VINERGY INTERNATIONAL P.LTD, MUMBAI V. ADDL CIT RG 5(3), MUMBAI

ITA 3494/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70957 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C P PATHAK
• Keywords: Speculation loss
• Section: 37(1); 43(5)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI .. , ! ' # $$, % ', & BEFORE SHRI R.S.SYAL, AM AND SHRI SANJAY GARG, JM ITA NO.3494/MUM/2012 : ASST.YEAR 2009-2010 M/S.VINERGY INTERNATIONAL PRIVATE LIMITED URMI CHAMBERS, 3 RD FLOOR APSARA COMPLEX, DR.D.B.MARG GRANT ROAD (EAST), MUMBAI 400 007 PAN : AAACS5473J. THE ADDL.COMMISSIONER OF INCOME-TAX RANGE 5(3) MUMBAI. ( '( / // / APPELLANT) * * * * / VS. ( +,'(/ RESPONDENT) '( - -- - . . . . / APPELLANT BY : SHRI SATISH MODY +,'( - . - . - . - . / RESPONDENT BY : SHRI C.P.PATHAK * - /! / / / / DATE OF HEARING : 22.08.2013 012 - /! / DATE OF PRONOUNCEMENT : 28.08.2013 ' 3 ' 3 ' 3 ' 3 / / / / O R D E R PER R.S.SYAL (AM) : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 19.03.2012 IN RELATION TO THE ASSESSMENT YEAR 2009-2010. 2. FIRST GROUND AND THE ADDITIONAL GROUND RAISED BY THE ASSESSEE ARE AGAINST THE CONFIRMATION OF THE ACTION OF THE A SSESSING OFFICER IN ASSESSING LOSS OF ` 1,99,98,637 AS SPECULATION LOSS U/S 43(5) AS AGAINS T ASSESSEES CLAIM OF NON-SPECULATION LOSS. 3. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION FOR LOSS OF ` 1.99 CRORE FROM HEDGING IN CRUDE OIL. ITA NO.3494/MUM/2012. M/S.VINERGY INTERNATIONAL PVT.LTD. 2 ON BEING CALLED UPON TO EXPLAIN AS TO WHY THIS LOSS SHOULD NOT BE TREATED AS SPECULATION LOSS, THE ASSESSEE FURNISHED SUBMISSIONS WHICH HAVE BEEN REPRODUCED ON PAGES 2 ONWARDS OF THE ORDE R. THE ASSESSEES CLAIM THAT THE LOSS FROM HEDGING IS NOT A SPECULATIVE LOSS AS PER PROVISO (A) TO SECTION 43(5), WAS NOT ACCEPTED BY THE ASSESSING OFFICER. HE IN TURN APPLIED PROVISO (D) TO SECTION 43(5) TO NEGATIVE THE ASSESSEES CONTENTION BY HOLDING THAT TRANSACTIONS I N RESPECT OF TRADING IN DERIVATIVES WHICH HAVE NOT DEEMED TO BE SPECULAT IVE TRANSACTION, MUST BE CARRIED OUT THROUGH A RECOGNIZED STOCK EXCH ANGE. SINCE MCX CAME TO BE NOTIFIED AS RECOGNIZED STOCK EXCHANGE FO R THE PURPOSE OF SECTION 43(5) FROM 22.05.2009, THE ASSESSING OFFICE R HELD THAT THE LOSS COULD NOT BE TREATED AS SPECULATIVE. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. AT THE VERY OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE PLACED ON RECORD COPY OF THE ORDER PASSED BY THE TRIBUNAL IN ACIT V. ARNAV AKSHAY MEHTA (ITA NO.2742/MUM/2011) D ATED 12.09.2012 IN WHICH IT HAS BEEN HELD THAT THE ASSES SEES DERIVATIVE TRADING THROUGH MCX STOCK EXCHANGE IN THE ASSESSMEN T YEAR 2007- 2008 IS NON-SPECULATIVE AS THE RECOGNITION BY THE C ENTRAL GOVERNMENT OF THE STOCK EXCHANGE FROM A LATER DATE WILL NOT DE BAR THE TRANSACTION AS SPECULATION AFTER 01.04.2006. IT IS NOTICED THAT THE ONLY ISSUE TAKEN BY THE AUTHORITIES BELOW FOR NOT ACCEPTING THE APPL ICABILITY OF CLAUSE (D) OF SECTION 43(5) IS RECOGNITION OF MCX STOCK EX CHANGE DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSID ERATION. APART ITA NO.3494/MUM/2012. M/S.VINERGY INTERNATIONAL PVT.LTD. 3 FROM THAT THE ASSESSING OFFICER DID NOT CONSIDER TH E OTHER INGREDIENTS OF CLAUSE (D) OF SECTION 43(5). IN OUR CONSIDERED O PINION, THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGNED ORDER IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF A.O. WE ORDER ACCORDINGLY AND DIRECT HIM TO DECIDE THIS ISSUE AFRESH AS PER LAW I N THE LIGHT OF THE AFORE-NOTED TRIBUNAL ORDER. WE WANT TO MAKE IT CLEA R THAT THE ISSUE IS LEFT OPEN TO BE DECIDED BY THE ASSESSING OFFICER. T HE APPLICABILITY OF THE TRIBUNAL ORDER IN THE CASE OF ARNAV AKSHAY MEHT A SHOULD BE CONSIDERED BY THE ASSESSING OFFICER AS PER LAW AND FACTS OF THE INSTANT CASE. HE WILL ALSO DEALT WITH THE ASSESSEE S CONTENTION ON THE APPLICABILITY OF PROVISO (A) TO SECTION 43(5) IF TH E CASE IS FOUND TO BE FALLING IN PROVISO (D) TO SECTION 43(5). WITHOUT PR EJUDICE GROUND TAKEN BY THE ASSESSEE ABOUT THE DIRECTION TO THE AS SESSING OFFICER TO ALLOW SET OFF OF THE ALLEGED SPECULATION LOSS AGAIN ST PROFIT ARISING TO THE ASSESSEE IN SIMILAR TRANSACTION IN SUBSEQUENT Y EAR, IS CLEARLY NOT ACCEPTABLE BECAUSE FIRSTLY WE HAVE NOT UPHELD THE V IEW OF THE REVENUE IN TREATING THE LOSS OF ` 1.99 CRORE AS SPECULATION AND SECONDLY SUBSEQUENT ASSESSMENT YEAR IS NOT BEFORE U S. 5. THE ONLY OTHER GROUND IS AGAINST THE DISALLOWANC E OF ` 62,62,090 ON ACCOUNT OF EXCHANGE RATE FLUCTUATION. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION OF ` 62.62 LAKH AS FOREIGN EXCHANGE FLUCTUATION LOSS. ON BEING CALLED UPON TO JUSTIFY THE DEDUCTION, THE ASSESSEE STATED THAT THE PURCHASE AN D SALE TRANSACTIONS OUTSTANDING AS ON 31.03.2009 HAVE BEEN RECOGNIZED A T THE RATE PREVAILING ON SUCH DATE AT ` 50.95 PER DOLLAR AND THUS THE AMOUNT OF ITA NO.3494/MUM/2012. M/S.VINERGY INTERNATIONAL PVT.LTD. 4 ` 62.62 LAKH REPRESENTS LOSS ON ACCOUNT OF FLUCTUATIO N IN FOREIGN EXCHANGE. THE ASSESSING OFFICER TREATED THIS AMOUNT AS CONTINGENT LOSS AND DID NOT ALLOW ANY DEDUCTION. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND IT AS AN ADMIT TED POSITION THAT THE ASSESSEE COMPUTED LOSS OF ` 62.62 LAKH BY VALUING OUTSTANDING PURCHASE / LOSS AT THE RATE OF DOLLAR PREVAILING AS ON 31.3.2009 VIS-- VIS THE RATE AT WHICH THE TRANSACTIONS WERE RECORDE D DURING THE YEAR. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR [(2009) 312 ITR 254 (SC)] HAS HELD THAT LOSS SUFFERED BY THE ASSESSEE IN RESPECT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE AS ON THE DATE OF THE BALANCE SHEET IS AN ITEM OF E XPENDITURE U/S 37(1) IN THE YEAR OF APPROVAL. IT IS RELEVANT TO NOTE THA T APART FROM CLAIMING DEDUCTION FOR ` 62.62 LAKH, THE ASSESSEE OFFERED INCOME OF ` 34.37 LAKH IN RESPECT OF GAIN ON FOREIGN EXCHANGE FLUCTUATION WITH REFERNCE TO THE RATE OF PURCHASE AND SALE TRANSACTION ENTERED DURIN G THE YEAR, WHICH HAS BEEN DULY ACCEPTED AS TAXABLE BY THE AUTHORITIE S BELOW. IN SUCH A SITUATION AND RESPECTFULLY FOLLOWING THE PRECEDENT RENDERED BY THE HONBLE SUPREME COURT, WE ARE OF THE CONSIDERED OPI NION THAT THE ASSESSEE DESERVES DEDUCTION OF ` 62.62 LAKH. BEFORE PARTING WITH THIS GROUND WE WOULD LIKE TO MENTION THAT THE LEARNED CI T(A) HAS MADE CERTAIN OBSERVATIONS WHICH ARE NOT RELEVANT TO THIS CASE. FIRSTLY IN PARA 6.2.2, HE MENTIONED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF DIAMONDS AND IN RESPECT O F EXPORT OF ITA NO.3494/MUM/2012. M/S.VINERGY INTERNATIONAL PVT.LTD. 5 DIAMONDS, THE ASSESSEE HAS ENTERED INTO FORWARD CON TRACT IN RESPECT OF FOREIGN EXCHANGE TO BE RECEIVED AS A RESULT OF EXPO RT. CONTRARY TO IT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF MANU FACTURE OF EXPORT OF DIAMONDS, BUT IN TRADING INDUSTRIAL CHEMICALS. F URTHER THE LEARNED CIT(A) HAS CONSIDERED THIS LOSS AS ARISING IN RESPE CT OF SPECULATIVE TRANSACTIONS WHICH FACT IS WRONG. THIS DEDUCTION WA S CLAIMED WITH REFERENCE TO THE ACTUAL PURCHASE AND SALE TRANSACTI ON ENTERED INTO BY THE ASSESSEE DURING THE YEAR IN QUESTION. FOR THE F OREGOING REASONS, WE ARE SATISFIED THAT THE ASSESSEE DESERVES TO SUCC EED ON THIS ISSUE. WE ORDER ACCORDINGLY. THIS GROUND IS ALLOWED. 7. 4 /5 6 73 / 8 - #/ 9: IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF AUGUST, 2013. ' 3 - 012 ;'*5 1 - $ SD/- SD/- (SANJAY GARG) (R.S.SYAL) % ' % ' % ' % ' / JUDICIAL MEMBER ! ' ! ' ! ' ! ' / ACCOUNTANT MEMBER MUMBAI ; ;'* DATED : 28 TH AUGUST, 2013. DEVDAS* ' 3 - +%/7< = <2/ ' 3 - +%/7< = <2/ ' 3 - +%/7< = <2/ ' 3 - +%/7< = <2// COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. +,'( / THE RESPONDENT. 3. > () / THE CIT, MUMBAI. 4. > / CIT(A) 9, MUMBAI. 5.