TE, STILL IT DOES NOT HAVE ANY ADVERSE EFFECT ON REVENUE BECAUSE NET RESU LT OF SUCH TRANSACTIONS IS PROFIT AND NOT THE LOSS. THEREFORE, AFTER CONSIDERING THE TOTALITY AND CIRCUMSTANCES OF THE INSTANT CASE AS W ELL AS THE PRINCIPLE LAID DOWN BY THE HONBLE ITAT IN APPELLANTS OWN CA SE IN A.Y.2009-10, IT IS NOTED THAT THE NET LOSS OF RS.84,71,383/- (RS .1,69,98,416 - 85,27,033) OF THE APPELLANT IS IN RESPECT OF THE TR ANSACTIONS OF ONLY THOSE FORWARD CONTRACTS WHICH WAS INCURRED ON SETTL EMENT ON OR AFTER DUE DATE OF THE CONTRACTS. SINCE SUCH TRANSACTIONS WERE CARRIED OUT IN THE NORMAL COURSE OF BUSINESS TO GUARD AGAINST THE FLUCTUATION IN FOREIGN EXCHANGE SUCH TRANSACTIONS ARE IN NATURE OF HEDGING TRANSACTIONS, LOSS ON WHICH IS GENUINELY BUSINESS L OSS, HENCE THE AO IS DIRECTED TO ALLOW THE SAME. 5. AGGRIEVED BY THE APPELLATE ORDERS OF THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL . THE LEARNED DR SUBMITT ED THAT THE ASSESSEE IS IN BUSINESS OF IMPORT AND EXPORT OF DIAMONDS. THE ASSE SSEE HAS BOOKED FORWARD CONTRACT IN FOREIGN EXCHANGE AND HAS INCURRED LOSS ON MATURITY/CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS WHICH LOSS WA S DISALLOWED BY THE AO. THE LEARNED CIT(A) ALLOWED THE LOSS BY FOLLOWING TH E DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 6169/MUM/2012 FOR AS SESSMENT YEAR 2009- ITA 1359/MUM/2014 5 10, VIDE ORDERS DATED 11.10.2013. THE LEARNED DR RE LIED UPON THE ORDER OF THE AO. WHILE LEARNED COUNSEL FOR THE ASSESSEE STATED B EFORE US THAT THE ISSUES IN ALL THE THREE GROUNDS RAISED BY THE REVENUE ARE COV ERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS DECISION IN ASSESSEES O WN CASE IN ITA NO. 6169/MUM/2012 FOR ASSESSMENT YEAR 2009-10 VIDE ORDE RS DATED 11.10.2013 AND PRAYED THAT REVENUE APPEAL BE DISMISSED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD INCLUDING TRIBUNALS DECISIONS IN ASSESEES OWN CASE IN PRECEDING ASSESSMENT YEAR. WE HAVE OBSERVED THAT THE ASSESSEE IS IN BUSINESS OF IMPORT AND EXPORT OF DIAMONDS. THE ASSESSEE HAS BOOKED FOR WARD FOREIGN EXCHANGE CONTRACTS AND INCURRED LOSS OF RS. 85,88,209/- ON M ATURITY/CANCELLATION OF THESE FORWARD FOREIGN EXCHANGE CONTRACTS. WE HAVE O BSERVED THAT THE TRIBUNAL HAS ADJUDICATED THESE ISSUES RAISED BY THE REVENUE IN DETAIL IN ITA NO 6169/MUM/2012 IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2009-10 BY HOLDING AS UNDER: THIS APPEAL FILED BY THE ASSESSEE ON 9.10.2012 IS AGAINST THE ORDER OF THE CIT (A)-9, MUMBAI DATED 10.7.2012 FOR THE ASSES SMENT YEAR 2009- 2010. 2. IN THIS APPEAL, ASSESSEE FILED THE GROUNDS OF APPE AL, WHICH WAS SUBSEQUENTLY REVISED VIDE LETTER DATED 5.10.2012. T HE SAID REVISED GROUNDS FILED BY THE ASSESSEE READ AS UNDER: '1.A. THE LD CIT (A) ERRED IN FACT AND LAW IN CONFIRMING THE DISALLOWANCE OF FORWARD EXCHANGE LOSS OF RS. 4,69,42,680/- CLAIMED BY THE APPELLANT IN THE COURSE OF BUSINESS INCURRED DUE TO FLUCTUATION IN F OREIGN EXCHANGE FOR WHICH THE APPELLANT HAD BOOKED FORWARD CONTRACTS WITH THE BANK AGAINST THEIR EXPORT RECEIVABLES TREATING THE SAME AS SPECULATION TRANSACTION & NOT HEDGING TRANSACTIONS AS CLAIMED BY THE APPELLANT. B. THE LD CIT (A) FURTHER ERRED IN FACT AN D IN LAW IN NOT ALLOWING THIS FORWARD CONTRACT LOSS OF RS. 4,69,42,680/- TO BE SET OFF AGAINST THE PROFIT AND GAINS ON ACCOUNT OF EXCHANGE FLUCTUATIONS ON REALIZATION/REV ALUATION OF THE SAID RECEIVABLES, THIS BEING DIRECTLY RELATED TO THE SAM E BUSINESS TRA NSACTION AND ITA 1359/MUM/2014 6 WHICH HAS BEEN ASSESSED TO TAX. C. THE CIT (A) ERRED IN FACT AND IN LAW IN CONSIDERING THIS LOSSES AS SPECULATIVE WITHOUT TAKING INTO ACCOUNT THE APPELLANTS CONTENTI ON ON THE ISSUE VIZ; (I) THESE CONTRACTS WERE BOOKED AS PERMITTED BY RBI REG ULATIONS. (II) THE TRANSACTIONS WERE COVERED BY THE EXCEPTION PROV IDED IN SECTION 43(5)(A) ON THE INCOME TAX ACT, 1961.' 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND MANUFACTURING OF ROUGH AND POLISHED DIAMONDS AND FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 35,29,042/-. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT DETERMINING THE TOT AL INCOME OF RS. 5,04,71,720/-. ASSESSING OFFICER MADE ADDITION OF RS. 4,69,42,680/ -. RELEVANT FACTS LEADING TO THE SAID ADDITION INCLUDE THAT THE ASSESSEE BEING AN EX PORTER, MADE EXPORT OF DIAMONDS AND OUTSTANDING RECEIVABLE IN FOREIGN C URRENCY AND ENTERED INTO FORWARD CONTRACTS WITH THE BANKS TO HEDGE THE EXCHANGE LOSS IF ANY. FURTHER, IN ACCORDANCE WITH THE STATUTES, HE ALSO REVALUED THE OUTSTANDING EXPORT RECEIVABLE TOO. THE TOTAL GAIN ON ACCOUNT EXCHANGE DIFFERENCE ON EXPORTS IS R S. 679.75 LACS ON ACCOUNT OF BOTH ACTUAL REALIZATION AND REVALUATION OF OUTSTANDING R ECEIVABLES. THE LOSS INCURRED ON ACCOUNT OF FORWARD CONTRACTS TO SAFEGUARD THE OUTST ANDING RECEIVABLES IS RS. 469.43 LACS. ACCORDINGLY, ASSESSEE SET OFF THE LOSS AGAINS T THE SAID GAIN AND CREDITED THE NET AMOUNT/ PROFIT OF RS. 210.14 LACS TO THE PROFIT AND LOSS ACCOUNT. DURING THE ASSESSMENT PROCEEDINGS, AO MADE VARIOUS ENQUIRIES W ITH REGARD TO THIS CREDIT ENTRY AND IN RESPONSE, ASSESSEE FILED LETTERS DATED 29TH AND 30TH NOVEMBER, 2011 WHICH FORMED PART OF THE ASSESSMENT ORDER. IN THESE LETTE RS, THE ASSESSEE PROVIDED NUMEROUS STATISTICAL DATA TO JUSTIFY ITS STAND. IN BRIEF, TOTAL FORWARD CONTRACTS ENTERED INTO DURING THE YEAR WORKS OUT TO RS. 135.99 CRS AN D THE TOTAL CANCELLATION IS RS. 126.3 CRS, THE NET FORWARD CONTRACT IS RS. 9.95 CRS . THE TOTAL EXPORTS IN THE YEAR WORKS OUT TO RS. 107.57 CRS. TOTAL OUTSTANDING RECE IVABLE IN FOREIGN EXCHANGE IS MUCH HIGHER THAN ANY OF THESE FIGURES. BRIEFLY, THE STAN D OF THE ASSESSEE IS THAT IT ENTERED INTO FORWARD CONTRACTS WITH THE BANKER TO SAFEGUARD AGAINST THE EXCHANGE FLUCTUATIONS OF EXPORT CONSIDERATIONS/SALE PROFITS. IT IS THE ST ATED REASONING OF THE ASSESSEE, BEING AN EXPORTER, HE HAS OUTSTANDING RECEIVABLES WHOSE V ALUE IN US DOLLAR IS ALWAYS SUBJECTED TO MARKET FLUCTUATIONS INTERNATIONALLY. T HEREFORE, HE NEEDS TO HEDGE THE RECEIVABLE AGAINST THE EXCHANGE LOSS IF ANY. ACCORD INGLY, HE ENTERED INTO THE FORWARD CONTRACTS WITH THE BANKS AS PER THE RBI GUIDELINES. THUS, THE GAINS AS WELL AS THE LOSS CONSTITUTE BUSINESS GAINS AND LOSS AND ENTITLE D FOR SET OFF BEFORE THE NET GAINS IS CREDITED TO THE P AND L ACCOUNT. IN THIS REGARD AND BEFORE THE AO, THE ASSESSEE RELIED ON THE EXEMPTIONS PROVIDED IN CLAUSE (C) OF THE PRO VISO TO SECTION 43(5) OF THE ACT WHICH PROVIDES FOR THE DEFINITION OF 'SPECULATION T RANSACTION'. CLAUSES (A) TO (E) OF THE SAID SECTION PROVIDES FOR EXEMPTION OF CERTAIN FACT S FROM THE DEFINITION OF 'SPECULATION TRANSACTION . THUS, THE ASSESSEE CONTENDED THAT THE IMPUGNED LO SS IS OUTSIDE THE SCOPE OF THE 'SPECULATION TRANSACTION' AND THE LOSS BEING INTEGRAL PART OF THE EXPORT ITA 1359/MUM/2014 7 BUSINESS CONSTITUTES 'BUSINESS LOSS'. CONSEQUENTLY, THE SAME IS ELIGIBLE FOR SET OFF AGAINST THE FOREIGN EXCHANGE GAINS EARNED BY THE AS SESSEE BOTH ON ACCOUNT OF ACTUAL REALIZATIONS AND REVALUATION OF THE OUTSTANDING REC EIVABLES. EVENTUALLY, AO CONSIDERED THE ABOVE SUBMISSIONS OF THE ASSESSEE AN D ALSO EXAMINED THE APPLICABILITY OF THE PROVISIONS OF SECTION 43(5) OF THE ACT IN GENERAL AND CLAUSE (C) OF THE PROVISO TO SECTION 43(5) IN PARTICULAR AND HELD THA T THE IMPUGNED TRANSACTIONS DO NOT SATISFY IN ALL THE CONDITIONS SPECIFIED IN THE SAID PROVISIONS. RELEVANT DISCUSSION IS GIVEN IN PARA 9 OF THE ASSESSMENT ORDER. AO DISMISS ED THE APPLICABILITY OF CLAUSE (A) OF THE PROVISO TO SECTION 43(5) STATING THAT THE AS SESSEE FAILED TO DEMONSTRATE THAT THE IMPUGNED TRANSACTIONS WERE INCURRED FOR HEDGING THE RISK AGAINST THE RAW MATERIAL OR MERCHANDIZE. SIMILARLY HE REJECTED THE APPLICABILIT Y OF CLAUSE (B) OF SECTION 43(5) OF THE ACT TOO. AO OPINED THAT THE SAME APPLIES TO THE STO CKS AND SHARES. ON THE APPLICABILITY OF CLAUSE (C) TO SECTION 43(5), AO DI SMISSED THE SUBMISSIONS OF THE ASSESSEE STATING THAT THE SAID PROVISIONS APPLY ONL Y TO A CASE OF CONTRACT ENTERED INTO BY A MEMBER OF A FORWARD MARKET OR AN EXCHANGE WHIC H IS NOT THE CASE HERE. FINALLY, ON THE APPLICABILITY OF CLAUSE (D) OF THE PROVISO T O SECTION 43(5), AO RULED OUT THE SAME CONSIDERING THE UNFULFILMENT OF THE CONDITIONS SPEC IFIED THEREIN. THUS, THE AO CONCLUDED THAT THE FOREIGN EXCHANGE CONTRACTS CONST ITUTE SPECULATIVE TRANSACTIONS U/S 43(5) OF THE ACT. AO ALSO DISCUSSED THE PROVISIONS OF EXPLANATION 2 TO SECTION 28 OF THE ACT WHICH PROVIDES FOR THE EXPLAINING THE DEEMED 'S PECULATION BUSINESS' AND HELD THAT THE PROFIT AND LOSS ARISING FROM SUCH TRANSACTIONS HAVE TO BE COMPUTED SEPARATELY AND TREAT THE SAME AS PER THE PROVISIONS RELATING TO TH E 'SPECULATION BUSINESS'. IN THIS CONTEXT HE ALSO REFERRED TO THE PROVISIONS OF EXPLA NATION TO SECTION 73 RELATING TO 'SPECULATION LOSS'. RELYING ON THE PRINCIPLES RELAT ING TO THE ONUS AO HELD THAT THE ASSESSEE FAILED TO DEMONSTRATE THAT THE TRANSACTION S IN QUESTION RELATES TO HEDGING TRANSACTIONS. AO ANALYZED THE PRINCIPLES LAID DOWN BY THE AAR-NEW DELHI, IN THE CASE OF SOPROPHA S.A., IN RE [2004] 268 ITR 37/138 TAXMA N 75 AND HELD THAT THE SAID PRINCIPLES ARE FOUND UNFULFILLED FOR CALLING THE IM PUGNED TRANSACTIONS AS HEDGING TRANSACTIONS. ON THE BURDEN OF PROOF ISSUES, AO REL IED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. JOSEPH JOHN [1968] 67 ITR 74 . REFERRING TO THE DELHI HIGH COURT JUDGMENT IN THE CASE OF DELHI FLOU R MILLS CO. LTD. V. CIT [1974] 95 ITR 151 (DELHI) , AO OPINED THAT THE FOREIGN EXCHANGE TRANSACTIONS CANNOT HAVE ANY NEXUS WITH THE EXPORT OF DIAMONDS. IN THIS REGARD, AO IS OF THE OPINION THAT THE PERSON SELLING COTTON CANNOT ENTER INTO FORWARD CONTRACT, SAY FOR GOLD. HE ALSO DISCUSSED THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT V. ARJAN KHIMJI & CO. [1980] 121 ITR 421/[1979] 1 TAXMAN 550 . THUS, AO CONCLUDED BY STATING THAT THE FOREIGN EXCHANGE/CURRENCY DERIVATIVE TRANSACTIONS ARE NOT C OVERED BY THE EXCLUSIONS PROVIDED IN THE PROVISO TO SECTION 43(5) OF THE ACT. FURTHER , HE HELD THAT ASSESSEE FAILED TO THE ESTABLISH THAT THE TRANSACTIONS IN QUESTION HAVE TH E NATURE OF HEDGING TRANSACTIONS AND HE TREATED THE LOSS OF RS. 4,69,42,680/- AS THE SPECULATION LOSS AND MADE THE ADDITION. SO FAR AS THE PROFIT EARNED ON ACTUAL REA LIZATION OF EXPORT PROCEEDS AND THE PROFITS ON REVALUATION OF THE OUTSTANDING RECEIVABL E IS CONCERNED, THE AO TAXED THE AS THE BUSINESS INCOME OF THE ASSESSEE AND ACCORDINGLY , DENIED THE SET OFF OF THE LOSS OF ITA 1359/MUM/2014 8 RS. 4,69,42,680/- AGAINST THE GAINS OF RS. 679.75 L ACS. AGGRIEVED WITH THE SAME, ASSESSEE FILED THE PRESENT APPEAL BEFORE THE CIT (A ). BEFORE THE CIT (A) 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE PROCEEDINGS, ASSESSEE MADE WRITTEN SUBMISSIONS AND MENTIONED THAT THE IMPUGNED FORWARD CONTRACTS (FCS) ARE LINKED OR INCIDENTAL TO THE EXPORT INVOICES OF THE YEAR AND THE OUTSTANDING RECEIVABLES RELATED TO THE EXPORTS AND THEREFORE, THESE ARE HED GING TRANSACTIONS AND CONSTITUTES BUSINESS CONTRACTS. ASSESSEE MENTIONED THAT, LEAVIN G 50% OF THE CONTRACTS WHICH ARE SETTLED BY DELIVERY, REST OF THE TRANSACTIONS ARE E ITHER TERMINATED BY THE BANK ON DUE / MATURITY DATES DUE TO COMMERCIAL REASONS BECAUSE OF NON-REALIZATION OF EXPORTS FROM THE DEBTORS. FURTHER, THE ASSESSEE MENTIONED T HAT OUT OF THE FORWARD CONTRACTS CANCELLED PRIOR TO THE DUE DATES, SOME OF THESE CON TRACTS ARE CANCELLED THREE DAYS PRIOR IN VIEW OF THE WEEK END HOLIDAYS. REFERRING T O THE TERMINATED AND CANCELLED FORWARD CONTRACTS ON THE DUE DATE OR LATER, THE ASS ESSEE REASONED THAT IT DIRECTLY IMPLY THE INTEGRAL PART OF THE EXPORT BUSINESS AND THEREFORE, THE RELATED LOSS CONSTITUTES BUSINESS LOSS'. REFERRING TO THE REST O F THE LOSS-YIELDED FCS, WHICH ARE CANCELLED PRIOR TO THE DUE DATE, ASSESSEE MENTIONED THAT THEY ARE CANCELLED TO REDUCE THE LOSS AND IT IS A BUSINESS DECISION OF THE ASSES SEE. FURTHER, ASSESSEE ARGUED THAT THE PROVISIONS OF SECTION 43(5) ARE NOT APPLICABLE TO THIS CASE AS IT APPLIED ONLY TO THE COMMODITY INCLUDING STOCKS AND SHARES AND RELIED ON THE DECISION OF THE ITAT, DELHI IN THE CASE OF MUNJUL SHOWA LTD. V. DY.CIT. 94 TTJ 227 [2005]. AS PER THE ASSESSEE THE FORWARD CONTRACTS DO NO CONSTITUTES 'COMMODITY' , WHICH IS PRECONDITION FOR INVOKING THE SAID SUB-SECTION (5) OF SECTION 43 OF THE ACT. EVEN IF IT IS APPLIED, THE IMPUGNED FCS BEING HEDGING IN NATURE ARE COVERED BY CLAUSE ( A) TO THE PROVISO TO SECTION 43(5) OF THE ACT. THE OUTSTANDING RECEIVABLES ARE ALWAYS HIG HER THAN THE FORWARD CONTRACTS CUMULATIVELY. IN LARGE NUMBER OF TRANSACTIONS, THE CANCELLATION OF CONTRACTS WAS DONE ONLY ON THE MATURITY AND THEREFORE, THERE ARE NO SP ECULATIVE CONTRACTS. ASSESSEE RELIED ON THE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF CI T V. BADRIDAS GAURIDU (P.) LTD. [2003] 261 ITR 256 AND ORS AND MENTIONED THAT THE SAID JUDGMENT APPLI ED TO THE CASE OF THE ASSESSEE. REGARDING THE AO'S RELIANCE O N AAR RULING IN THE CASE OF SOPROPHA S.A. (SUPRA), ASSESSEE SUBMITTED THAT CONS IDERING THE FACT THAT THE ASSESSEE FULFILLS COUPLE OF CONDITIONS AND THE IMPUGNED TRAN SACTIONS MUST BE TREATED AS HEDGING TRANSACTIONS. FURTHER, ASSESSEE RELIED ON R BI CIRCULAR DATED 13.12.2006 AND THE CBDT CIRCULAR NO.23D DATED 12.9.1960 AND MENTIO NED THAT RBI HAS NO PROBLEM WITH THE IMPUGNED CONTRACTS AS THEY ARE UNDERGONE T O GUARD THE RISK OF UNDERLYING RECEIVABLES AND THE CLAIM OF THE ASSESSEE NEEDS TO BE ACCEPTED. ASSESSEE ALSO RELIED ON THE DOLLAR RATE FLUCTUATIONS FROM APRIL 2008 TO MARCH 2009, WHICH REGISTERING PER DOLLAR APPRECIATION FROM RS. 39.9668 TO RS. 51.2062 DURING THE YEAR. EVENTUALLY. CIT (A) CONSIDERED AND REJECTED ABOVE ARGUMENTS OF THE ASSESSEE. EVENTUALLY, ASSESSEE'S APPEAL WAS DISMISSED UPHOLDING THE CONCLUSIONS OF T HE AO. AGGRIEVED WITH THE DECISION OF CIT (A), ASSESSEE FILED THE PRESENT APP EAL BEFORE THE TRIBUNAL VIDE GROUND IMPORTED ABOVE. BEFORE THE TRIBUNAL ITA 1359/MUM/2014 9 LD AR'S ARGUMENTS 5. MR SOLI DASTURE AND MR. NIKHIL RANJAN, LD COUNSELS FOR THE ASSESSEE APPEARED BEFORE US. TO START WITH, THE BACK-GROUND FACTS OF THE CASE AND THE ISSUES RAISED BEFORE THE TRIBUNAL WERE EXPLAINED. HE MENTIONED TH AT THE CIT(A) ERRED IN TREATING THE BUSINESS TRANSACTIONS AS THE SPECULATION ONE IN NAT URE AND EVENTUALLY ERRED IN NOT TREATING THE LOSS OF RS 4,69,42,680/- AS BUSINESS L OSS OF THE ASSESSEE. BRIEFLY MENTIONING THE GRIEVANCES, LD COUNSEL MENTIONED THA T, AS CLAIMED IN THE RETURN OF INCOME, AO SHOULD HAVE ALLOWED THE CLAIM OF SET OFF OF THE SAID LOSS AGAINST THE PROFITS OF THE FOREIGN EXCHANGE EARNED ON ACTUAL REALIZATIO NS AND REVALUATION OF THE OUTSTANDING RECEIVABLES IN FOREIGN EXCHANGE. HE ALS O RELIED ON THE EXCLUSIONS PROVIDED IN THE PROVISO TO SECTION 43(5) AND ALSO THE RBI GU IDELINES. 6. ELABORATING THE DISPUTES AND THE ISSUES, LD COUNSE L SUBMITTED THAT THE ASSESSEE ENTERED INTO THE FORWARD CONTRACTS (FCS) WITH THE B ANKS AS INTEGRAL PART OF THE EXPORT BUSINESS WITH THE AIM TO SAFEGUARD AGAINST THE FORE IGN EXCHANGE FLUCTUATION OF THE US DOLLAR VIS A-VIS THE INDIAN CURRENCY AND THEREFORE, THE FCS ARE NOT SPECULATIVE TRANSACTIONS OR SPECULATION BUSINESS. TO SUBSTANTIA TE THE SAME, HE MENTIONED THAT THE TOTAL WORTH OF THE FCS ENTERED DURING THE YEAR ARE RS. 135.99 CRS AND SAME CONSTITUTE MERELY AROUND 3% OF THE 'OUTSTANDING REC EIVABLE OF EXPORT PROCEEDS IN FOREIGN CURRENCY' IN THE BEGINNING OF THE YEAR. AT NO POINT OF TIME, THE SAME EXCEEDED THE SAID TRADE RECEIVABLES IN CURRENCY. 7. ONE-TO-ONE CORRELATION BETWEEN THE FCS VS INVOICES : FURTHER ON THE FCS BEING THE INTEGRAL PART OF THE EXPORT BUSINESS, LD COUNSEL ME NTIONED THAT THE FCS AND THE EXPORT INVOICES ARE CLOSELY CORRELATED AND SUCH CORRELATIO N NEED NOT BE TO THE LAST RUPEE AND THE PRECISE DATES. IN THIS REGARD, HE RELIED ON THE JUDGMENTS IN THE CASE OF CIT V. FRIENDS & FRIENDS SHIPPING (P.) LTD. [2013] 217 TAXMAN 267/35 TAXMANN.COM 553 (GUJ.) , AND PANCHASHEEL LTD. (SUPRA) AND THE CBDT CIRCULA R. TO SUBSTANTIATE THE SAME, LD COUNSEL FILED A STATEMENT OF COMPARISON BETWEEN THE DATES AND VALUES OF THE FCS QUA THE EXPORT INVOICES RAISE D IN THE YEAR. LD COUNSEL SUBMITTED THAT 1:1 CORRELATION BETWEEN THE EXPORT I NVOICES AND FOREIGN EXCHANGE CONTRACTS IS NOT REQUIRED AND BROAD MATCHING SHOULD BE SUFFICIENT. 8. LOSS ON CANCELLATION OF THE FCS CONSTITUTES BUSINE SS LOSS: LD COUNSEL EXPLAINED THE FACTS OF THE BINDING COORDINATE BENCH DECISION IN T HE CASE OF D KISHORE KUMAR & CO. V. DY. CIT [2005] 2 SOT 769 (MUM) AND THE JUDGMENTS IN THE CASE OF BADRIDAS GAURIDU (P.) LTD. (SUPRA) AND MENTIONED THAT THE FC S ENTERED INTO WITH THE BANKS TO HEDGE THE FOREIGN EXCHANGE LOSS IF ANY IN RESPECT O F THE CORE BUSINESS TRANSACTIONS CONSTITUTES ITS INTEGRAL PART AND LOSS OR GAINS IS ALLOWABLE AS BUSINESS LOSS OR GAINS AS THE CASE MAY BE. REFERRING TO THE SAID DECISION IN THE CASE OF D KISHOREKUMAR & CO.(SUPRA) LD COUNSEL MENTIONED THAT THE 'THE FACT OF PREMATURE CANCELLATION CANNOT ALTER THE NATURE OF THE TRANSACTION'. IN THIS CASE, THE ISSUE WAS IF THE GAINS FROM THE FCS CONSTITUTES 'BUSINESS PROFITS' AND ELIGIBLE FOR DEDUCTION U/S 80HHC WITHOUT INVOKING THE CLAUSE (BAA) OF THE ITS EXPLANATION. H ON'BLE TRIBUNAL HELD THAT THE FCS CONSTITUTES 'INTEGRAL PART' AND THE GAINS ARE TREAT ED AS 'PROFITS OF THE BUSINESS' AND IN ITA 1359/MUM/2014 10 FAVOUR OF THE ASSESSEE. REFERRING TO THE BINDING JU DGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF V. BADRIDAS GAURIDU (P.) (SUPRA), LD CO UNSEL MENTIONED THAT THE LOSSES EARNED BY ASSESSEE, EXPORTER OF COTTON & NOT DEALER IN FOREIGN EXCHANGE, RELATING TO THE FCS ENTERED INTO WITH THE BANKS, CONSTITUTES BU SINESS LOSS AND ALLOWABLE FOR SET OFF AGAINST THE BUSINESS PROFITS. IN THE PROCESS, J UDGMENT IN THE CASE OF CIT V. SOORAJ MULL NAGARMULL [1981] 129 ITR 169/5 TAXMAN 289 (CAL.) (PARA 3) FROM CALCUTTA HIGH COURT IS FOLLOWED. THUS, LD COUNSEL IS CRITICAL OF THE CONCLUSIONS OF THE CIT (A) AND MANNER OF DISTINGUISHING THE SAID BINDING JUDGMENT ON FRIVOLOUS GROUNDS. LD COUNSEL IS ALSO CRITICAL OF THE CIT (A)'S CONCLUSIONS, WHO MISTOOK THE IMPUGNED FCS AS CURRENCY DERIVATIVES, AND MENTIONED THAT THESE DERIVATIVES S HOULD HAVE BEEN TREATED DIFFERENTLY IN VIEW OF THE SPECIFIC DEFINITION PROV IDED TO DERIVATIVES IN SECTION 2(AC) OF SECURITIES CONTRACT REGULATION ACT, 1956. 9. MEANING OF THE EXPRESSION 'COMMODITY' USED IN SECT ION 43(5) OF THE ACT: FURTHER, ELUCIDATING THE PROVISIONS OF SECTION 43(5) RELATIN G TO THE DEFINITION OF 'SPECULATION TRANSACTION', LD COUNSEL MADE VARIOUS PROPOSITIONS STATING THAT FOREIGN EXCHANGE CONTRACT IS NOT A COMMODITY AND THEREFORE, THERE IS NO PROVISION IN LAW TO TREAT THE IMPUGNED FCS AS SPECULATION TRANSACTION. HE RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF GILL & CO. LTD V. JT. CIT VIDE ITA NO.2 16/M/2002, DATED 21ST FEBRUARY, 2003, VOLTAS INTERNATIONAL LTD. V. ASSTT. CIT [2009] 126 TTJ 702 (MUM.) ; AND MUNJAL SHOWA LTD. (SUPRA) . HOWEVER, LD COUNSEL FAIRLY MEN TIONED THAT THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF SOORAJ MULL NAGARMULL (SU PRA) HELD DIFFERENTLY AND FCS ARE TREATED AS 'COMMODITY'. THE PROVISIONS OF SECTION 4 3(5) ARE INVOKED VALIDLY ONLY IF THE FCS CONSTITUTES THE 'COMMODITY'. 10. CLAUSE (A) OF SECTION 43(5) OF THE ACT - MEANING O F THE EXPRESSION 'IN RESPECT OF..': IT IS THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE I S NOT A DEALER IN THE FOREIGN EXCHANGE; BUT HE IS EXPORTER OF DIAMONDS AND THE CO NTRACTS ARE ENTERED INTO WITH THE BANK IN RESPECT OF THE EXPORT INVOICES. THE FCS, BE ING THE HEDGING TRANSACTIONS, COVERED BY THE PROVISIONS OF CLAUSE (A) OF SECTION 43(5) OF THE ACT ARE OUTSIDE THE SCOPE OF THE SPECULATION BUSINESS. HE ALSO EXPLAINED THE MEANING OF THE EXPRESSION 'IN RESPECT OF' IN CONNECTION WITH EXPORT CONTRACTS OF THE ASSESSEE AND RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F RENUSAGAR POWER CO. LTD. V. GENERAL ELECTRIC CO. [1984] 4 SCC 679 DATED 16 AUGUST, 1984 AND JUDGMENT IN THE CASE REPORTED IN AIR 1997 SC 1302 (SIC) ASSUMIN G THAT THESE ARE NOT COVERED BY THE SAID CLAUSE (A) OF THE PROVISO TO SECTION 43(5) OF THE ACT. 11. REFERRING TO THE EXPLANATION 2 TO SECTION 28 OF TH E ACT: IN THIS REGARD, LD COUNSEL MENTIONED THAT FOR CONSTITUTING THE SPECULATION TRA NSACTION AS A SPECULATION BUSINESS, THE TRANSACTION MUST BE OF THAT NATURE OF SPECULATI ON AND IN THAT CASE, THE DEEMED BUSINESS SHALL BE DEEMED AS DISTINCT AND SEPARATE F ROM ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE. IF THE TRANSACTIONS ARE NOT LIN KED TO THE EXPORT BUSINESS OF THE ASSESSEE, THE SPECULATION TRANSACTIONS MUST NOT BE TREATED AS SPECULATION BUSINESS. THEREFORE, INCIDENTALITY OR INTEGRAL NATURE OF THE FCS BECOMES RELEVANT. ELABORATING THE SAME, LD COUNSEL MENTIONED THAT THE PROVISIONS OF SECTION 73(1) WILL SWING INTO OPERATIONAL ONLY IN CASE OF SPECULATION BUSINESS AN D NOT SPECULATION TRANSACTIONS. ITA 1359/MUM/2014 11 12. DAMAGES ON SETTLEMENT OF FCS- ALLOWABLE DEDUCTION: LD COUNSEL SUBMITTED THAT THE IMPUGNED LOSSES ARE INCIDENTAL TO THE FCS, WHIC H ARE INTEGRAL PART OF THE EXPORT PROCEEDS, SHOULD BE TREATED AS CONTRACTS. THE LOSS ON BREACH OF CONTRACT IF ANY CONSTITUTES DAMAGES. THEREFORE, THE PAYMENT TO BANK CONSTITUTES A PAYMENT OF DAMAGES FOR SUCH BREACH OF CONTRACTS, WHICH AGAIN A LLOWABLE AS BUSINESS LOSS AND NOT AS SPECULATION LOSS. IN THIS REGARD, LD COUNSEL RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. SHANTIL AL (P.) LTD. [1983] 144 ITR 57/14 TAXMAN 1 AND THE ONE REPORTED IN 207 ITR 198. 13. DISTINGUISHING THE DECISION IN THE CASE OF S. VINO DKUMAR DIAMONDS PVT. LTD: BRINGING OUR ATTENTION TO THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF S. VINODKUMAR DIAMONDS (P.) LTD V. ADDL. CIT [2013] 59 SOT 124/35 TAXMANN.COM 337 (MUM. - TRIB.) , LD COUNSEL DISTINGUISHED BY STATING THAT THE LOSS ON ACCOUNT OF CANCELLATION OF FCS WAS ACTUALLY ALLOWED BY THE AO AND THEREFORE, THERE IS NO DISPUTE ON THIS ISSUE. HOWEVER, THE DISPUTE IN THIS CASE RE VOLVES AROUND IF THE 'LOSS ON REVALUATION OF OUTSTANDING FCS' WHOSE MATURITY DATE FALLS IN THE NEXT YEARS'. ON MENTIONING THAT THE SAID DECISION IS NOT RELEVANT F OR THE IMPUGNED DISPUTED HERE, LD COUNSEL FILED A COPY OF THE MA ARISING FROM SAID IT A NO.506/M/2013 AND THE SAME IS PENDING FOR ADJUDICATION BEFORE THE TRIBUNAL. 14. FACTUM OF FOREIGN EXCHANGE FLUCTUATIONS - NEED FOR HEDGING TRANSACTIONS: REFERRING TO THE PAGE 15 OF THE PAPER BOOK, LD COUN SEL MENTIONED THAT DURING THE YEAR, THE FOREIGN EXCHANGE RATE OF THE DOLLAR VARIE D FROM RS. 39.97 TO RS. 51.21 REGISTERING THE VARIATIONS NEARLY RS. 12/- DURING T HE YEAR. HE ALSO DEMONSTRATED THAT THE ASSESSEE HAS ALLOWED TO TAKE THE EXPOSURE ON PA ST PERFORMANCE UP TO THE AVERAGE OF PREVIOUS THREE FINANCIAL YEARS ACTUAL TURNOVER O F THE YEAR WHICH IS HIGHER. FURTHER, LD COUNSEL MENTIONED THAT IN CASE OF NON-CANCELLATI ON OF SAID CONTRACTS BY THE ASSESSEE, THE BANKER WILL IN ANY WAY TERMINATE THE SAME ON THE SEVENTH WORKING DAY AFTER THE MATURITY DAY (PAGE 21 OF THE PAPER BOOK). REFERRING TO THE ASSESSEE'S FAILURE TO MAKE EXTENSIONS INSTEAD OF CANCELLATION, LD COUN SEL MENTIONED THAT SUCH EXTENSIONS PROCEDURALLY INVOLVE OPENING FRESH FCS O N THE CANCELLATION OF THE CONTRACTS. THEREBY IT DOES NOT MAKE ANY DIFFERENCE SO FAR AS T HE FINAL LOSS IS CONCERNED. LD DRS ARGUMENTS: 15. DR DEEPAK POTE, IRS APPEARED FOR THE REVENUE AND M ADE VARIOUS ARGUMENTS SUBSTANTIATING THE CONCLUSIONS OF THE AO AND THE CI T(A). IN THIS REGARD, LD DR FILED A WRITE UP TO SUMMARIZE THE REVENUE'S STAND. AS PER T HE SAME, THE ASSESSEE'S BUSINESS IS TRADING AND MANUFACTURING OF ROUGH AND POLISHED DIAMONDS. LD DR QUESTIONED THE ASSESSEE'S SUBMISSION THAT THE TRANSACTIONS OF FORW ARD CONTRACTS ARE A GUARD AGAINST OUTSTANDING RECEIVABLES AND QUESTIONED THE ASSESSEE 'S FAILURE TO DISCHARGE THE ONUS IN THIS REGARD. HE ALSO QUESTIONED THE CLAIM OF EXC LUSIONS CLAIMED BY THE ASSESSEE FROM THE CLAUSES TO THE PROVISO TO SECTION 43(5) OF THE ACT. HE ALSO MENTIONED THAT THE ASSESSEE FAILED TO DEMONSTRATE THE SAID CLAIMS AND THEREFORE, FAILED TO DISCHARGE THE ONUS AS HELD BY THE SUPREME COURT IN THE CASE OF JO SEPH JOHN (SUPRA). HE ALSO SUBMITTED CERTAIN DATA TO SHOW THAT THE TOTAL FCS O N CERTAIN DATES IS MORE THAN THE ITA 1359/MUM/2014 12 EXPORTS RECEIVABLE AND ALSO QUESTIONED THE ASSESSEE 'S FAILURE TO DEMONSTRATE THE PAISA TO PAISA AND DATE WISE CORRELATION BETWEEN TH E FCS AND THE EXPORT INVOICES. RELYING ON SOME STATEMENTS FILED BY THE ASSESSEE, L D DR POINTED OUT THAT THE PERIOD OF FORWARD CONTRACTS IS NOT 4-6 MONTHS IN ALL CASES AND POINTED OUT CERTAIN CONTRACTS CANCELLED AFTER A DAY OR A FEW DAYS, WHICH IS ONE O F THE FACETS OF SPECULATION ACTIVITY. HE STRONGLY RELIED ON THE ORDER OF THE AO AND THE C IT (A). FURTHER, RELYING ON THE ORDER OF THE CIT (A), LD DR DISTINGUISHED THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF BADRIDAS GAURIDU (P.) LTD. (SUPRA) AND THE LIST OF SUCH DISTINGUISHING FEATURES INCLUDE (I) DISCHARGE OF ONUS WITH REGARD TO CORREL ATION OF FCS WITH THE EXPORT INVOICES; (II) FAILURE OF EXPORTS; (C) SOORAJMULL NAGARMULL C ASE, SUPRA WHICH WAS RELIED BY BOMBAY HC WAS DECIDED ON INCOME-TAX FACT, 1922; (D) FACTS ABOUT THE RBI CLEARANCES WERE NOT DEMONSTRATED BY THE ASSESSEE ETC. DECISION OF THE TRIBUNAL 16. THE ISSUES FOR ADJUDICATION IN THIS ORDER INCLUDE ( I) IF THE FCS ENTERED INTO WITH THE BANK CONSTITUTES THE INTEGRAL OR INCIDENTAL TO THE ACTIVITY OF EXPORT OF THE DIAMONDS BY THE ASSESSEE, WHO IS NOT THE DEALER IN FOREIGN EXCH ANGE. (II) FURTHER, WE NEED TO EXAMINE IF THE AO IS JUSTIFIED IN NOT SETTING OFF A GAINST THE PROFITS ON ACTUAL REALIZATION OR REVALUATION AS SPECULATION PROFITS. SCOPE OF THE SPECULATION TRANSACTIONS AND BUSINESS 17. BEFORE DECLARING THE DECISIONS OF THE TRIBUNAL ON THE ISSUES RAISED BEFORE US, WE FIND IT RELEVANT TO SCAN THE RELEVANT PROVISIONS I. E. SECTION 43(5) OF THE ACT, EXPLANATION TO SECTION 28 ETC. DEFINITIONS OF THE SPECULATION TRANSACTION ON SPECU LATION BUSINESS: 18. THE PROVISIONS OF SECTION 43(5) PROVIDES FOR DEFIN ITION OF 'SPECULATION TRANSACTIONS'. THE SAID PROVISIONS READ AS UNDER: '43(1) TO (4)** ** ** (5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION I N WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DEL IVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE- (A) A C ONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING B USINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT O F HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDIS E SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF ST OCKS AND SHARES THROUGH ITA 1359/MUM/2014 13 PRICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWARD MARKET OR A STOCK EXC HANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF J OBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; [OR] [(D) AN ELIGIBLE TRANSACTIO N IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE [(AC)] OF SECTION 2 OF THE SECURITIES CONTRACTS (RE GULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE; [ OR]] (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN CO MMO DITY DERIVATIVES CARRIED OUT IN A RECOGNISED ASSOCIATION, SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION ..................' 19. THE ABOVE PROVISION PROVIDES THAT A TRANSACTION IN WHICH A CONTRACT IN RESPECT OF TRADING OF 'ANY COMMODITY' INCLUDING STOCKS AND SHA RES IS SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF COMMODITY/SCRIPS . HERE THE MEANING OF EXPRESSION 'ANY COMMODITY' IS A MATTER OF DEBATE. THIS DEFINIT ION PROVIDES FOR EXCLUSION OF CERTAIN SPECIFIED CONTRACTS DISCUSSED IN CLAUSE (A) TO (E) OF THE PROVISO TO SECTION 43(5) OF THE ACT. CLAUSE (A) OF THE PROVISO DEALS WITH THE HEDGI NG CONTRACTS ENTERED INTO IN THE COURSE OF MANUFACTURING AND MERCHANDIZING OF THE BU SINESS TO GUARD AGAINST THE LOSSES THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF CONTRACTS FOR ACTUAL DELIVER. CLAUSE (B) DEALS WITH THE CONTRACTS ENTERED INTO BY DEALER OR INVESTOR IN RESPECT OF STOCK EXCHANGE AND CLAUSE (D) DEALS WITH AN ELIGIBL E TRANSACTION IN RESPECT OF TRADING DERIVATIVES CARRIED OUT IN A RECOGNIZED STOCK EXCHA NGE. CLAUSE (E) DEALS WITH ELIGIBLE TRANSACTIONS IN RESPECT OF THE TRADING IN COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASSOCIATION. THESE FIVE TYPES OF CONTRAC TS / ELIGIBLE TRANSACTIONS SHALL NOT BE DEEMED AS SPECULATIVE TRANSACTIONS. ALTHOUGH THE RE IS DECISION OF THE TRIBUNAL WHERE IT IS HELD THAT THE FCS ARE NOT COMMODITIES, CONSIDERING THE JUDGMENT OF HON'BLE HIGH COURT OF CALCUTTA IN THE CASE OF SOORAJ MULL N AGARMULL (SUPRA), WHICH WAS FOLLOWED BY THE JUDGMENT OF JURISDICTIONAL HIGH COU RT IN THE CASE OF BADRIDAS GAURIDU (P.) LTD. (SUPRA), NEEDS TO BE FOLLOWED BY US. THE PRINCIPLE OF 'JUDICIAL DISCIPLINE' ASSUMES IMPORTANCE AND THEREFORE, THE 'COMMODITY' I NCLUDES THE 'FORWARD CONTRACT'. THUS, IN PRINCIPLE, THE FORWARD CONTRACTS, BEING CO MMODITY, SHOULD FALL IN THE DEFINITION OF 'SPECULATION TRANSACTION' AND THE SAME IS SUBJEC TED TO FULFILLMENT OF OTHER CONDITIONS SPECIFIED IN SUB-SECTION (5) OF SECTION 43 OF THE A CT. HAVING HELD SO, WE SHALL NOW EXAMINE IF THE IMPUGNED CONTRACTS/TRANSACTIONS CONS TITUTE 'HEDGING TRANSACTIONS' AND COVERED BY THE EXCLUSION PROVISIONS OF CLAUSE (A) T O THE PROVISO TO SECTION 43(5) OF THE ACT. THE CLAUSE (A) OF THE PROVISO TO SECTION 43(5) PROVIDES FOR EXCLUSION OF THE 'HEDGING TRANSACTION' FROM THE DEFINITION OF THE 'SPECULATIO N TRANSACTIONS'. THERE ARE NUMBER OF JUDGMENTS IN SUPPORT OF THE ASSESSEE AND RELEVANT ' RATIOS' OR CONCLUSIONS ARE DISCUSSED IN THE SUCCEEDING PARAGRAPHS. ITA 1359/MUM/2014 14 20. BEFORE TAKING UP THESE DISCUSSIONS, WE SHALL NOW TA KE UP THE PROVISIONS OF THE EXPLANATION TO SECTION 28 OF THE ACT, WHICH ALSO PR OVIDE DEFINITION OF 'SPECULATIVE BUSINESS'. THE SAID EXPLANATION READS AS UNDER: EXPLANATION 2. - WHERE SPECULATIVE TRANSACTIONS CAR RIED ON BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSI NESS (HEREINAFTER REFERRED TO AS 'SPECULATION BUSINESS') SHALL BE DEEMED TO BE DISTI NCT AND SEPARATE FROM ANY OTHER BUSINESS 21. EXPLANATION TO SECTION 28 USES THE EXPRESSION 'SPE CULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUT E A BUSINESS', AND THUS, CONSIDERING THE NATURE OF THESE TRANSACTIONS, THE I MPUGNED FCS CANNOT BE DEEMED AS THE SPECULATION BUSINESS WITHOUT GOING INTO THE 'NA TURE OF THE TRANSACTIONS'. FOR ANALYZING THE NATURE, WE NEED TO EXAMINE WHY THE FC TRANSACTIONS ARE ENTERED, HOW THESE TRANSACTIONS ARE DEALT WITH DURING THEIR SUST ENANCE TILL THEY ARE CANCELLED BY THE ASSESSEE OR TERMINATED BY THE BANKS AND IF THEY CON STITUTE HEDGING TRANSACTIONS ETC. BASING ON THE 'NATURE', CERTAIN SPECULATION TRANSAC TIONS SHALL CONSTITUTE AS SPECULATION BUSINESS AND SUCH SPECULATION BUSINESS SHALL BE DEEMED TO BE DISTINGUISHED AND SEPARATE FROM ANY OTHER BUSINESS. FURTHER, THE PROVISION OF SECTION 73 RELATING TO 'LOSS IN SPECULATION BUSINESS' IS AN OTHER RELEVANT PROVISION IN THIS REGARD. THUS, THE EXPLANATION 2 TO SECTION 73 ALSO DEALS WITH DEEMED SPECULATION BUSINESS WHERE THERE IS SOME TRADING ACTIVITY OF SH ARES BY THE ASSESSEE BEING OTHER BUSINESS ACTIVITY. NOW, WE SHALL TAKE UP RELEVANT J UDGMENTS ON THE SUBJECT RAISED BEFORE US. 22. RELEVANT JUDGMENTAL LAWS: IN THIS REGARD, RELEVANT DECISIONS INCLUDE THE DECISION IN THE CASE OF D KISHORE KUMAR & CO. (SUPRA), BINDI NG JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF BADRIDAS GAURIDU (P.) LTD. (SU PRA), JUDGMENT IN THE CASE OF SOORAJ MULL NAGARMULL (SUPRA) FROM CALCUTTA HIGH COURT. TH E JUDGMENTS FROM THE HIGH COURT OF AHMEDABAD IN THE CASES OF FRIENDS AND FRIENDS SH IPPING (P.) LTD. (SUPRA) AND IN THE CASE OF PANCHAMAHAL STEEL LTD. V. U.A. JOSHI, I TO [1997] 93 TAXMAN 1/225 ITR 458 (SC) ARE ALSO RELEVANT. THESE DECISIONS / JUDGMENTS ARE UNANIMOUSLY RELEVANT FOR THE PROPOSITION THAT THE FC TRANSACTIONS, WHEN ENTE RED INTO WITH THE BANKS FOR HEDGING THE LOSSES DUE TO FOREIGN EXCHANGE FLUCTUAT IONS ON THE EXPORT PROCEEDS, ARE TO BE CONSIDERED INTEGRAL OR INCIDENTAL TO THE EXPORT ACTIVITY OF THE ASSESSEE. THEREFORE, THE LOSSES OR GAINS CONSTITUTE THE BUSINESS LOSS OR GAINS AND NOT THE SPECULATION ACTIVITIES. IN THE PRECEDING PARAGRAPHS OF THE ORDE R, IN THE PORTIONS ASSIGNED TO THE AR'S ARGUMENTS, WE HAVE ANALYZED THESE ISSUES AND T HE DR HAS NOT PROVIDED ANY REASONS TO REJECT THE SAID ARGUMENTS OF LD COUNSEL FOR THE ASSESSEE. THEREFORE, IN PRINCIPLE, WE AGREE WITH THE ARGUMENTS OF LD COUNSE L FOR THE ASSESSEE. FURTHER, WE ALSO AGREE WITH THE LD COUNSEL'S ARGUMENT THAT THE 'FACT OF PREMATURE CANCELLATION CANNOT ALTER THE NATURE OF THE TRANSACTION'. THUS, LD COUNSEL'S COMMENTS ON CIT(A) CONCLUSIONS ON TREATING OR EQUATING THE FCS AS 'DER IVATIVES' OF CURRENCY IS ALSO ALLOWED CONSIDERING THE SPECIFIC DEFINITION PROVIDED TO DER IVATIVES IN SECTION 2(AC) OF SECURITIES CONTRACT REGULATION ACT, 1956 AND IT IS NOT THE REQ UIREMENT OF THE LAW THAT THE 1:1 CORRELATION BETWEEN THE FCS AND THE EXPORT INVOICES SHOULD EXIST AND SHOULD BE ITA 1359/MUM/2014 15 ESTABLISHED BY THE ASSESSEE. SO LONG AS THE TOTAL V ALUE OF THE FCS DOES NOT EXCEED, THE CLAIM OF THE ASSESSEE IS SUSTAINABLE AS BUSINES S LOSS. WE HAVE ALSO ANALYZED THE DECISIONS RELIED ON BY LD DR AND FIND THEY ARE DIST INGUISHABLE. NOW, WE SHALL PROCEED TO IMPORT SOME CONCLUSIONS OF THE SAID DECI SIONS. RELEVANT JUDGMENTAL LAWS - CONCLUSIONS & HELD PORTI ONS 23. RELEVANT EXTRACTS FROM THE CITED JUDGMENTS ARE INS ERTED IN THE SUCCEEDING PARAGRAPHS HERE AS UNDER: A. HELD PORTION IN THE CASE OF D. KISHOREKUMAR (SUP RA) 'THE DETAILS OF FORWARD EXCHANGE CONTRACT CLEARLY S HOW THAT ALL THE FORWARD EXCHANGE CONTRACTS WERE IN RESPECT OF EACH SPECIFIC IMPORT ORDER PLACED BY THE ASSESSEE. THE PURPOSE OF THESE TRANSACTIONS WAS CLE ARLY TO MINIMISE ASSESSEE'S RISK ON ACCOUNT OF FALL IN VALUE OF RUPEE, BUT THE QUANTUM OF FOREIGN EXCHANGE COVERED BY THESE FORWARD CONTRACTS WAS LIMITED TO T HE EXTENT OF ASSESSEE'S ACTUAL EXPOSURE IN RESPECT OF IMPORT VALUE COMMITMENTS. TH AT ASPECT IS NOT DISPUTED. ON THESE FACTS, EVEN THOUGH THE TRANSACTIONS HAVING BE EN SETTLED WITHOUT DELIVERY, THE CONDITIONS OF S. 43(5), DESCRIBING SPECULATIVE TRANSACTIONS, ARE CLEARLY FULFILLED, THE REQUIREMENT OF EXPLN. 2 TO S. 28 IS NOT FULFILL ED INASMUCH AS IT CANNOT BE CONCLUDED THAT THE TRANSACTIONS ARE SUCH A 'NATURE' AS TO CONSTITUTE A BUSINESS BY ITSELF. THESE TRANSACTIONS ARE GENUINE BUSINESS TRA NSACTION TO HEDGE AGAINST INCREASED COST OF PURCHASES OF ROUGH DIAMOND IMPORT S. IT IS A COMMONLY ACCEPTED PART OF THE FINANCIAL MANAGEMENT PRACTICES TODAY TH AT THE RISK ELEMENT, DUE RISE IN VALUE OF FOREIGN CURRENCY IN RESPECT OF THE IMPORT TRANSACTIONS ENTERED, IS MINIMISED BY ENTERING INTO FORWARD CONTRACTS FOR PU RCHASE OF THAT CURRENCY. THIS IS PARTICULARLY NECESSARY IN A MARKET IN WHICH THE VAL UE OF DOMESTIC CURRENCY IS FALLING, WHICH IS EVIDENT FROM THE FACT THAT THE AS SESSEE REALIZED PROFITS ON CANCELLATION OF THOSE CONTRACTS. THESE TRANSACTIONS ARE INTEGRAL PART OF THE EXPORT BUSINESS AND CANNOT BE CONSIDERED IN ISOLATION OF T HE EXPORT BUSINESS IN THE COURSE OF WHICH THE TRANSACTIONS HAVE BEEN ENTERED INTO. AS A MATTER OF FACT, THIS PROFIT ON CANCELLATION OF FORWARD CONTRACTS IS GENE RALLY REVENUE NEUTRAL BECAUSE THE QUESTION OF PROFIT ON CANCELLATION OF FORWARD C ONTRACTS CAN ONLY ARISE IN A SITUATION WHEN THE VALUE OF FOREIGN CURRENCY IS INC REASING VIS-A-VIS DOMESTIC CURRENCY, AND WHEN THE FOREIGN EXCHANGE VALUE IS SO INCREASING THE ULTIMATE PAYMENT MADE IN FOREIGN EXCHANGE BY THE ASSESSEE AL SO INCREASES. SINCE IT IS AN UNDISPUTED POSITION THAT THE IMPORTS, IN CONNECT ION WITH WHICH THE ASSESSEE HAD ENTERED INTO FORWARD CONTRACTS, ACTUALLY TOOK P LACE, THIS PROFIT ON CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS EFFECTIVELY O NLY REDUCES THE COSTS OF PURCHASES IN RESPECT OF THOSE IMPORTS, AND CANNOT B E, BY ANY LOGIC, CONSTRUED AS TRANSACTIONS INDEPENDENT OF ASSESSEE'S BUSINESS OF IMPORTING ROUGH DIAMONDS AND EXPORTING CUT AND POLISHED DIAMO NDS. THERE IS ONE MORE ASPECT OF THE MATTER, AND THAT IS THE REASON AS TO WHY THE FORWARD CONTRACTS WERE CANCELLED MIDWAY AND THE PROFITS WERE BOOKED ON THE SAME INSTEAD OF USING THESE CONTRACTS TO ACTUALLY MEET THE FOREIGN EXCHANGE REQ UIREMENTS AT THE TIME OF PAYING ITA 1359/MUM/2014 16 THE IMPORT BILLS. THE DUE DATES OF PAYMENT AT THA T POINT OF TIME WERE ONLY 16 DAYS TO 77 DAYS AWAY. THE DECISION AS TO WHETHER FU RTHER HEDGING AGAINST THE INCREASE IN FOREIGN CURRENCY IS WARRANTED OR NOT IS ESSENTIALLY A COMMERCIAL DECISION WHICH DEPENDS ON A NUMBER OF FACTORS, MOST IMPORTANT FACTOR BEING THE TREND OF CURRENCY MARKETS AT THAT POINT OF TIME AND BUSINESSMAN'S PERCEPTION ABOUT FUTURE TRENDS OF THE CURRENCY MARKET. FOR EXA MPLE, WHEN A BUSINESSMAN PERCEIVES THAT THE MARKET VALUE OF FOREIGN CURRENCY VIS-A-VIS THE DOMESTIC CURRENCY WILL NOT GO ANY HIGHER OR WHEN THE MARKET STARTS TH E DECLINING TREND, HE MAY SEE BUSINESS EXPEDIENCY IN CANCELLATION OF CONTRACT. TH E FACT OF PREMATURE CANCELLATION, THEREFORE, CANNOT ALTER THE NATURE OF TRANSACTION. FOR ALL THESE REASONS, THE CREDIT SHOWN IN THE P&L A/C AS 'PROFIT ON CANCELLATION OF FORWARD CONTRACTS' IS AS INTEGRAL PART OF THE EXPORT BUSINE SS, AS PURCHASES OR IMPORTS.. THE ASSESSEE SUCCEEDS ON THIS ISSUE. IN THE RESULT, THE APPEAL IS ALLOWED.' 24. ALTHOUGH, THE SAID DECISION WAS PRONOUNCED IN THE C ONTEXT OF SECTION 80HC OF THE ACT, THE RATIO OF THE SAID DECISION IS OF PARAMOUNT IMPORTANCE. B. BOMBAY HIGH COURT JUDGMENT IN THE CASE OF BADRID AS GAURIDU (P.) LTD. (SUPRA) 25. IN THIS CASE, HONBLE HIGH COURT OF BOMBAY ANSWERED THE FOLLOWING QUESTION IN FAVOUR OF THE ASSESSE AND THE QUESTION READS THAT,- 'WHETHER, WHERE ASSESSEE, NOT BEING A DEALER IN FOR EIGN EXCHANGE BUT AN EXPORTER OF COTTON, HAD BOOKED FOREIGN EXCHANGE IN FORWARD M ARKET WITH BANK IN ORDER TO HEDGE AGAINST LOSSES, TO CLAIM DEDUCTION IN RESPECT OF LOSS SUFFERED BY IT AS A BUSINESS LOSS'- HELD YES. 25.1 RELEVANT FINDING IS DISCUSSED IN PARA 3 OF THE JUD GMENT AND THE SAME READS AS FOLLOWS: '3. THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHAN GE. THE ASSESSEE WAS A COTTON EXPORTER. THE ASSESSEE WAS AN EXPORT HOUSE. THEREFORE, FOREIGN EXCHANGE CONTRACTS WERE BOOKED ONLY AS INCIDENTAL TO THE ASS ESSEE'S REGULAR COURSE OF BUSINESS. THE TRIBUNAL HAS RECORDED A CATEGORICAL F INDING TO THIS EFFECT IN ITS ORDER. THE ASSESSING OFFICER HAS NOT CONSIDERED THE SE FACTS. UNDER SECTION 43(5) OF THE INCOME TAX ACT, 'SPECULATIVE TRANSACTION' HA S BEEN DEFINED TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF COMMODITY IS SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER O F SUCH COMMODITY. HOWEVER, AS STATED ABOVE, THE ASSESSEE WAS NOT A DEALER IN FORE IGN EXCHANGE. THE ASSESSEE WAS AN EXPORTER OF COTTON. IN ORDER TO HEDGE AGAINS T LOSSES, THE ASSESSEE HAD BOOKED FOREIGN EXCHANGE IN THE FORWARD MARKET WITH THE BANK. HOWEVER, THE EXPORT CONTRACTS ENTERED INTO BY THE ASSESSEE FOR E XPORT OF COTTON IN SOME CASES FAILED. IN THE CIRCUMSTANCES, THE ASSESSEE WAS ENTI TLED TO CLAIM DEDUCTION IN RESPECT OF RS. 13.50 LAKHS AS A BUSINESS LOSS. THIS MATTER IS SQUARELY COVERED BY THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT V. SOORAJ MULL NAGARMULL [1981] 129 ITR 169 .' ITA 1359/MUM/2014 17 JUDGMENT OF CALCUTTA HIGH COURT IN THE CASE OF CIT V. SOORAJ MULL NAGARMULL [1981] 129 ITR 169 (CAL.) HELD: THE ASSESSEE USED TO CARRY ON EXPORT AND IMPO RT OF JUTE BUSINESS. IN THE COURSE OF NORMAL BUSINESS IT USED TO ENTER INTO FOR EIGN EXCHANGE CONTRACTS IN ORDER TO COVER UP LOSS AND DIFFERENCE IN FOREIGN EXCHANGE VALUATION. THE ASSESSEE UTILIZED PART OF THE AMOUNT OF THE FOREIGN EXCHANGE COVERED. THIS FINDING OF FACT HAS NOT BEEN CHALLENGED. IF IN THE COURSE OF NORMAL CARRYING ON OF BUSINESS CERTAIN LOSS OR OBLIGATION OR INTEREST ARISE THESE MUST BE DEFERRABLE TO THE CARRYING ON THE BUSINESS AND THESE MUST BE INCIDENTAL TO THE CARRYI NG ON OF THE BUSINESS. UNDOUBTEDLY, THE CONTRACT FOR FOREIGN EXCHANGE AS S UCH CAN BE TREATED AS A CONTRACT FOR COMMODITY.' THE CONCLUSION OF THIS JUDGMENT AS REPORTED READS A S UNDER: WHERE IN THE NORMAL COURSE OF BUSINESS OF IMPORT AN D EXPORT OF JUTE, THE ASSESSEE ENTERED INTO FOREIGN EXCHANGE CONTRACT TO COVER UP THE LOSSES AND DIFFERENCES IN EXCHANGE VALUATION, THE TRANSACTION IS NOT A SPECUL ATIVE TRANSACTION. 26. THE ABOVE EXTRACTS UNANIMOUSLY SUPPORT THAT THE FC S ENTERED BY THE ASSESSEE, AN EXPORTER AND NOT THE DEALER IN FOREIGN EXCHANGE, WITH THE BANKS AS INCIDENTAL TO THE EXPORT BUSINESS, ARE BUSINESS TRANSACTIONS AND LOSS OR GAINS IS NOT OF SPECULATION NATURE. THE ONLY RELEVANT DECISION CITED BY LD DR I S THE ONE DELIVERED IN THE CASE OF S. VINODKUMAR DIAMONDS (P.) LTD. (SUPRA) AND IN THIS C ASE, AO ALLOWED THE RELEVANT LOSS AS BUSINESS LOSS AND RELEVANT PORTION IS EXTRACTED AS UNDER: '4HE FURTHER HELD THAT LOSSES INCURRED BY THE ASSESSEE DURING THE YEAR ON ACCOUNT OF CHANGE IN VALUE OF CURRENCIES AT THE TIME OF PAYMENT WAS ALLOWED WHILE FINALISING THE ASSESSMENT, THAT M TO M LOSSES WERE OF NOTIONAL LOSSES AND CONTINGENT IN NATURE. FINALLY, LOSS ON A/C. OF OUTS TANDING FORWARD CONTRACT AS ON 31.03.2008 WERE DISALLOWED BY HIM.' 27. WE HAVE SO FAR ANALYZED THE SCOPE OF THE LEGAL PROP OSITIONS AND RELEVANT JUDGMENTS. NOW, WE SHALL APPLY THE SAME TO THE ISSU ES RAISED IN THE APPEAL. ANALYSIS OF THE CLAIMS OF THE ASSESSEE AND DISPUTES ETC., 28. THE DETAILS OF THE CLAIM MADE BY THE ASSESSEE IN T HE RETURN ARE TABULATED AS UNDER: GAINS (IN RS.) PROFIT ON PAYMENT OF REALISATION OF EXPORT RECEIVAB LES 4,31,44,019 LOSS ON CANCELLATION OF FCS PROFITS ON REVALUATION OF O/S DEBTORS AS ON 31.3.20 09 2.48,13,534 6,79,57,553 ITA 1359/MUM/2014 18 29. THUS, THE ASSESSEE CREDITED RS. 2,10,14,873/- TO TH E P & L ACCOUNT FOR THE YEAR AFTER SET OFF AND THE SAME IS THE SUBJECT-MATTER OF DISPUTE BETWEEN THE PARTIES AS THE AO DID NOT ALLOW SUCH SET OFF. 30. AS EXPLAINED EARLIER, AO TREATED WHOLE OF THE LOSS OF RS. 4,69,42,680/- AS THE SPECULATION LOSS OF THE ASSESSEE. THE PROFILE OF TH E TOTAL FORWARD CONTRACTS (FCS) BOOKED AND CANCELLATION OF THE FCS AND THE TIMING T HEREOF ARE TABULATED AS UNDER: TOTAL AMOUNT OF FCS (US$) AMOUNT OF CANCELLED FC (US$) LOSS ON FCS CANCELLED ON/ AFTER DUE DATE (INR) LOSS ON FCS CANCELLED 3 DAYS PRIOR FROM DUE DATE (INR) 1 2 3 4 19,444,000 10,704,760 41,488,805 4,218,940 31. THUS, THE ABOVE TABLE SUGGESTS THAT OUT OF THE TOT AL LOSS, LOSS OF RS. 4,14,88,805/- WAS TO THE BANKS ON ACCOUNT OF LOSS ON CANCELLATION OF MATURED FCS I.E., CANCELLED ON OR AFTER THE DUE DATE. THIS LOSS IS PAYABLE TO THE BANK AS PART OF THE TERMINATION OF CONTRACTS AFTER THE FULL PERIOD OF CONTRACT. IT IS ATTRIBUTABLE TO THE GENUINE FAILURE OF THE TRADE DEBTORS, WHO FAILED TO COMPLY WITH THE CREDIT TERMS AND CONDITIONS. IN OTHER WORDS, THEY ARE NOT THE CASES OF PREMATURE TERMINAT ION OR CANCELLATION OF THE IMPUGNED FCS. WHEREAS THE OTHER LOSS OF RS 42,18,94 0/- IN COLUMN 4 OF THE ABOVE TABLE, IT IS STATED THAT THE ASSESSEE CANCELLED THE CONTRACTS THREE DAYS IN ADVANCE AS THE CONTRACT DUE DATES FELL IN THE WEEKEND DAYS, WH ERE THE BOOKS REMAIN CLOSED. FINALLY THE LOSS OF RS 18,92,078/- IS RELEVANT TO T HE FCS CANCELLED PREMATURELY AND THERE IS NO SPECIFIC EXPLANATION FROM THE ASSESSEE IN THIS REGARD. HOWEVER, THE STANDARD EXPLANATION REVOLVES AROUND THE COMMERCIAL NATURE OF DECISION OF THE ASSESSEE, WHICH HE CAN TAKE AFTER CONSIDERING THE F ACTS AND CIRCUMSTANCES AND THE SAID DECISION IS TAKEN FOR PREVENTION OF FURTHER LO SSES IF ANY. 32. FLUCTUATIONS - RELATED FACTS:- FURTHER, THE FACTS RELATING TO DOLLAR FLUCTUATIONS ARE UNDISPUTED. THE PERUSAL OF THE CHART FURNISHED BY T HE ASSESSEE REFLECTING THE DOLLAR VALUE IN RUPEES IN THE MONTH OF APRIL AND FOUND THA T THE FLUCTUATIONS ARE VARYING FROM RS. 39.8550 TO RS. 40.6550 IN THE MONTH OF APRIL. F URTHER, ASSESSEE ALSO FURNISHED ANOTHER CHART FOR THE FY UNDER CONSIDERATION SHOWIN G CHANGING THE DOLLAR VALUE FOR THE YEAR AND IT IS THE FACT THAT THE DOLLAR VALUE P ER INR VARIED FROM RS. 39.85 TO RS. 51.21 PER $ REGISTERING THE VARIATIONS NEARLY RS. 1 2/- DURING THE YEAR. 33. CORRELATION OF FORWARD CONTRACTS VIS--VIS EXPORT INVOICES: ASSESSEE FILED A CHART FURNISHING THE EXPORT INVOICES RAISED IN THE YEAR U NDER CONSIDERATION AND RELATED FORWARD CONTRACTS BOOKED AND MATURED IN THE YEAR UN DER CONSIDERATION. THE DETAILS SUGGEST THAT THERE IS A BROAD CONNECTION IS ESTABLI SHED AND OF COURSE IT IS NOT UP TO THE EXTENT OF RUPEE. IT IS THE CASE OF THE REVENUE THAT THE CORRELATION SHOULD BE PRECISE TO THE LAST RUPEE OF THE INVOICE AMOUNT. THE SAID ARGU MENT WAS MADE OUT BY THE ASSESSEE RELYING ON THE JUDGMENT OF THE GUJARAT HIG H COURT IN THE CASE OF FRIENDS & FRIENDS SHIPPING (P.) LTD. (SUPRA) AND PANCHAMAHAL STEEL LTD. (SUPRA). CONSIDERING ITA 1359/MUM/2014 19 THE ABOVE STATED SCOPE OF THE RELEVANT PROVISIONS O N ONE SIDE AND THE PRECEDENTS ON THE OTHER, NOW WE SHALL TAKE UP THE CORE ISSUE OF A DJUDICATION OF THE GROUNDS RAISED IN THE APPEAL AND THE FATE OF THE IMPUGNED LOSSES OF R S. 4,69,42,680/-. RELEVANT PORTION FROM THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF FRIENDS & FRIENDS SHIPPING (P.) LTD. (SUPRA) IS AS FOLLOWS: 'IT IS TRUE THAT THE CIT (A) HAS MADE SOME OBSERVAT IONS WHICH WOULD PRIMA FACIE SUGGEST THAT THERE WAS NO DIRECT CO-RELATION BETWEE N THE EXCHANGE DOCUMENT AND THE PRECISE CONTRACT. HOWEVER, SUCH OBSERVATIONS CA NNOT BE SEEN IN ISOLATION. .WE FIND THAT THE DECISIONS OF THE BOMBAY HIGH COURT AND THE CALCUTTA HIGH COURT NOTED ABOVE WOULD COVER THE SITUATION. 34. FROM THE ABOVE ANALYSIS AND SUMMARY OF JUDGMENTS, IT IS SAFELY CONCLUDED THAT THE IMPUGNED FCS ARE 'COMMODITIES'. HOWEVER, CONSID ERING THE FACT THAT THESE FCS ARE INTEGRAL PART OR INCIDENTAL TO THE CORE BUSINES S OF EXPORT OF DIAMONDS OR THE OUTSTANDING RECEIVABLES OF EXPORT PROCEEDS, IN PRIN CIPLE, THE IMPUGNED FCS CONSTITUTE 'HEDGING TRANSACTION' AND NOT THE 'SPECULATIVE CONT RACTS'. AS SUCH, THE BANKS DO NOT ENTERTAIN FCS OF SPECULATIVE NATURE WITH THE CUSTOM ERS LIKE THE ASSESSEE, THE EXPORTER. AS SUCH, THE EXTENSION OF FCS, IN CASE OF NON-RECEI PT OF EXPORT PROCEEDS ON THE DUE DATES, IS NOT ALLOWED WITHOUT CANCELLING THE EXISTI NG FCS. HOWEVER, THE ONUS IS ON THE ASSESSEE TO EXPLAIN SATISFACTORILY WHY THE ASSESSEE RESORTED TO PREMATURE CANCELLATION OF SOME FCS. FURTHER, IT IS NOT THE RE QUIREMENT THAT THERE MUST BE 1:1 PRECISE CORRELATION BETWEEN FC AND THE CORRESPONDIN G EXPORT INVOICE. SO LONG AS THE TOTAL FCS DOES NOT EXCEED THE EXPORTS OF THE YEAR P LUS OUTSTANDING EXPORT RECEIVABLE, THE FCS CAN CONSTITUTE 'HEDGING TRANSACTION'. FURTH ER ALSO, THE 'PREMATURE CANCELLATION OF FCS MAY NOT ALTER THE ABOVE CONCLUSIONS SO LONG AS THE ASSESSEE HAS VALID AND ACCEPTABLE EXPLANATION FOR SUCH CANCELLATIONS. IT S HOULD NOT BE THE CASE, TO START WITH, FC CAN BE A 'HEDGING TRANSACTION' BUT THE ENDING OF SUCH FC IS 'SPECULATION'. IN THE LIGHT OF THIS SYNOPSIS OF OUR VIEWS IN THE MATTER, WE SHALL NOT DELIBERATE ON THE IMPUGNED LOSSES. 35. THE SUBDIVISIONS OF THE LOSS OF RS. 4,69,42,680/: WE HAVE ALREADY TABULATED ABOVE THE THREE SUBDIVISIONS OF THE IMPUGNED LOSSES BASED ON THE TIMING OF THE CANCELLATION OF THE FCS. BROADLY THE LOSS IS DIVIDE D INTO TWO TYPES AND THE ADJUDICATION OF THE EACH SUBDIVISION OF LOSS IS GIV EN AS UNDER: (A) LOSS ON CANCELLATION OF MATURED FCS AMOUNTING TO RS . 4,14,88,805/- RELATES TO THE FCS CANCELLED OR TERMINATED ON OR AFTER THE DUE DATE. IN OTHER WORDS, THE FCS BOOKED AS INTEGRAL PART OF THE EXPORT INVOICES LIVED ITS BOOKING PERIOD IN FULL AND THEY WERE E ITHER TERMINATED BY THE BANK ON OR AFTER DUE DATE O F MATURITY DATE OF THE CONTRACT AS THE ACTUAL REALIZA TION WERE NOT RECEIVED IN TIME. THESE ARE NOT PREMATURE CANCELLATIONS BY THE ASSESSEE AND THEREFORE, IN OUR CONSIDERED VIEW, THE SAID LOSS OF RS. 4,14,88,8 05/- , BEING RELATED TO THE FCS WHICH ARE INTEGRAL OR INCIDENTAL TO THE EXPORTS OF THE DIAMONDS , SHOULD BE ITA 1359/MUM/2014 20 ALLOWED AS BUSINESS LOSS IN VIEW OF THE BINDING HIG H COURT OR TRIBUNAL DECISIONS/JUDGMENTS IN THE CASE OF D KISHORE KUMAR & CO.(SUPRA), BADRIDAS GAURIDU (P.) LTD. (SUPRA), SOORAJ MULL NAGARMULL (S UPRA ) ETC. THUS, LOSS ARISING FROM CANCELLATION OF THE MATURED CONTRACTS IS ALLOW ED IN FAVOUR OF THE ASSESSEE. THUS, THIS PART OF THE GROUND OF THE ASSE SSEE IS ALLOWED. (B) (I) LOSS ON CANCELLATION OF PRE- MATURED FCS IS THE OTHER SEGMENT OF LOSS RELATES TO THE FCS CANCELLED PRIOR TO THE DATE OF MATURITY. THE QUESTION TO BE ANSWERED BY THE ASSESSEE RELATES TO THE ACCEPTABILITY OF THE EXPLANATION FOR SUCH PREMATURE CANCELLATION OF THE FCS BEFORE THE DUE DA TE OF MATURITY OF THE CONTRACT. IT IS A SETTLED ISSUE THAT THE ASSESSEE H AS TO DISCHARGE THE ONUS ON WHY HE HAD TO RESORT TO PREMATURE CANCELLATION. IN THIS CASE, THE EXPLANATION OF THE ASSESSEE REVOLVES AROUND THE FACT THAT THE M ATURITY OF DATE OF SOME OF SUCH PREMATURE CANCELLED FCS FELL DURING THE WEEK- END DAYS AND THEREFORE, THE ASSESSEE CANCELLED SUCH FCS THREE DAYS PRIOR TO THE DUE DATE. RELATED LOSS IS QUANTIFIED AT RS. 42,18,940/- . IN OUR OPINION, THE EXPLANATION OF THE ASSESSEE IS ACCEPTABLE AND TH E AO IS DIRECTED TO ALLOW THE CLAIM AND OF COURSE, AFTER DUE VERIFICATION OF THE FACTUM OF WEE K- ENDS. THUS, THIS PART OF THE GROUND OF THE ASSESSEE IS ALLOWED AS ABOVE WITHOUT GOING INTO THE ALTERNATE ARGUMENTS RELATING TO 'DAMAGES'. (II) THE OTHER SHA DE OF LOSS OF PREMATURE CANCELLATION OF FCS RELATES TO THE FCS CANCELLED PRIOR TO LONGER THAN THREE DAYS CONSTITUT ES ANOTHER FRACTION OF THE LOSS AND THE ASSESSEE'S EXPLANATION IN THIS REGARD REVOLVES AROUND THE GENERAL EXPLANATION OF REDUCTION OF LOSSES. RELEVANT LOSS IS WORKED OUT AT RS. 18,92,078/- . THIS SEGMENT OF LOSSES RELATES TO PREMATURE CANCE LLATIONS OF THE FCS AND THE EXPLANATION OF THE ASSESSEE IS VERY GEN ERAL. AS SUCH, PREMATURE CANCELLATIONS SHOULD ALSO BE ALLOWED AS BUSINESS LO SS IN VIEW OF TH E DECISIONS DISCUSSED IN THE PRECEDING PARAGRAPHS, SO LONG AS T HE RELATED FCS ARE INTEGRAL PART OF THE EXPORTS. HOWEVER, THERE IS SOMETHING CA LLED FOR IS THE ASSESSEE'S EXPLANATION AND ITS CREDIBILITY AND ACCEPTABILITY B Y THE AO. IN OUR OPINION, THESE EXPL ANATIONS WERE NOT EXAMINED BY THE LOWER AUTHORITIES OF THE REVENUE. ASSESSEE NEEDS TO ANSWER AS TO WHY IT WENT FOR PREMATURE TERMINATION AND THE ONUS IS ON THE ASSESSEE AS PER THE RATIO OF THE SC JUDGMENT IN THE CASE OF JOSEPH JOHN (SUPRA). FURTHER, DURING THE PROCEEDINGS BEFORE US, ON THIS ISSUE, LD COUNSEL FOR THE ASSESS EE PUT FORWARDED VARIOUS NEW ARGUMENTS DESCRIBING THE IMPUGNED LOSS AS 'DAMA GES' PAYABLE TO THE BANKS FOR BREACH OF CONTRACTS OR SETTLEMENT OF THE CONTRACTS. THESE ASPECTS ARE NOT EMANATIN G FROM THE ORDERS OF THE LOWER AUTHORITIES. ONE NEE DS TO STUDY THE CORRESPONDENCE WITH THE BANKS AND THE RBI GUIDELINE S ON THE ISSUE WHETHER SUCH PAYMENTS TO BANK SHOULD BE TREATED AS DAMAGES FOR BREACH OF CONTRACT. ONE NEEDS TO EXAMINE WHO THE BANK TREATS THE SAME AND RELEVANT ACCOUNTING PRINCIPLES. IN THIS REGARD, LD COUNSEL ALSO FILED W RITTEN SUBMISSION TOO. IN PRINCIPLE, THIS PART OF THE LOSSES RELATING TO PREM ATURE CANCELLATIONS OF FCS ITA 1359/MUM/2014 21 AMOUNTING TO RS 18,92,078/- SHOULD BE REMANDED TO T HE FILE OF THE A O FOR WANT OF SPEAKING ORDER ON THIS ISSUE AFTER CONSIDER ING THE CITED JUDGMENTS LIKE SHANTILAL (P.) LTD. (SUPRA ) ON THIS ISSUE. AO IS DIRECTED TO DISALLOW THIS LO SS IN THE ABSENCE OF SPECIFIC EXPLANATION, IF ANY. AS SUCH, IMPUGNED ORDER IS DEFICIENT ON TH ESE ASPECTS OF THE ISSUE. THUS, THIS PART OF THE GR OUND IS ALLOWED PRO TANTO. 36. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. WE HAVE OBSERVED THAT THE ASSESSEES FACTS IN THE I NSTANT ASSESSMENT YEAR UNDER APPEAL ARE SIMILAR TO THE FACTS OF THE ASSESS EE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. WE HAVE ALSO OBSERVED TH AT THE LEARNED CIT(A) HAS RECORDED FINDING AS UNDER: 5.2 ON EXAMINATION OF THE FACTS OF THE APPELLANT U NDER THE YEAR UNDER CONSIDERATION IN THE LIGHT OF THE AFOREMENTIONED DE CISION OF HONBLE ITAT IN APPELLANTS CASE OF PRECEDING YEAR I.E. 200 9-10 , IT IS NOTED THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT H AS EARNED A LOSS OF RS.1,69,98,416/- ON THE TRANSACTIONS WHICH WERE CAN CELLED ON OR AFTER THE DUE DATE OF MATURITY. IN VIEW OF THE DECISION O F HONBLE ITAT IN THE CASE OF THE APPELLANT FOR IMMEDIATELY PRECEDING YEA R SUCH LOSSES ARE GENUINE BUSINESS LOSSES WHICH CANNOT BE TREATED AS SPECULATIVE LOSSES. IT IS ALSO A FACT THAT THE APPELLANT HAS ALSO CANCE LLED SOME OF ITS FOREIGN EXCHANGE FORWARD CONTRACTS BEFORE THE DUE DATE, BUT SUCH TRANSACTIONS HAS RESULTED IN NET PROFIT OF RS. 85,27,033/- ( PRO FIT ON SUCH TRANSACTIONS AS RS.1,17,66,612/- - LOSS ON SUCH TRA NSACTIONS AT RS. 32,39,579/- ) . FOR THE SAKE OF DISCUSSION, EVEN IF SUCH TRANSACTIONS ARE HELD TO BE SPECULATIVE IN NATURE SIMPLY BECAUSE THE APPELLANT HAS CANCELLED THESE TRANSACTIONS BEFORE THE MATURITY DA TE, STILL IT DOES NOT HAVE ANY ADVERSE EFFECT ON REVENUE BECAUSE NET RESU LT OF SUCH TRANSACTIONS IS PROFIT AND NOT THE LOSS. THEREFORE, AFTER CONSIDERING THE TOTALITY AND CIRCUMSTANCES OF THE INSTANT CASE AS W ELL AS THE PRINCIPLE LAID DOWN BY THE HONBLE ITAT IN APPELLANTS OWN CA SE IN A.Y.2009-10, IT IS NOTED THAT THE NET LOSS OF RS.84,71,383/- (RS .1,69,98,416 - 85,27,033) OF THE APPELLANT IS IN RESPECT OF THE TR ANSACTIONS OF ONLY THOSE FORWARD CONTRACTS WHICH WAS INCURRED ON SETTL EMENT ON OR AFTER DUE DATE OF THE CONTRACTS. SINCE SUCH TRANSACTIONS WERE CARRIED OUT IN THE NORMAL COURSE OF BUSINESS TO GUARD AGAINST THE FLUCTUATION IN FOREIGN EXCHANGE SUCH TRANSACTIONS ARE IN NATURE OF HEDGING TRANSACTIONS, LOSS ON WHICH IS GENUINELY BUSINESS L OSS, HENCE THE AO IS DIRECTED TO ALLOW THE SAME. ITA 1359/MUM/2014 22 THE LEARNED DR HAS FAILED TO SHOW HOW THAT FINDING RECORDED BY THE LEARNED CIT(A) IS PERVERSE. RESPECTFULLY FOLLOWING THE DEC ISION OF THE TRIBUNALS IN ASSESSEES OWN CASE IN ITA NO. 6169/MUM/2012 VIDE O RDERS DATED 11.10.2013 FOR THE ASSESSMENT YEAR 2009-10 , WE DIS MISS THE APPEAL OF THE REVENUE IN TERMS AND IN ACCORDANCE WITH THE DECISIO N OF THE TRIBUNAL IN ITA NO. 6169/MUM/2012 VIDE ORDERS DATED 11.10.2013.WE O RDER ACCORDINGLY. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I N ITA NO. 1359/MUM/2014 FOR THE ASSESSMENT YEAR 2010-11 IS DI SMISSED IN TERMS OF DECISION OF THE TRIBUNAL IN ITA NO. 6169/MUM/2012 V IDE ORDERS DATED 11.10.2013. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH NOVEMBER, 2016. # $% &' 7-11-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 7-11-2016 [ !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. 9 / CIT- CONCERNED, MUMBAI 5. <=( >>?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, < > //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI