ASST CIT 16(3), MUMBAI V. P. ASHOKKUMAR & CO, MUMBAI

ITA 3730/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92703 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PERMANAND J

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , ! . . '(), * !, + BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.3730/MUM/2013 ASSESSMENT YEAR: 2009-10 ACIT-16(3), MATRU MANDIR, 2 ND FLOOR, R.NO.206, TARDEO ROAD MUMBAI 400 007 / VS. SHRI P. ASHOKKUMAR & COMPANY 807, PRASAD CHAMBERS OPERA HOUSE, MUMBAI 400 004 / APPELLANT / RESPONDENT P.A. NO. AADFP5714D , - / REVENUE BY SHRI PERMANAND J. , - / ASSESSEE BY NONE / DATE OF HEARING 02/06/2015 / DATE OF ORDER: 05/06/2015 SHRI P. ASHOK KUMAR & COMPANY 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 15/02/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, ON THE GROUND WHETHER THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) ERRED IN HOLDING THAT MARK TO MARKET LOSS OF RS.9 6,18,287/-, ARISING ON REVALUATION OF FORWARD EXCHANGE CONTRACT S, ON THE CLOSING DATE OF ACCOUNTING YEAR IS NOT A NOTIONAL L OSS AND THUS ALLOWABLE. 2. DURING HEARING OF THIS APPEAL, THE LD. DR, SHRI PERMANAND J. DEFENDED THE CONCLUSION ARRIVED AT IN THE ASSESSMENT ORDER. NOBODY ATTENDED ON BEHALF OF THE ASSESSEE IN SPITE OF SERVICE OF REGISTERED AD NOTICE. IT SEEMS THAT THE ASSESSEE HAS NOTHING TO SAY, THEREFORE, WE TEND TO PROCEED EX- PARTY QUA THE ASSESSEE AND DISPOSE OFF THIS APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 2.1. WE HAVE CONSIDERED THE SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON IN THE B USINESS AS MANUFACTURER AND EXPORTER OF CUT AND POLISH DIAMOND S. THE SHRI P. ASHOK KUMAR & COMPANY 3 ASSESSEE DECLARED INCOME OF RS.89,06,392/-. BEFORE THE ASSESSING OFFICER, THE CLAIM OF THE ASSESSEE WAS TH AT IN RESPECT OF ACCOUNTING OF FOREIGN CURRENCY TRANSACTION, THE FIRM FOLLOWS ACCOUNTING STANDARD AS-11 UNDER WHICH ASSET AND LIA BILITIES ARE STATED AT YEAR END RATE, THEREFORE, OUTSTANDING FOR WARD CONTRACTS ARE RESTATED AT THE YEAREND RATE AND MARK TO MARKET LOSS IN RESPECT OF THE SAME, THEREFORE, THE ASSESSEE DEBITE D RS.96,18,287/-. THE LD. ASSESSING OFFICER DID NOT AGREE WITH THE CLAIM OF THE ASSESSEE AND DISALLOWED THE CLAIM. 2.2. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INC OME TAX (APPEALS), THE CLAIM OF THE ASSESSEE WAS ALLOWED AG AINST WHICH THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. WE NOTE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WHILE COMI NG TO A PARTICULAR CONCLUSION CONSIDERED THE DECISION FROM HONBLE DELHI HIGH COURT WOODWARD GOVERNOR (294 ITR 451), ONGC VS CIT 322 ITR 180(SC), DCIT VS BANK OF BAHRAIN AND KUWAIT (IT A NOS.4404 AND 1883/MUM/2004). THE ASSESSEE IS PREDOMINANTLY ENGAGED IN THE BUSINESS OF IMPORT OF ROUGH DIAMONDS AND EXPORTS THE DIAMONDS AFTER CUTTING AND POLISHING THE SAME. IN TOTAL SALE OF RS.52.71 CRORES, THE SA LE DENOMINATED IN FOREIGN CURRENCY WAS RS.42.23 CRORES. SIMILARLY , OUT OF THE TOTAL PURCHASES OF RS.37.10 CRORES PURCHASE DENOMIN ATED IS US $. 8.97CRORES. OUT OF TOTAL RECEIVABLES FOR GOOD OF RS.23.41 CRORES, THE US $ RECEIVABLE ACCOUNT FOR RS.22.38 CR ORES. SHRI P. ASHOK KUMAR & COMPANY 4 MEANING THEREBY, THE ASSESSEE IS EXPOSED TO EXCHANG E FLUCTUATION RISK. THE ASSESSEE HAS BOOKED ALL THE FORWARD CONTRACTS IN RESPECT OF EXPORT RECEIVABLES ONLY. T HERE IS UNCONTROVERTED FINDING IN THE IMPUGNED ORDER THAT T HE ASSESSEE IS REPORTING ALL MONETARY ITEMS I.E. EXPORT RECEIVA BLES, IMPORT PAYABLE AND FOREIGN CURRENCY WORKING CAPITAL LOAN, APPEARING IN THE BALANCE SHEET, AT CLOSING RATE AND RECOGNIZING THE EXCHANGE RATE DIFFERENCE IN PROFIT AND LOSS ACCOUNT AS EXPEN SES OR INCOME. THE SAME IS EVIDENT FROM NOTES TO ACCOUNTS UNDER TH E HEADING SIGNIFICANT ACCOUNTING POLICY FOLLOWED AND ITS DIS CLOSURE. THE METHOD OF ACCOUNTING/RECORDING THE TRANSACTION DENO MINATED IN FOREIGN CURRENCY IS AS PER AS 11 WHICH IS CONSISTEN TLY FOLLOWED BY THE ASSESSEE. THE EXCHANGE FLUCTUATION RISK IS I NTEGRAL PART OF THE BUSINESS OF THE ASSESSEE, THEREFORE, WHAT NEEDS TO BE SEEN IS WHETHER THE RISK WHICH THAT ASSESSEE HAS HEDGED BY WAY OF FORWARD CONTRACT HAS AN UNDERLYING ASSET OR LIABILI TY BY WAY OF DEBTORS OR CREDITORS. THE FORWARD CONTRACT ENTERED DURING THE COURSE OF BUSINESS CREATES A LEGAL LIABILITY IRRESP ECTIVE OF THE FACT WHETHER IT MATURES DURING THE ACCOUNTING YEAR OR BE YOND ACCOUNTING YEAR. THE TRANSACTIONS OF THE ASSESSEE ARE TWO SIDES OF SAME COIN, THUS, BOTH SIDES HAS TO BE CONSIDERED , THEREFORE, THE ASSESSING OFFICER IS NOT EXPECTED TO DETERMINE THE NATURE AND EFFECT OF A TRANSACTION MERELY ON ITS PRESENTAT ION WITHOUT GOING INTO DEEP. THE LIABILITIES IN FOREIGN EXCHAN GE WERE INCURRED DURING THE NORMAL COURSE OF BUSINESS AND S INCE THE SHRI P. ASHOK KUMAR & COMPANY 5 FORWARD CONTRACT OBLIGATIONS WERE DONE AS PER AS-11 , CONSISTENTLY OVER THE YEARS, WE FIND MERIT IN THE C ONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL S). THE ASSESSEE IS NOT DEALER IN FOREIGN EXCHANGE, THEREFO RE, THE DECISION CITED LIKE BANK OF BAHRAIN IS NOT APPLICAB LE TO THE FACTS OF THE PRESENT ASSESSEE. EVEN THE ASSESSING OFFICE R HAS NOT DISPUTED THAT THE IMPUGNED TRANSACTION IS SPECULATI VE IN NATURE. THE TRIBUNAL IN THE CASE OF M/S BHABANI GEMS VS ACI T (ITA NO.2855/MUM/2010) FOR AY 2006-07 CONCLUDED THAT TH E LOSS WAS ALLOWABLE AS BUSINESS LOSS, BY FURTHER HOLDING THAT IT IS ALSO COVERED BY SPECIAL BENCH DECISION IN THE CASE OF D CIT VS BANK OF BEHRAIN, THUS, THE LOSS INCURRED BY THE ASSESSEE ON RESTATEMENT OF PENDING FORWARD CONTRACT AGREEMENT A T THE YEAREND IS AN ALLOWABLE BUSINESS LOSS. WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INC OME TAX (APPEALS). IT IS AFFIRMED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LEARNED REPRESENTATIVES FROM BOTH THE S IDES AT THE CONCLUSION OF THE HEARING ON 02 ND JUNE 2015. SD/- SD/- ( N.K. BILLAIYA ) (JOGINDER SINGH) * ! / ACCOUNTANT MEMBER ! / JUDICIAL MEMBER MUMBAI; !' DATED : 05/06/2015 SHRI P. ASHOK KUMAR & COMPANY 6 F{X~{T? P.S / #$ , 0 12 3241 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. % % & ( ) / THE CIT, MUMBAI. 4. % % & / CIT(A)- , MUMBAI 5. )*+ # , % # - , / DR, ITAT, MUMBAI 6. +. / / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI