UNI DESIGN JEWELLERY P.LTD, MUMBAI V. DCIT CEN CIR 9, MUMBAI

ITA 2576/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0247 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 25-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CIRCUMSTANCES OF CASE
• Keywords: Depreciation; Speculation loss; Unabsorbed depreciation; Set aside
• Section: 153A; 201; 73; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NOS. 2576 & 2577/MUM/2018 ASSESSMENT YEARS : 2006-07 & 2009-10 UNI DESIGN JEWELLERY PVT. LTD., PLOT NO.4-5-6, UNI DESIGN, SEEPZ, ANDHERI (E), MUMBAI [PAN : AAACU0572G] VS. THE D EPUT Y C OMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(2), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT B Y : SHRI VIJAY MEHTA , AR RESPONDENT B Y : SHRI SUSHILKUMAR PODDAR , CIT - DR DATE OF HEARING : 1 8 - 06 - 201 9 DATE OF PRONOUNCEMENT : 19 - 0 8 - 201 9 O R D E R PER RAJESH KUMAR, A.M: THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AG AINST THE ORDER(S) OF THE COMMISSIONER OF INCOME TAX(APPE ALS)-48, MUMBAI, DATED 22-02-2018. ITA NO.2576/MUM/2018: 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS: GROUND NO.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER (AO) ERRED IN CARRYING OUT ADJUST MENTS TO THE ITA NOS. 2576 & 2577/MUM/2018 : 2 : RETURNED INCOME OF THE APPELLANT, WITHOUT APPRECIAT ING THE FACT THAT SUCH ADJUSTMENTS ARE NOT BASED ON ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH. THE APPELLANT PRAYS TH AT THE ORDER PASSED BY THE LEARNED A.O. IS BAD IN LAW AS THE JUR ISDICTION U/S.153A IS VITIATED. GROUND NO.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HON'BLE CIT(A) FAILED TO APPRECIATE THAT THE LD.AO HAD ERRO NEOUSLY SET OFF OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION OF EARLIER YEARS AMOUNTING TO RS.53,56,717/- AGAINST THE TOTAL INCOM E WHILE COMPUTING DEDUCTION UNDER SECTION 10A. GROUND NO.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LD.AO OF SETTING OFF LOSS OF NON-ELIGIBLE UNIT 1 OF RS.59,66,887/- AGAINST PROFI T OF ELIGIBLE UNIT 2 AND THEN COMPUTING DEDUCTION UNDER SECTION 10A OF T HE ACT. 3. THE ISSUE RAISED BY ASSESSEE IN GROUND NO.1 IS A JURISDICTIONAL ISSUE, CHALLENGING THE ORDER OF CIT( A), UPHOLDING THE ORDER OF THE ASSESSING OFFICER (AO), CONFIRMING THE ADDITIONS TO THE INCOME OF ASSESSEE WITHOUT BEING B ASED ON THE INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH AND THEREFORE, THE ASSESSMENT FRAMED U/S.143(3) R.W .S.153A OF THE INCOME TAX ACT (ACT) IS BAD IN LAW. 3.1. THE FACTS IN BRIEF ARE THAT A SEARCH AND SEI ZURE ACTION U/S.132 OF THE ACT WAS CONDUCTED BY THE DDIT(INV.), UNIT- IX(3), MUMBAI IN THE CASE OF THE MAHENDRA BROTHERS EXPORTS PVT. LTD., AND ITS GROUP CONCERNS, DIRECTORS AND RE LATED PERSONS ON 08-08-2011. ACCORDINGLY, A NOTICE U/S.15 3A WAS ISSUED ON 21-09-2012. THE ASSESSEE FILED RETURN OF INCOME ON 29-10-2012, DECLARING A TOTAL INCOME OF RS.53,37,83 4/-. THEREAFTER, STATUTORY NOTICE WAS ISSUED AND DULY S ERVED UPON ITA NOS. 2576 & 2577/MUM/2018 : 3 : THE ASSESSEE. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF JEWELLERY AND DURING THE YEAR HAS SHOWN TOTAL TURNOVER OF RS.1,23,63,62,108/- A ND THE PROFIT RS. RS.4,19,91,433/-. THE ASSESSEE HAS TWO UNITS AND OUT OF THE TWO UNITS, ONE UNIT WAS ELIGIBLE FOR DED UCTION U/S.10A OF THE ACT. THE ASSESSEE CLAIMED DEDUCTION U/S.10A OF THE ACT AT RS.5,10,49,965/-. IN THIS CASE, THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT VIDE ORDER DT.30-12-2008. FINALLY, AFTER TAKING INTO CONSIDE RATION THE SUBMISSIONS AND REPLIES OF ASSESSEE, FRAMED THE A SSESSMENT U/S.143(3) R.W.S.153A OF THE ACT BY SETTING -OFF T HE BROUGHT FORWARD LOSS AND DEPRECIATION OF EARLIER YEARS AMOU NTING TO RS.53,56,717/- AGAINST TOTAL INCOME WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT AND ALSO SET-OFF LOSS OF NON- ELIGIBLE UNIT OF UNIT NO.1 OF RS.59,66,887/- AGAINS T THE PROFIT OF ELIGIBLE UNIT NO.2 AND THEN COMPUTED THE DEDUCTI ON U/S.10A OF THE ACT. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DIS MISSED THE APPEAL OF ASSESSEE ON THIS JURISDICTIONAL ISSUE BY HOLDING THAT THE ASSESSMENT U/S.153A IS MANDATORY AND THERE FORE RIGHTLY FRAMED AND THUS JUSTIFIED THE ADJUSTMENTS I N THE ORDER FRAMED U/S.143(3) R.W.S. 153A OF THE ACT. 5. LD.AR VEHEMENTLY SUBMITTED BEFORE US THAT ON THE DATE OF SEARCH I.E., ON 08-08-2011, THE ASSESSMENT FOR T HE YEAR UNDER CONSIDERATION HAS ALREADY ATTAINED FINALITY A ND THEREFORE HAS NOT ABATED. THE ASSESSMENT WAS FRAMED IN THIS C ASE VIDE ORDER U/S.143(3) OF THE ACT, DT.30-12-2008 AND THUS THE SAID ASSESSMENT HAS ATTAINED FINALITY ON THE DATE OF SEA RCH. LD.AR ITA NOS. 2576 & 2577/MUM/2018 : 4 : ALSO SUBMITTED THAT ANY ADDITION IN THE SAID ORDER CAN ONLY BE MADE, BASED UPON THE INCRIMINATING MATERIAL SEIZED DURING THE COURSE OF SEARCH AND NOT OTHERWISE AS DONE BY T HE AO. THE D COUNSEL OF THE ASSESSEE, THEREFORE, SUBMITTED THA T THE ADDITION MADE BY THE AO IN THE ASSESSMENT FRAMED U/ S.143(3) R.W.S.153A OF THE ACT ARE WITHOUT JURISDICTION AND HAS TO BE DELETED. LD.AR IN DEFENSE OF HIS ARGUMENT, RELIED ON THE DECISION OF CIT VS. CONTINENTAL WAREHOUSING CORPORA TION LTD., [374 ITR 645] (BOM) AND PRAYED FOR THE BENCH THAT THE ASSESSMENT FRAMED BY THE AO MAY KINDLY BE SET ASIDE AS WITHOUT JURISDICTION. 6. LD. DR ON THE OTHER HAND, RELIED ON THE ORDERS O F AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AS PLACED BEFORE US. WE OBSERVE THAT IN THIS CASE THE ASSESSMENT U/S.143(3) OF THE ACT WAS FRAME D VIDE ORDER DT.30-12-2008, WHEREAS SEARCH WAS CONDUCT ED ON 08- 08-2011. THUS, THE ASSESSMENT HAS ATTAINED FINALIT Y ON THE DATE OF SEARCH. IN OUR OPINION, AO CAN NOT DISTURB THE COMPLETED AND FINALIZED ASSESSMENT ON THE DATE OF S EARCH WHICH HAS ATTAINED FINALITY. THE AO HAS JURISDICTIO N TO DISTURB THE ASSESSMENT IF THE DEPARTMENT HAS SEIZED SOME INCRIMINATING MATERIAL QUA THE ADDITIONS WHICH ARE PROPOSED TO BE MADE IN THE ASSESSMENT FRAMED U/S.143(3) R.W .S.153A OF ACT. HOWEVER, IN THE PRESENT CASE, WE FIND THAT THERE IS NO REFERENCE BY THE AO TO ANY INCRIMINATING MATERIAL FOUND DURING SEARCH AND THEREFORE, WE HOLD THAT THE ADDITIONS/ADJUSTMENTS/RECOMPUTATIONS MADE BY THE AO IN ITA NOS. 2576 & 2577/MUM/2018 : 5 : THE ASSESSMENT ORDER ARE WITHOUT JURISDICTION AND H AVE TO BE DELETED. THE CASE OF ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CI T VS. CONTINENTAL WAREHOUSING CORPORATION LTD., (SUPRA) W HEREIN THE HONBLE COURT HAS HELD THAT IN THE CASE OF UNAB ATED ASSESSMENT, THE ADDITIONS CAN ONLY BE MADE IF BASE D UPON THE INCRIMINATING MATERIALS FOUND DURING SEARCH AND NOT OTHERWISE. WE, THEREFORE, RESPECTFULLY FOLLOWING TH E DECISION OF THE JURISDICTIONAL HIGH COURT , SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE ADJUSTMENT OR ADDIT ION TO THAT INCOME. 8. IN THE RESULT, THIS APPEAL OF ASSESSEE IS ALLOWE D. ITA NO.2577/MUM/2018: 9. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS: GROUND NO.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE LD.AO OF RS.1,35,97,584/- ON ACCOUNT OF LOSS ON FOREIGN CURR ENCY FORWARD CONTRACTS BY TREATING THE SAME AS SPECULATION LOSS INSTEAD OF LOSS FROM BUSINESS OR PROFESSION. GROUND NO.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LD.AO OF IGNORING THE OTHER INCOME OF RS.70,72,017/- WHILE COMPUTING DE DUCTION U/S.10A OF THE ACT THEREBY IGNORING THE FACT THAT THE OTHE R INCOME OF RS.70,72,017 IS INEXTRICABLY LINKED WITH THE BUSINE SS OF THE APPELLANT AND THUS ELIGIBLE FOR DEDUCTION U/S.10A O F THE ACT. ITA NOS. 2576 & 2577/MUM/2018 : 6 : 10. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE UPHOLDING THE ORDER OF AO BY THE LD. CIT(A), AND THUS CONFIRMING THE LOSS ON FOREIGN CURRENCY FORWAR D CONTRACTS AS SPECULATION LOSS INSTEAD OF BUSINESS LOSS TREATE D BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, AO NOTICED THAT ASSESSEE HAS DEBITED TO THE PROFIT & L OSS A/C A SUM OF RS.1,35,96,329/- ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACT UNDER THE HEAD ADMINISTRATIVE AND OTHER E XPENSES. AO NOTED THAT SUCH LOSS WAS ON ACCOUNT OF ITS FORWA RD CONTRACTS IN FOREIGN CURRENCY WHICH WERE NOT DELIVE RABLES AT THE FIRST PLACE. ALL THE FORWARD CONTRACTS WERE CA NCELLED AND NO DELIVERY WAS TAKEN IN ANY OF THE FORWARD FOREIGN EXCHANGE CONTRACTS. THEREFORE, BY APPLYING THE PROVISIONS O F SECTION 43(5), SECTION 73 ALONG WITH INSTRUCTION NO.3 OF 2 010, DT.23- 03-2010 ISSUED BY THE CBDT, AO ASKED THE ASSESSEE AS TO WHY THIS SUM OF RS.1,35,97,584/- BEING LOSS ON FORW ARD CONTRACTS SHOULD NOT BE DISALLOWED AND ADDED BACK T O THE TOTAL INCOME OF THE ASSESSEE AS THE SAME WAS SPECUL ATIVE WHICH WAS REPLIED BY THE ASSESSEE VIDE WRITTEN SUBM ISSIONS DT.21-02-2014 BY SUBMITTING THAT THE TRANSACTIONS O F FOREIGN EXCHANGE WERE IN REGULAR COURSE OF ASSESSEES BUSI NESS AND THE QUANTUM OF SUCH FORWARD TRANSACTIONS WERE WITHI N THE IMPORT AND EXPORT EXPOSURE ON MONTH TO MONTH BASIS. LD.AR SUBMITTED THAT ASSESSEE WAS IMPORTING VARIOUS RAW-M ATERIALS LIKE POLISHED DIAMONDS, ACCESSORIES, COLOUR STONES, PRECIOUS METAL ETC., FOR MANUFACTURING OF JEWELLERY ITEMS A ND THESE MATERIALS WERE EITHER IMPORTED OR PROCURED FROM DOM ESTIC TARIFF AREA (DTA). SINCE THE ASSESSEE WAS LOCATED I N SEEPZ, THESE WERE GENERALLY PAYABLE IN FOREIGN CURRENCY. SIMILARLY, ITA NOS. 2576 & 2577/MUM/2018 : 7 : ASSESSEE EXPORTS FINISHED GOODS I.E., FINISHED JEWE LLERY THAT IT MANUFACTURED TO VARIOUS OUT PARTIES ON CREDIT. CRE DIT TERM FOR THE SALES RANGED BETWEEN 90 DAYS TO 150 DAYS AS THE CUSTOMERS WERE OLD ONES. THE LD COUNSEL SUBMITTED T HAT THIS WAS PART AND PARCEL OF ASSESSEES BUSINESS TO RECEI VE FOREIGN CURRENCY FOR EXPORTS AND PAY FOREIGN CURRENCY FOR IMPORTS/DTA PURCHASES. THE ASSESSEE USED TO MEET ITS WORKING CAPITAL NEEDS BY WAY OF FOREIGN CURRENCY LO ANS FROM BANKERS. THUS, ASSESSEES RECEIPTS AND PAYMENTS OF FOREIGN CURRENCY WERE INTEGRAL AND INSEPARABLE PART OF ITS BUSINESS. THEREFORE, FOREIGN CURRENCY TRANSACTIONS ENTERED IN TO BY THE ASSESSEE WERE NOT INDEPENDENT TRANSACTIONS AND WERE INCIDENTAL TO THE ASSESSEES JEWELLERY BUSINESS. T HE ASSESSEE HAS ENTERED IN TO FOREIGN CURRENCY TRANSACTIONS ONL Y FOR THE PURPOSE OF MEETING THE REQUIREMENTS OF EXPORTS OF MANUFACTURED GOODS AND IMPORT/DTA PURCHASE OF RAW MATERIALS AND FOR NOTHING ELSE OR FOR NO OTHER PURP OSES. THEREFORE, ASSESSEE WAS EXPOSED TO ADVERSE MOVEMENT S IN FOREIGN EXCHANGE RATES WHICH IT RECEIVED AND USED T O PAY AS PART OF ITS BUSINESS. THUS IT IS CLEARLY EVIDENT T HAT THE ASSESSEE WAS EXPOSED TO RISKS OF FOREIGN EXCHANGE F LUCTUATIONS IN THE ORDINARY COURSE OF ITS BUSINESS EXPOSED TO T HE RISKS ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATES IN THE INTERNATIONAL MARKETS HAVING A MAJOR IMPACT ON ITS REVENUE, RECEIVABLES AND PAYABLES ARISING OUT OF ITS BUSINES S. FURTHER, THESE RISKS COULD HAVE A SEVERE IMPACT ON THE ASSES SEE DUE TO LARGE VOLUME OF IMPORT AND EXPORT TRANSACTIONS. TH E RISK ON ACCOUNT OF FOREIGN EXCHANGE RATE FLUCTUATION EMANAT ED DIRECTLY FROM ITS BUSINESS AND FORMED AN INTEGRAL PART AND P ARCEL OF ITA NOS. 2576 & 2577/MUM/2018 : 8 : THE BUSINESS OF ASSESSEE. FOR RATE FLUCTUATIONS IN FOREIGN EXCHANGE EXPOSURE, THE ASSESSEE COULD MITIGATE, RE DUCE OR ELIMINATE THIS RISK BY THE MECHANISM APPROVED AND F ORMALIZED BY RESERVE BANK OF INDIA BY ENTERING INTO FOREIGN E XCHANGE FORWARD CONTRACTS. THEREFORE, THE LD COUNSEL ARG UED THAT THE PROVISIONS OF SECTION 43(5), 73 AND INSTRUCTION NO. 3 OF 2010, DT.23-03-2010 WERE NOT APPLICABLE TO THE ASSESSEES CASE. HOWEVER, AO REJECTED THE CONTENTIONS OF ASSESSEE AN D TREATED THE LOSS AS SPECULATIVE LOSS AND DID NOT ALLOW TH E SETTING OF THE SAID LOSS AGAINST THE INCOME OF THE BUSINESS AN D PROFESSION. 11. IN THE APPELLATE PROCEEDINGS, LD. CIT(A) DISMIS SED THE APPEAL OF ASSESSEE BY OBSERVING AND HOLDING AS UNDE R: 1. ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE LIN KAGE BETWEEN THE PURCHASE AND SALE OF DIAMONDS/JEWELRY WITH THE SPEC IFIC HEDGING CONTRACTS. 2. MERELY BECAUSE THE EXPOSURE IN THE INTERNATIONAL MARKET WAS OF VALUE HIGHER THAN THE AMOUNT OF FORWARD CONTRACTS, TRANSACTIONS OF SUCH FORWARD CONTRACTS WOULD NOT AUTOMATICALLY BECO ME HEDGING. THE ADVANTAGE OF HEDGING TO ASSESSEE CANNOT BE GIVE N PURELY ON THE BASIS OF AMOUNT INVOLVED. 3. THE LANGUAGE OF CLAUSE 5 OF PROVISO TO SECTION 4 3(5) IS ABSOLUTELY CLEAR. THE EXCEPTION IS AVAILABLE ONLY TO THE CONT RACTS IN THE NATURE OF GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATION S. THIS EXEMPTION IS AVAILABLE ONLY WHERE SUCH CONTRACTS ARE IN THE N ATURE OF GUARD AND THE ONUS IS ON THE ASSESSEE TO PROVE THAT SUCH CONT RACTS IN HIS CASE WERE HELD AS A GUARD AND ASSESSEE HAD NOT BEEN ABLE TO PROVE IS THERE WAS ANY HEDGING. 4. ASSESSEES ARGUMENTS ARE GENERAL IS NATURE AND O NUS HAS NOT BEEN DISCHARGED WITH SPECIFIC HEDGING LINKAGES. 5. RELIANCE ON FACTS OF A.Y.2003-04: THE ISSUE OF HEDGING IS ONE OF FACTS THERE IS NO DISPUTE IN LAW. IT HAS BEEN ELAB ORATELY BROUGHT OUT IN ASSESSMENT ORDER AND IN THIS APPEAL ORDER ABOVE. THAT ASSESSEE HAS FAILED TO ESTABLISH SPECIFIC LINKAGE BETWEEN FO RWARD CONTRACTS ITA NOS. 2576 & 2577/MUM/2018 : 9 : WITH INTERNATIONAL PURCHASE/SALE AND CANCELLATIONS ETC. OF FC. HENCE THERE CANNOT BE ANY APPLICABILITY OF ORDER FOR A.Y. 2003-04. SINCE FOR A.Y.2003-04, THE LINKAGE OF HEDGING WAS H ELD TO HAVE BEEN ESTABLISHED, IT DOES NOT MEAN THAT BY VIRTUE OF THA T, SUCH LINKAGE IS PROVEN IS A.Y.2009-10 ALSO. THE FACTS OF A.Y.2009- 10 NEED TO VERIFIED SEPARATELY FOR HEDGING PURPOSE. HENCE REL IANCE ON ORDER FOR A.Y.2003-04 IS NOT VALID AND IS REJECTED. 12. LD.AR VEHEMENTLY SUBMITTED TO THE BENCH THAT TH E ISSUE OF LOSS ON FOREIGN EXCHANGE FLUCTUATION ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACTS STOOD SETTLED IN A SERIES OF DECISIONS OF THE TRIBUNAL AND HON'BLE BOMBAY HIGH C OURT, STATING THAT THE LOSS RESULTING FROM CANCELLATION OF FORWARD CONTRACTS IN FOREIGN EXCHANGE ENTERED INTO FOR THE PURPOSE OF HEDGING THE RISK ON FLUCTUATIONS IN THE FOREIGN EXC HANGE WAS INCURRED IN THE NORMAL BUSINESS BY THE ASSESSEE A ND THEREFORE CONSTITUTED A BUSINESS LOSS AND MAY BE A LLOWED AS SUCH. IN THIS REGARD, LD. AR REFERRED TO THE FOLLO WING DECISIONS: I. ASSESSEES OWN CASE IN ITA NO.4341/MUM/2016, AY.2008-09, DT.02-07-2018; II. ASSESSEES OWN CASE IN ITA NOS.8804/MUM/2004 AND OTHERS , DT.30-10-2009, WHEREIN IT HAS BEEN HELD TH AT THE LOSS RESULTING FROM CANCELLATION OF FORWARD CONTRACT IN FOREIGN EXCHANGE WAS HELD TO BE A BUSINESS LOSS. III. DCIT VS. MAHENDRA BROTHERS EXPORTS (P) LTD., [161 ITD 772/72 TAXMANN.COM 301 (MUMBAI-TRIB); IV. CIT VS. D.CHETAN AND CO., [390 ITR 36] (BOM); ITA NOS. 2576 & 2577/MUM/2018 : 10 : 13. LD.DR ON THE OTHER HAND, RELIED ON THE ORDERS O F AUTHORITIES BELOW AND SUBMITTED THAT THE SAID LOSS IS A SPECULATIVE LOSS AS THE CONTRACT WAS UNDERTAKEN WIT HOUT ANY DELIVERY AND THEREFORE RIGHTLY TREATED AS SPECULATI VE LOSS BY APPLYING THE PROVISIONS OF SECTION 43(5), 73 AND IN STRUCTION NO.3 OF 2010, DT.23-03-2010. 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIALS ON RECORD. WE OBSERVE THAT IN THIS CASE A SSESSEE IS IN THE BUSINESS OF MANUFACTURING, IMPORT AND EXPORT OF JEWELLERY ITEMS. FOR THE PURPOSE OF IMPORT THE ASSE SSEE REQUIRED TO SETTLE THE IMPORTS IN FOREIGN EXCHANGE. SIMILARLY FINISHED GOODS ARE ALSO EXPORTED TO VARIOUS CLIENTS WHERE THE CREDIT PERIOD RANGED BETWEEN 90 TO 150 DAYS. THUS , THE ASSESSEE REQUIRES FOREIGN EXCHANGE FOR THE PURPOSE OF MAKING PAYMENT TO CREDITORS AS WELL AS RECEIPT OF PAYMENT FROM THE SUNDRY DEBTORS. IT IS A WELL KNOWN FACT THAT THERE IS A WIDE FLUCTUATIONS IN FOREIGN CURRENCY. THE ASSESSEE MAY HAVE TO SUFFER THE LOSS DUE TO FLUCTUATION IN THE FOREIGN E XCHANGE RATES AS THE ASSESSEE HAS TO MEET THE COMMITMENTS OF PAYI NG TO CREDITORS WHILE THE PAYMENTS ARE ALSO RECEIVED FROM THE FOREIGN CUSTOMERS IN FOREIGN CURRENCY. IN ORDER TO HEDGE TH E FOREIGN CURRENCY FLUCTUATION, ASSESSEE ENTERS INTO FOREIGN EXCHANGE FORWARD CONTRACTS THROUGH BANKS AS PER RBI NORMS AN D THUS THESE TRANSACTIONS ARE ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS OF THE ASSESSEE AND ARE INTEGRAL AND INSEP ARABLE PART OF ITS BUSINESS. IN VIEW OF THESE FACTS AND CIRCUMS TANCES, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION OF THE LD. CIT(A) THAT THE LOSS SUFFERED DUE TO CANCELLATION OF THESE FORW ARD CONTRACTS ITA NOS. 2576 & 2577/MUM/2018 : 11 : IN FOREIGN EXCHANGE WAS A SPECULATIVE LOSS. MOREOVE R, THE CASE OF ASSESSEE IS SQUARELY COVERED BY VARIOUS DECISION S, REFERRED ABOVE, WHEREIN IT WAS HELD THAT LOSS INCURRED DUE TO CANCELLATION OF FORWARD FOREIGN CURRENCY CONTRACT I N THE ORDINARY COURSE OF BUSINESS IS A BUSINESS LOSS AND NOT A SPE CULATIVE LOSS . 15.1. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASS ESSEES OWN CASE IN ITA NOS.8804/MUM/2004 AND OTHERS , DT.3 0-10- 2009 HELD AS UNDER: 31. AFTER HARING BOTH THE SIDES, WE FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE CO-ORDINATE BENCH OF THE TRIBUNAL, WHERE ONE OF US WAS A PARTY. IN THE SAID DECISION THE LOSS ON ACCOUNT OF CANCELLATION OF FOR EIGN EXCHANGE CONTRACT WAS HELD AS BUSINESS LOSS BY THE CIT(A) AS AGAINST SPECULATION LOSS AS TREATED BY THE ASSESSING OFFICE R. WHEN THE MATTER CAME UP BEFORE THE TRIBUNAL, THE TRIBUNAL FO LLOWING THE DECISION OF THE HON'BLE KOLKATA HIGH COURT AND HON' BLE BOMBAY HIGH COURT, CITED ABOVE, DISMISSED THE GROUND RAISED BY THE REVENUE. FOLLOWING THE SAME LOGIC AS HELD BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE HOLD THAT RS.5,75,958/- O N ACCOUNT OF CANCELLATION OF FOREIGN EXCHANGE CONTRACT IN THE CO URSE OF BUSINESS HAS TO BE TREATED AS INCOME FROM BUSINESS AND CON SEQUENTLY, THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 10A OF THE ACT. IN THIS VIEW OF THE MATTER, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. ITA NO.4341/MUM/2016, AY.2008-09, DT.02-07-2018: 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THIS ISSUE IS REVOLVING AROUND LOSS ON FOREIGN EXCHANGE FORWARD CONTACTS CA NCELLED DURING THE YEAR, WHETHER IT IS SPECULATIVE IN NATURE. IDENTICAL ISSU E CAME UP BEFORE ITAT IN ASSESSEE'S OWN CASE FOR A.Y. 2003-04 (ITA NO. 69/MU M/2007) VIDE ORDER DATED 30.10.2009. THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE AS UNDER: '28. THE FACTS OF THE CASE IN BRIEF ARE THAT MISCEL LANEOUS INCOME OF RS.9,18,088/-CONTAINED AN AMOUNT OF RS.5,75,958/- W HICH WAS ITA NOS. 2576 & 2577/MUM/2018 : 12 : RECEIVED ON ACCOUNT OF CANCELLATION OF FOREIGN EXCH ANGE CONTRACT. THE ASSESSING OFFICER TREATED THE SAME AS 'INCOME FROM OTHER SOURCES' AND DID NOT ALLOW BENEFIT OF DEDUCTION UNDER SECTIO N WA OF THE L.T. ACT. IN APPEAL, THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US. 29. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IN ORDER TO HEDGE AGAINST ANY LOSSES ENTER ED INTO THESE TRANSACTIONS AND THEREFORE, IT CANNOT BE TREATED AS SPECULATION TRANSACTION. REFERRING TO THE DECISION OF THE TRIBU NAL IN THE CASE OF ACIT VS. MAHENDRA BROTHERS IN ITA NOS. 1880/MUM/05 & 948/MUM/06 VIDE ORDER DATED 29.4.2009 FOR THE ASSES SMENT YEARS 2001-02 & 2003-04 RESPECTIVELY, SHE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION, FOLLOWING THE DECISION OF THE HO N'BLE HIGH COURT OF KOLKATA IN THE CASE OF CIT VS. SOORAJMULL NAGARMULI REPORTED IN 129 ITR 169 (BOM) AND THE DECISION OF HON'BLE BOMBAY HI GH COURT IN THE CASE OF CIT VS. BADRIDAS GAURIDU (I) LTD., 261 ITR 256 (BOM) HAD DISMISSED THE APPEALS FILED BY THE REVENUE, WHERE I T WAS HELD BY THE CIT(A) THAT EXCHANGE LOSS ON ACCOUNT OF CANCELL ATION OF FORWARD CONTRACT AMOUNTS TO BUSINESS LOSS. SHE ACCORDINGLY SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL. 30. THE LEARNED D.R., ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A). 31. AFTER HEARING BOTH THE SIDES, WE FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE CO-ORDINATE BENCH OF THE TRIBUNAL, WHERE ONE OF US WAS A PARTY. IN THE SAID DECISION THE LOSS ON ACCOUNT OF CANCELLATION OF FOR EIGN EXCHANGE CONTRACT WAS HELD AS BUSINESS LOSS BY THE CIT(A) AS AGAINST SPECULATION LOSS AS TREATED BY THE ASSESSING OFFICE R. WHEN THE MATTER CAME UP BEFORE THE TRIBUNAL, THE TRIBUNAL FOLLOWING THE DECISION OF THE HON'BLE KOLKATA HIGH COURT AND HON'BLE BOMBAY H IGH COURT, CITED ABOVE, DISMISSED THE GROUND RAISED BY THE REV ENUE. FOLLOWING THE SAME LOGIC AS HELD BY THE DECISION OF THE CO-OR DINATE BENCH OF THE TRIBUNAL, WE HOLD THAT RS.5,75,958/- ON ACCOUNT OF CANCELLATION OF FOREIGN EXCHANGE CONTRACT IN THE COURSE OF BUSINESS HAS TO BE TREATED AS 'INCOME FROM BUSINESS' AND CONSEQUENTLY, THE ASS ESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 10A OF THE ACT. IN THIS VIEW OF THE MATTER, THE ORDER OF THE CIT(A) IS SET ASIDE AND TLIE GROUN D RAISED BY THE ASSESSEE IS ALLOWED 6. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR U NDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, WHEREIN TRIBUNAL HAVE HELD THAT CANCELLATION OF FOR EIGN EXCHANGE CONTRACT IS A ITA NOS. 2576 & 2577/MUM/2018 : 13 : BUSINESS LOSS AND NOT A SPECULATION LOSS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR ALLOWING ASSESSEES CLAIM OF BUSINESS LOSS. 15.2. THE CASE OF THE ASSESSEE IS ALSO COVERED BY V ARIOUS OTHER DECISIONS REFERRED TO DURING THE COURSE OF HEARING. EVEN THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. D. CHETAN AND CO., [390 ITR 36] (BOM) HAS HELD THAT TRANSACTION ENTERED INTO IN THE REGULAR COURSE OF BUSINESS OF H EDGING OF TRANSACTION TO COVER VARIOUS FOREIGN EXCHANGE FLUCT UATIONS IS A BUSINESS LOSS AND NOT A SPECULATIVE LOSS . 15.3. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT AND THE EARLIER YEAR DECISION I N ASSESSEES OWN CASE, WE HOLD THAT THE LOSS INCURRED BY ASSESSEE IS A BUSINESS LOSS AND THE AO IS DIRECTED ACCORDINGLY. THIS GROUND OF APPEAL RAISED BY ASSES SEE IS ALLOWED. 16. THE ISSUE RAISED IN GROUND NO.2 BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF ORDER OF AO BY THE CIT( A), WHEREIN WHILE COMPUTING DEDUCTION U/S.10A, THE OTHER INCOME OF RS.70,72,017/-, WHICH WAS INEXTRICABLY LINKED WITH THE BUSINESS OF ASSESSEE, WAS NOT TAKEN INTO ACCOUNT. 16.1. THE FACTS IN BRIEF ARE THAT DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT ASSESS EE CLAIMED DEDUCTION U/S.10A OF THE ACT AMOUNTING TO RS.6,14,63,207/- IN RESPECT OF UNIT NO.2. THE AO WH ILE PASSING ASSESSMENT ORDER, REDUCED THE OTHER INCOME OF RS.70,72,017/- WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT. ITA NOS. 2576 & 2577/MUM/2018 : 14 : 16.2. IN THE APPELLATE PROCEEDINGS, THE CIT(A) DISM ISSED THE APPEAL ON THIS GROUND, BY HOLDING THAT SUCH INCOME COMPRISED OF INTEREST ON SALE OF SCRAP RS.1,000/-, SECURITY D EPOSITS OF RS.24,641/-, SUNDRY EXPENSES BACK WRITTEN BACK OF RS.70,46,376/- WHICH WERE IN THE NATURE OF BUSINESS , SALARY, TRAVELLING EXPENSES, COMMISSION EXPENSES, GOODS PUR CHASED, GENERAL EXPENSES ETC., CLAIMED IN EARLIER YEARS I.E ., AYS.2008- 09 AND 2009-10. THESE WERE RETURNED BACK DURING TH E YEAR, HENCE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OT HER SOURCES. ACCORDING TO THE CIT(A), ALL THE CREDIT E XPENSES WERE ACTUALLY IN THE NATURE OF EXPENSES ONLY AND NO WAY CONSTITUTES THE INCOME/RECEIPT, WHICH WERE ELIGIBLE U/S.10A OF THE ACT AND THEREFORE, THE BENEFIT OF SECTION 10A C ANNOT BE GRANTED QUA THIS INCOME. 16.3. LD.AR SUBMITTED FOR THE BENCH THAT THE TOTAL OTHER INCOME COMPRISED OF FOUR ITEMS, THE DETAILS THEREO F ARE GIVEN AT PARA 8 OF THE APPELLATE ORDER. OUT OF FOUR ITEM S, THIRD ITEM WAS OF RS.70,46,376/- REPRESENTING THE SUNDRY EXPEN SES WRITTEN-OFF, WHICH WERE REDUCED FROM THE PROFIT IN THE EARLIER YEARS AND THEREFORE SHOULD BE ALLOWED AS PART OF TH E PROFITS FOR THE PURPOSE OF SECTION 10A, WHEREAS THE LD.AR DID N OT PRESS ITEM NOS. 1 & 2. 16.4. LD. DR, ON THE OTHER HAND, SUBMITTED FOR THE BENCH THAT THE AMOUNT WHICH IS SOUGHT TO BE CLAIMED A PART OF THE PROFITS FOR THE PURPOSE OF SECTION 10A IS ONLY THE EXPENSES WRITTEN-OFF IN THE BOOKS OF ACCOUNT AND IN NO WAY REPRESENTED T HE PROFIT FROM BUSINESS AND THEREFORE WAS RIGHTLY DENIED WH ILE ALLOWING DEDUCTION U/S 10A OF THE ACT. THE LD DR T HEREFORE ITA NOS. 2576 & 2577/MUM/2018 : 15 : REQUESTED THAT GROUND RAISED BY THE ASSESSEE IN TH IS REGARD IS TO BE DISMISSED. 16.5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE MATERIAL ON RECORD, WE FIND THAT THE IN THE OTHER I NCOME, THERE WAS AN ITEM OF RS.70,46,376/- ON ACCOUNT OF SUNDRY EXPENSES WRITTEN-OFF BACK DURING THE YEAR WHICH WER E CLAIMED IN THE EARLIER YEAR AND THUS, IT WAS CLAIMED AS PAR T OF THE PROFIT AND CONSEQUENTLY, THE CLAIMED U/S.10A OF THE ACT HOWEVER THE AO REJECTED THE DEDUCTION U/S 10A IN RE SPECT OF THE SAME. NOW THE ONLY ISSUE BEFORE US WHETHER THE EXPENSES WRITTEN BACK IN THE CURRENT YEAR WHICH WERE CREDITE D TO THE PROFIT AND LOSS ACCOUNT WOULD BE ELIGIBLE FOR THE D EDUCTION U/S 10A OF THE ACT. UNDISPUTABLE, DURING THE YEAR WHEN THESE EXPENSES WERE WRITTEN BACK BY CREDITING THE SAME TO THE INCOME OF THE ACCOUNT OF THE ASSESSEE AND THE PROFI TS WERE INCREASED CORRESPONDINGLY. WE FIND MERITS IN THE AR GUMENTS OF THE LD AR THAT IN EARLIER YEARS THESE EXPENSES WERE CLAIMED IN THE PROFIT AND LOSS ACCOUNT AND THE DEDUCTION U/S 1 0A WAS ALLOWED ACCORDINGLY AND NOW WHEN THESE ARE REVERSE D , THE SAME SHOULD BE TREATED AS PART OF THE PROFITS FOR T HE PURPOSE OF DEDUCTION U/S 10A. AFTER TAKING INTO ACCOUNTS THE TOTALITY OF THE SCENARIO, WE ARE OF THE VIEW THAT THE SAME FORM S PART OF PROFIT FOR THE PURPOSE OF SECTION 10A OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO ALLOW THE DEDUCTION U/S.10A OF THE ACT. HENCE, THIS GROUND R AISED BY ASSESSEE IS ALLOWED. 17. IN THE RESULT, THIS APPEAL OF ASSESSEE IS ALLOW ED. ITA NOS. 2576 & 2577/MUM/2018 : 16 : 18. TO SUM-UP, BOTH THE APPEALS OF ASSESSEE ARE ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.08.2019 SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI; /DATED : 19.08.2019 TNMM / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A), MUMBAI 4. / CIT, MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, //TRUE COPY// / (DY./ASST. REGISTRAR) , / ITAT, MUMBAI