COMBINE DIAMONDS LTD, MUMBAI V. ASST CIT 5(1), MUMBAI

ITA 233/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2265 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Cost of acquisition; Speculation loss
• Section: 143(3); 37(1); 43(5); 37; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH C, MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.233/MUM/2013 FOR ASSESSMENT YEAR: 2009-10 COMBINE DIAMONDS LIMITED 10, THE JEWEL, M. P. MARG, OPERA HOUSE, MUMBAI-400004. PAN: AAACC9949H VS. ACIT -5(1), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020. (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. K. SHIVRAM (AR) REVENUE BY : SHRI K. MOHANDAS ( DR) DATE OF HEARING : 02.08.2016 DATE OF PRONOUNCEMENT : 26.10.2016 O R D E R PER PAWAN SINGH, JM: 1. THIS APPEAL U/S. 253 OF INCOME-TAX ACT IS DIRECTED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-9, MUMBAI DATED 16.10.2012 FOR AY 2 009-10 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE-COMPANY I S ENGAGED IN THE BUSINESS OF TRADING, MANUFACTURING AND EXPORT OF CUT AND POLISH ED DIAMONDS AND JEWELLERY, FILED ITS RETURN OF INCOME ON 29.09.2009 FOR RELEVA NT AY DECLARING TOTAL INCOME AT RS. 68,42,900/-. THE CASE WAS SELECTED FOR SCRUT INY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO E XPLAIN WHY THE REVALUATION OF FORWARD CONTRACT AMOUNTING TO RS. 41,52,450/- SH OULD NOT BE DISALLOWED. THE ASSESSEE FURNISHED THE REPLY WHICH WAS NOT ACCEPTED BY THE AO HOLDING THAT MARK TO MARKET LOSS SHOULD BE CONSIDERED AS JUST NO TIONAL LOSSES WHO DO NOT INVOLVED ANY ACTUAL OUTGO AS THE ASSESSEE IS NOT LI ABLE TO PAY SUCH LOSSES AND ADDED BACK FOR THE PURPOSE OF COMPUTING TAXABLE INC OME IN THE HAND OF ASSESSEE. AGGRIEVED BY THE ORDER OF AO, THE ASSESSE E FILED APPEAL BEFORE THE CIT(A). DURING THE APPELLATE PROCEEDINGS, THE LD. C IT(A) ISSUED A SHOW CAUSE 2 ITA NO. 233/M/2013 COMBINE DIAMONDS LIMITED NOTICE AS TO WHY LOSS ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACT SHOULD NOT BE DISALLOWED AS SPECULATION LOSSES. THE ASSESSEE R EPLIED SHOW CAUSE NOTICE AND CONTENDED THAT ASSESSEE HAD INCURRED/SUFFERED A TOT AL LOSS OF RS. 2,07,29,831/- ON FORWARD FOREX TRANSACTION, IT WAS FURTHER CONTENDED THAT ASSESSEE ENTERED INTO FORWARD CONTRACT TO HEDGE THE FOREIGN EXCHANGE FLUC TUATION. THE FORWARD CONTRACT WERE ENTERED AGAINST THE EXPORT INVOICES A ND THEY WERE SETTLED OTHERWISE THEN DELIVERY EITHER WHOLLY AND PURELY OR ON THE EXPIRY OF FORWARD CONTRACTS. THE CANCELLATION OF FORWARD CONTRACT IS NOT A SPECULATIVE TRANSACTION AS PER SUB-SECTION 5 OF SECTION 43 OF THE ACT. THE REPLY OF THE ASSESSEE WAS NOT ACCEPTED BY LD CIT(A). THE LD. CIT(A) HELD THAT TH E ASSESSEE FAILED TO DISCHARGE HIS BURDEN CAST UPON IT. THE LD CIT(A) FURTHER CON CLUDED THAT ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO SHOW THAT TRANSACTION ARE ONLY HEDGING CONTRACT AND LOSS CANNOT BE SET OFF AGAINST THE ASSESSEES BUSIN ESS INCOME AS PER EXPLANATION TO SECTION 73 OF THE ACT AND THUS, ENHANCE THE INCO ME OF ASSESSEE BY A SUM OF RS. 2,07,29,831/- IN THE IMPUGNED ORDER DATED 16.10 .2012. THUS, THE ASSESSEE FILED THE PRESENT APPEAL RAISING THE FOLLOWING GROU NDS OF APPEAL: GROUND NO. 1: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) (HEREINAFTER R EFERRED AS 'THE LEARNED CIT (A)') HAS ERRED IN CONFORMING THE ACTIO N OF THE LEARNED ASSESSING OFFICER FOR DISALLOWANCE OF BUSINESS EXPE NDITURE IN THE NATURE OF MARKED - TO - MARKET (MTM) LOSS ON RESTATEMENT O F OUTSTANDING FORWARD CONTRACTS TO THE EXTENT OF RS. 4,152,450/- BY CONSIDERING THE LOSS AS NOTIONAL AND SPECULATIVE IN NATURE. GROUND NO. 2: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN ENHANCING THE INCOME BY A SUM OF RS. 2,07,29,381/- BEING THE LOSSES INCURRED ON SETT LEMENT OR CANCELLATION OF FORWARD CONTRACTS BY TREATING IT AS SPECULATION LOSS WITHOUT APPRECIATING THE FACTS AVAILABLE ON RECORDS. GROUND NO. 3: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT (A) HAS ERRED IN MAKING ENHANCEMENT OF ASSESSED INC OME OF THE APPELLANT BY RS. 2,07,29,381/- WHICH WAS INCLUSIVE OF THE DIS ALLOWANCE OF THE MTM LOSS OF RS. 4,152,450/- ON REVALUATION OF FORWARD C ONTRACT, RESULTING INTO MAKING TWICE DISALLOWANCE OF RS. 41,52,450/-. 3. WE HAVE HEARD THE LD. AUTHORISED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR REVENUE AND GO NE THROUGH THE ORDERS OF 3 ITA NO. 233/M/2013 COMBINE DIAMONDS LIMITED AUTHORITIES BELOW. THE LD. AR OF THE ASSESSEE ARGUE D THAT THE GROUND NO.1 OF THE APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSE E BY VARIOUS DECISIONS OF THE TRIBUNAL AND THE DECISION OF BOMBAY HIGH COURT. ON THE OTHER HAND LD DR FOR REVENUE SUPPORTED THE ORDER OF AUTHORITY BELOW. 4. WE HAVE CONSIDERED THAT RIVAL CONTENTIONS OF THE PA RTIES AND OBSERVED THAT SIMILAR ISSUES WAS CONSIDERED BY THE COORDINATE BENCH OF TH IS TRIBUNAL IN CASE OF THE PAPER PRODUCTS LTD VS ACIT IN ITA NO.7761/M/ 2012 A ND THE COORDINATE BENCH HELD AS UNDER: WE FIND THAT THIS ISSUE OF MARKED TO MARKET LOSS ON FOREIGN EXCHANGE CONTRACT IS COVERED IN FAVOUR OF THE ASSESSEE NOT ONLY BY THE D ECISION OF THE HON'BLE SUPREME COURT IN WOODWARD GOVERNOR INDIA P. LTD. (SUPRA) BU T ALSO SERIES OF DECISIONS OF THE COORDINATE BENCH OF THE TRIBUNAL. FOR THE SAKE OF READY REFERENCE, THE RELEVANT FINDINGS OF THE TRIBUNAL IN RELIANCE INDUSTRIES LTD . (SUPRA), AS RELIED UPON BY THE LEARNED COUNSEL, IS REPRODUCED HEREIN BELOW: 8. WE HAVE CAREFULLY CONSIDERED THE ORDER OF LD. COMMISSIONER OF INCOME TAX AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO CAREFULLY CONSIDERED THE CASES CITED BEFORE US (SUPRA). IT IS RELEVANT T O STATE THAT IN THE CASE OF WOODWARD THE PAPER PRODUCTS LTD. 4 GOVERNOR INDIA (P.) LTD. (SUPRA), THE HONBLE APEX COURT OBSERVED AND HELD THAT THE ASSESSEE DEBITED TO ITS PROFIT AND LOSS ACCOUNT CERTAIN UNREALIZED LOSS DUE TO FOREIGN EXCHANGE FLUCTUATION IN FOREIGN CURRENCY TRANSACTIONS TOWARDS REVENUE ITEMS AS ON THE LAST DAY OF THE ACC OUNTING YEAR. THE A.O. HELD THAT THE LIABILITY AS ON THE LAST DATE OF THE PREVIOUS Y EAR WAS NOT AN ASCERTAINED BUT A CONTINGENT LIABILITY. RESULTANTLY, THE SAME WAS ADD ED BACK TO THE TOTAL INCOME. THE CIT(A) ECHOED THE ASSESSMENT ORDER. HOWEVER, THE TR IBUNAL HELD THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF UNREALIZED LOSS DUE T O FOREIGN EXCHANGE FLUCTUATION AS ON THE LAST DATE OF THE PREVIOUS YEAR WAS DEDUCTIBL E. THE SAID ORDER OF THE TRIBUNAL WAS UPHELD BY THE HONBLE HIGH COURT. ON FURTHER AP PEAL BY THE DEPARTMENT, THE HONBLE SUPREME COURT HELD THAT THE LOSS SUFFERED B Y THE ASSESSEE IS ON REVENUE ACCOUNT TOWARDS FOREIGN EXCHANGE DIFFERENCE AS ON T HE DATE OF BALANCE SHEET AND IS AN ITEM OF EXPENDITURE DEDUCTIBLE U/S 37(1). IT FUR THER OBSERVED THAN AN ENTERPRISE HAS TO REPORT OUTSTANDING LIABILITY RELATING TO IMP ORT OF RAW MATERIAL USING CLOSING RATE OF FOREIGN EXCHANGE AND ANY DIFFERENCE, LOSS O R GAIN, ARISING ON CONVERSION OF SAID LIABILITY AT CLOSING RATE SHOULD BE RECOGNIZED IN PROFIT AND LOSS ACCOUNT FOR REPORTING PERIOD. FROM THE JUDGMENT OF THE HONBLE SUPREME COURT IT CAN BE CLEARLY DEDUCED THAT UNREALIZED LOSS DUE TO FOREIGN EXCHANG E FLUCTUATION IN FOREIGN CURRENCY TRANSACTIONS ON REVENUE ITEM AS ON THE LAST DATE OF THE ACCOUNTING YEAR IS DEDUCTIBLE. 9. ITAT, IN THE CASE OF KOTAK MAHINDRA INV ESTMENT LTD. (SUPRA) ALSO CONSIDERED A SIMILAR ISSUE. IN THE SAID CASE THE ASSESSEE COMPAN Y WAS ENGAGED IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES AGAINST SHARES AND S ECURITIES ALSO TRADED IN DERIVATIVE SEGMENT BY ENTERING INTO FUTURE AND OPTI ON CONTRACT. SOME OF THE FUTURE CONTRACTS COULD NOT BE SQUARED UP AT THE END OF THE FINANCIAL YEAR. THE ASSESSEE BOOKED THE EXPECTED LOSS IN SUCH CONTRACTS ON MTM B ASIS. THE ASSESSEE THUS 4 ITA NO. 233/M/2013 COMBINE DIAMONDS LIMITED CLAIMED A LOSS AS CALCULATED ON MTM BASIS CLAIMING THAT HE WAS FOLLOWING THIS PRACTICE CONSISTENTLY. THAT IT WAS ALSO AS PER RECO GNIZED ACCOUNTING STANDARD. AO REJECTED THE CLAIM ON THE GROUND THAT THE DERIVATIV E CONTRACTS WERE NOT STOCK IN TRADE AS THERE WAS NO COST OF ACQUISITION. HE FINAL LY HELD THAT THE LOSS ON ACCOUNT OF MTM BASIS WAS THUS A NOTIONAL LOSS AND WAS CONTIN GENT IN NATURE AND COULD NOT BE ALLOWED TO BE SET OFF AGAINST TAXABLE INCOME. ON APPEAL, THE LD. CIT(A) ALLOWED THE SAME BY AGREEING WITH THE CONTENTION OF THE ASS ESSEE THAT SUCH LOSS ON SUCH VALUATION WHICH IS CALLED MTM HAS TO BE ALLOWED E VEN THOUGH IT MAY APPEAR TO BE A NOTIONAL LOSS. THE TRIBUNAL WHILE CONFIRMING ORDE R OF LD. CIT(A) AND ALLOWING THE SAID LOSS PLACED RELIANCE ON THE DECISION OF HONBL E APEX COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (P.) LTD. (SUPRA) AND ALSO THE DECISION OF TRIBUNAL IN THE CASE OF EDELWEISS CAPITAL LTD V/S ITO IN ITA NO.532 4/ MUM/2007 (AY- THE PAPER PRODUCTS LTD. 5 2004-05) DATED 10.11.2010 AND THE D ECISION IN THE CASE OF RAMESH KUMAR DAMANI V/S ADDL.CIT IN ITA NO.1443/MUM/2009 ( AY-2006-07) DATED 26.11.2010. COPIES OF WHICH ARE PLACED IN THE COMPI LATION OF CASE LAWS AT PAGES 76 TO 84 AND PAGES 85 TO 90 RESPECTIVELY. WE ALSO OBSERVE THAT SIMILAR ISSUE WAS CON SIDERED BY HONBLE APEX COURT IN THE CASE OF ONGC LTD (SUPRA). THE ASSESSEE A PUBLIC SECTOR U NDERTAKING WAS ENGAGED IN THE CAPITAL INTENSIVE EXPLORATION AND PRODUCTION OF PET ROLEUM PRODUCTS FOR WHICH IT HAD TO HEAVILY DEPEND ON FOREIGN LOANS TO COVER ITS EXP ENSES, BOTH CAPITAL AND REVENUE AND FOR PAYMENT TO NON-RESIDENT CONTRACTORS IN FORE IGN CURRENCY FOR VARIOUS SERVICES RENDERED. THE ASSESSEE MADE THREE TYPES OF FOREIGN EXCHANGE BORROWINGS I.E.(I) ON REVENUE ACCOUNT; (II) ON CAPITAL ACCOUNT, AND (III) FOR GENERAL PURPOSES. SOME OF THE LOANS BECAME REPAYABLE IN THE RELEVANT ACCOUNTING Y EAR AND THE DATE OF PAYMENT OF SOME LOANS FELL AFTER THE END OF THE RELEVANT ACCOU NTING YEAR. THE ASSESSEE REVALUED ITS FOREIGN EXCHANGE LOANS IN FOREIGN EXCHANGE ON R EVENUE ACCOUNT, ON CAPITAL ACCOUNT AND FOR GENERAL PURPOSES OUTSTANDING AS ON 31- 3-1991, AND CLAIMED THE DIFFERENCES BETWEEN THEIR RESPECTIVE AMOUNTS IN IND IAN CURRENCY AS ON 31-3-1990 AND 31-3-1991 AS REVENUE LOSS UNDER SECTION 37(1) I N RESPECT OF LOANS USED IN REVENUE ACCOUNT. THE ASSESSEE ALSO TREATED THE SIMI LAR DIFFERENCE IN FOREIGN EXCHANGE AS AN INCREASED LIABILITY U/S 43A. THE AO ALLOWED THE DEDUCTION CLAIMED U/S 37(1), TAKING INTO CONSIDERATION THE INCREASED FOREIGN EXCHANGE LIABILITY AND REPAID IN THE ACCOUNTING YEAR FOR THE PURPOSE OF DE PRECIATION. HE DID NOT HOWEVER, ALLOW THE CLAIM FOR FOREIGN EXCHANGE LOSS ON LOANS BOTH IN RELATION TO CAPITAL AS WELL AS REVENUE ACCOUNT WHICH WERE OUTSTANDING ON THE LA ST DAY OF ACCOUNTING YEAR. ON APPEAL, THE CIT(A) AFFIRMED THE VIEW OF AO IN RELAT ION TO DEDUCTION U/S 37 OF THE INTEREST ON LOANS OUTSTANDING ON THE LAST DAY OF TH E ACCOUNTING YEAR BUT ALLOWED THE BENEFIT OF INCREASED LIABILITY FOR COMPUTATION U/S 43A IN RELATION TO LOSS OUTSTANDING ON THE LAST DAY OF THE ACCOUNTING YEAR. HENCE, THE ASSESSEE AS WELL AS DEPARTMENT TOOK THE MATTER IN APPEAL TO THE APPELLATE TRIBUNAL . THE TRIBUNAL HELD THAT THE LOSS CLAIMED BY THE ASSESSEE ON REVENUE ACCOUNT WAS ALLO WABLE U/S 37(1) AND ALSO REJECTED THE APPEAL OF THE DEPARTMENT AND HELD THAT THE ASSESSEE WAS ENTITLED TO ADJUST ACTUAL COST ON IMPORTED ASSETS ACQUIRED IN F OREIGN CURRENCY ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE IN TERMS OF SEC TION 43A. ON APPEAL BY THE DEPARTMENT, THE HONBLE HIGH COURT REVERSED THE DEC ISION OF THE TRIBUNAL ON BOTH THE ISSUES. ON FURTHER APPEAL TO THE APEX COURT, TH E DECISION OF THE HIGH COURT WAS REVERSED AND IT WAS HELD THAT (A) THAT THE LOSS CLA IMED BY THE ASSESSEE ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE AS ON T HE DATE OF THE BALANCE-SHEET WAS ALLOWABLE AS AN THE PAPER PRODUCTS LTD. 6 EXPENDITU RE U/S 37(1), AND (B) THAT THE ASSESSEE WAS ENTITLED TO ADJUST THE ACTUAL COST OF IMPORTED ASSETS ACQUIRED IN 5 ITA NO. 233/M/2013 COMBINE DIAMONDS LIMITED FOREIGN CURRENCY ON ACCOUNT OF FLUCTUATION IN THE R ATE OF EXCHANGE AT EACH OF THE RELEVANT BALANCE SHEET DATES, PENDING ACTUAL PAYMEN T OF THE LIABILITY U/S 43A, PRIOR TO ITS AMENDMENT BY FINANCE ACT, 2002. 11. IN VIEW OF ABOVE DECISIONS, IT IS CLEA R THAT THE LOSS DUE TO FOREIGN EXCHANGE FLUCTUATION IN FOREIGN CURRENCY TRANSACTIONS IN DER IVATIVES HAS TO BE CONSIDERED ON THE LAST DATE OF ACCOUNTING YEAR AND IT IS DEDUCTIB LE U/S 37(1) OF THE ACT. THEREFORE, IN ALLOWING THE SAID CLAIM OF THE ASSESSEE BY AO, T HE ACTION OF THE AO IS IN CONSONANCE WITH THE DECISIONS OF THE HONBLE APEX C OURT AND ALSO THE VIEW TAKEN BY THE TRIBUNAL IN THE CASES CITED HEREINABOVE (SUPRA) . HENCE, THE VIEW TAKEN BY AO TO ALLOW LOSS OF RS.43.78 CRORES WHILE MAKING ASSESSME NT U/S 143(3) ON ACCOUNT OF DERIVATIVE CONTRACT OUTSTANDING IS NOT AN ERRONEOUS VIEW TAKEN BY AO , NOR THE ACTION OF AO IS PREJUDICIAL TO THE INTEREST OF REVE NUE. HENCE, THE ORDER OF COMMISSIONER OF INCOME TAX U/S 263 OF THE ACT TO HO LD THAT THE ACTION OF AO IS ERRONEOUS TO THE EXTENT THE LOSS CONSIDERED AS ALLO WABLE ON ACCOUNT OF DERIVATIVE CONTRACTS OUTSTANDING AS ON THE DATE OF BALANCE SHE ET I.E. 31.3.2008 IS NEITHER JUSTIFIED NOR IN ACCORDANCE WITH LAW. HENCE, WE QUA SH THE SAID ORDER OF LD. COMMISSIONER OF INCOME TAX BY ALLOWING THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE. 8 . THUS, FOLLOWING THE AFORESAID DECISIONS, WHICH IN TURN, ARE BASED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN WOODWARD GOVER NOR (INDIA) P. LD. (SUPRA), WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE LOSS CLAI MED BY THE ASSESSEE ON ACCOUNT OF MARKED TO MARKET LOSS ON FOREIGN EXCHANGE CONTRACT AMOUNTING TO RS. 1,13,88,976. THUS, GROUND NO.1, RAISED BY THE ASSESSEE IS ALLOWE D. 5. THUS,RESPECTFULLY FOLLOWING THE DECISION OF THE CO ORDINATE BENCH OF THIS TRIBUNAL THE MARKED TO MARKET LOSS CLAIMED BY THE ASSESSEE W AS LIABLE TO BE ALLOWED. HENCE, GROUND NO. 1 OF THE APPEAL IS ALLOWED. 6. THE GROUND NO.2 IS RELATED WITH ENHANCEMENT ENHA NCING THE INCOME BY A SUM OF RS. 2,07,29,381/- ON SETTLEMENT OR CANCELLATION OF FORWARD CONTRACTS BY TREATING IT AS SPECULATION LOSS. THE GROUND NO. 3 I S THAT CIT(A) WHILE ENHANCING THE INCOME AGAIN MADE THE DISALLOWANCE OF RS. 41,52 ,450/- (DOUBLE DISALLOWANCE) 7. THE LD. AR FOR ASSESSEE ARGUED THAT ASSESSEE SUFFE RED LOSS ON FOREX CONTRACTS MATURED DURING THE YEAR, FOR WHICH THE ASSESSEE W ERE ENTITLED FOR THE PURPOSE OF HEDGING AGAINST FOREX FLUCTUATION RISK. THE LD. CIT(A) ISSUED NOTICE FOR ENHANCEMENT AND DISALLOWED THE AMOUNT HOLDING THAT THE SAME CONSTITUTES SPECULATION LOSS. IT WAS ARGUED BY THE LD. AR FOR A SSESSEE THAT FOREX CONTRACTS WERE ENTERED ONLY FOR THE PURPOSE OF HEDGING, DETA ILS OF WHICH ARE AVAILABLE AT PAGE NO. 82 TO 125 OF PB. THE LD. AR FOR ASSESSEE A RGUED THAT THE DISALLOWED 6 ITA NO. 233/M/2013 COMBINE DIAMONDS LIMITED AMOUNT INCLUDES RS. 41,52,450/- WHICH RESULTED IN D OUBLE DISALLOWANCE ON ACCOUNT OF LOSS SUFFERED ON FOREX CANCELLED CONTRAC TS. THE LD. AR RELIED ON THE DECISION OF MUMBAI TRIBUNAL IN LONDON STAR DIAMOND CO. I. PVT. LTD. VS. DCIT (2013) 38 TAXMANN.COM 38 (MUM) (TRIB.). WITHOUT PRE JUDICE IN ALTERNATIVE, IT WAS SUBMITTED THAT DISALLOWANCE ON THIS COUNT SHOUL D BE AT RS. 1,65,77,381/-, (2,07,29,831 41,52,450). THE LD. DR FOR REVENUE S TRONGLY RELIED ON THE DECISION OF THE LD. CIT(A). 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PA RTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. CIT (A) DURING THE FIR ST APPELLATE STAGE, ISSUED NOTICE FOR ENHANCEMENT AS TO WHY, THE LOSS OF CANCE LLATION OF FORWARD SALE CONTRACT SHOULD NOT BE DISALLOWED. THE LD. AR FOR T HE ASSESSEE CONTENDED THAT THEY ENTERED INTO FORWARD CONTRACT TO HEDGE THE FOR EIGN EXCHANGE FLUCTUATION. THE ASSESSEE RELIED ON SUB-SECTION 5 OF SECTION 43 OF THE ACT AND CONTENDED THAT LOSS SUFFERED IN FORWARD EXCHANGE CONTRACT IS NOT A SPECULATION LOSS. THE LD. CIT(A) CONCLUDED THAT THE ASSESSEE FAILED TO DISCHA RGE THE ONUS LIES UPON HIM. WE HAVE SEEN THAT THE ASSESSEE HAS PLACED ON RECORD THE EXPORT INVOICES AT (PAGE 84 TO 127 OF PB) WHICH HAS NOT BEEN EXAMINED AT TH E END OF LD. CIT(A). HENCE, WE DEEM IT APPROPRIATE TO RESTORE THIS GROUND OF AP PEAL TO THE FILE OF AO TO EXAMINE IF THE CONTRACT ENTERED INTO BY ASSESSEE IS HEDGING CONTRACT AS PER THE PROVISIONS OF SECTION 43(5) ON SPECULATIVE TRANSACT ION AS PER THE PROVISIONS OF SECTION 73 OF THE ACT. THE AO SHALL EXAMINE THE ISS UE IN ACCORDANCE WITH THE DECISION OF LONDON STAR DIAMOND CO.I. PVT. LTD. (SU PRA). THE AO SHALL FURTHER EXAMINE, IF THERE IS DOUBLE DISALLOWANCE OF AMOUNT OF RS. 41,52,534/-. AFTER EXAMINING THE ISSUE THE AO SHALL PASS ORDER IN ACC ORDANCE WITH LAW. THUS, GROUND NO. 2 & 3 OF APPEAL ARE ALLOWED FOR STATIST ICAL PURPOSE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER 2016. SD/- SD/- ( R.C.SHARMA ) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 26/10/2016 7 ITA NO. 233/M/2013 COMBINE DIAMONDS LIMITED S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITA T, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/