R D STAR JEWELRY P. LTD, MUMBAI V. ASST CIT 5(3), MUMBAI

ITA 1497/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101230 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 02-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-03-2014
• Court: TRIBUNAL
• Department Lawyers: PRAMOD NIKARJE
• Assessee Lawyers: BHARATH JANARTHANAN
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI LALIT KUMAR, JUDICIAL MEMBER I.T.A. NO. 1497/M/2014 (AY:2004 - 2005 ) R T STAR JEWELRY PRIVATE LIMITED, UNIT NO.G - 4, G & J COMPLEX - I, SEEPZ - SEZ, ANDHERI (EAST), MUMBAI 400096. / VS. ACIT - 5(3), MUMBAI. ./ PAN : AACCR0244A ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI BHARATH JANARTHANAN / RESPONDENT BY : SHRI PRAMOD NIKARJE / DATE OF HEARING : 26.08.2015 / DATE OF PRONOUNCEMENT : 05.10 .2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 4.3.2014 IS AGAINST THE ORDER OF THE CIT (A) - 9, MUMBAI DATED 27.1.2012 FOR THE ASSESSMENT YEAR 2009 - 2010. IN THIS APPEAL, ASSESSEE RAISED TWO GROUNDS IE GROUND NO.1 RELATES TO THE ALLOWABILITY OF MARK - TO - MARKET LOSS OF RS. 1,46,94,250/ - AND (II) ALLOWABILITY OF INTER EST INCOME AS AN ELIGIBLE INCOME FOR THE PURPOSE OF DEDUCTION U/S 10A OF THE ACT AMOUNTING TO RS. 10,95,707/ - . 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF DIAMOND STUDDED GOLD JEWELLERY. ASSES SEE FILED THE RETURN OF INCOME DECLARING THE TOTAL LOSS OF RS. 3,64,90,759/ - . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 10,95,707/ - . IN THE ASSESSMENT, AO DISALLOWED (I) RS.1,46,94,250/ - ON ACCOUNT OF MA RK - TO - MARKET LOSS AND (II) RS. 10,95,707/ - IS DISALLOWED AS THE SAME IS NOT A QUALIFYING AMOUNT FOR COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. AGGRIEVED WITH THE DECISION OF THE AO, ASSESSEE IS IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 2 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) DISMISSED THE APPEAL. AGAIN AGGRIEVED WITH THE SAID DECISION OF THE CIT (A), ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 4. DURING THE PROCEEDING BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE GROUND NO.1 AND MENTIONED THAT THE ISSUE RAISED IN THE GROUNDS RELATES TO THE ALLOWABLITY OF MARK - TO - MARKET LOSS. IN THIS REGARD, HE SUBMITTED THAT THIS ISSUE STANDS COVERED BY VA RIOUS DECISIONS OF THE TRIBUNAL VIZ (I) M/S. GITANJALI EXPORTS CORPORATION LTD VS. ADDL. CIT IN ITA NOS. 6947 & 4948/M/2011 AND OTHERS DATED 8.5.2013; (II) ACIT VS. M/S. POLAR STAR VIDE ITA NOS. 764 & 765/M/2014 (AYS 2009 - 10 & 2010 - 11) DATED 5.8.2015; ( III) ITA NO.6067/MUM/2012 (AY 2009 - 2010), DATED 2.12.2014, WHEREIN ONE OF US (AM) IS A PARTY TO THE SAID ORDERS. COPIES OF THE SAID ORDERS OF THE TRIBUNAL ARE ALSO PLACED ON RECORD. 5. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITI ES. 6. ON HEARING BOTH THE PARTIES AND ON PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED ORDERS OF THE TRIBUNAL (SUPRA), WE FIND THE ISSUE OF ALOWABLILITY OF MARK - TO - MARKET LOSS STANDS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS DEC ISIONS OF THE TRIBUNAL. IN THIS REGARD, FOR THE SAKE OF COMPLETENESS OF THIS ORDER, RELEVANT PORTION FROM THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. POLAR STAR (SUPRA) IS EXTRACTED AS UNDER: 7. ........... . ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. C.J. EXPORTERS (SUPRA), WHEREIN ONE OF US (AM) IS A PARTY TO THE ORDER, WE FIND THE IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND PARAS 4 AND 5 OF THE SAID TRIBUNALS ORDER ARE RELEVANT IN THIS REGARD...... 4. WE HAVE H EARD THE LD DR AND PERUSED THE ORDERS OF THE AO AS WELL AS THE CIT (A) AND FIND THAT THE CIT (A) HAS DISCUSSED THE ISSUE AT LENGTH VIDE PARA 6 OF THE IMPUGNED ORDER. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, RELEVANT PORTION FROM THE SAID PARA 6 OF THE CIT (A)S ORDER IS REPRODUCED HERE UNDER. 6.....AT PRESENT, IT IS NOT THE AOS CASE THAT THE IMPUGNED TRANSACTION IS SPECULATIVE IN NATURE. FURTHER, THE AFORESAID ISSUE OF ALLOWING THE LOSS ON ACCOUNT OF REVALUATION OF PENDING FORWARD CONTRACTS WAS CO NSIDERED BY THE HONBLE ITAT MUMBAI BENCH IN THE CASE OF M/S. BHAVANI GEMS VS. ACIT CC - 35, IN ITA NO.2855/MUM/2010 DATED 30.3.2011 FOR THE AY 2006 - 2007 AND THE SAID LOSS WAS ALLOWED AS BUSINESS LOSS AND THE ISSUE WAS HELD TO BE COVERED BY SPECIAL BENCH DEC ISION IN THE CASE OF DCIT VS. BANK OF BAHRAIN. THEREFORE, IN MY CONSIDERED OPINION THE FACTS OF THE APPELLANTS CASE ARE FULLY COVERED BY THE ABOVE CITED DECISIONS OF THE HONBLE SUPREME COURT AND THE ITAT MUMBAI BENCH. ACCORDINGLY, I HOLD THAT THE LOSS INCURRED BY THE APPELLANT ON RESTATEMENT OF PENDING FORWARD CONTRACT AGREEMENTS AT THE YEAR - END IS AN ALLOWABLE BUSINESS LOSS. APPELLANT SUCCEEDS ON THIS GROUND. 3 5. FROM THE ABOVE, IT IS EVIDENT THAT THE MARK - TO - MARKET GAIN OR LOSS IS HELD AS ALLOWABLE GAIN OR LOSS AS THE CASE MAY BE. IN THE INSTANT CASE, LOSS OF RS. 1,06,90,750/ - ARISING ON RE - VALUATION OF FORWARD CONTRACT AGREEMENTS ON 31 ST MARCH, 2009. THUS, THE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND RAISED BY THE REVENUE IS DISMISSED. 7. FROM THE ABOVE, IT IS EVIDENT THAT THE MARK - TO - MARKET GAIN OR LOSS IS HELD AS ALL OWABLE BUSINESS GAIN OR LOSS AS THE CASE MAY BE. IN THE INSTANT CASE, LOSS OF RS. 1,46,94,250 / - ARISING ON RE - VALUATION OF FORWARD CONTRACT AGREEMENTS ON 31 ST MARCH, 2009. THUS, CONSIDERING THE SETTLED NATURE OF THE ISSUE, THE DECISION OF THE CIT (A) O N THIS ISSUE IS REQUIRED TO BE REVERSED. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED . 8. GROUND NO.2 RELATES TO THE ALLOWABILITY OF INTEREST INCOME AS ALLOWABLE INCOME FOR THE PURPOSE OF DEDUCTION U/S 10A OF THE ACT AMOUNTING TO RS. 10,95,707/ - . WITHOUT PREJUDICE, LD COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT IF THE SAID RECEIPTS ARE NOT ALLOWABLE FOR EXEMPTION, THE INTEREST NEEDS TO BE NETTED WITH THE EXPENSES IN ACCORDANCE WITH THE PROVISIONS OF SECTION 57(III) OF THE ACT. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THIS ISSUE MAY BE REMANDED TO THE FILE OF THE AO FOR FRESH ADJUDICATION AND DECISION ON THIS MATTER. 9. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE ORDERS OF THE REVENU E AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US, WE ARE OF THE OPINION THAT THIS ISSUE SHOULD BE REMANDED. WE ORDER ACCORDINGLY BY KEEPING ALL THE ISSUES OPEN TO THE AO FOR FRESH ASSESSMENT AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 5 T H O C T O B E R , 2015. S D / - S D / - ( LALIT KUMAR ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 5 . 1 0 .2015 . . ./ OKK , SR. PS 4 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI