ASST CIT 16(3), MUMBAI V. MANI EXPOIRTS, MUMBAI

ITA 3755/MUM/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0267 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: K A V A IDYALINGAMLD
• Keywords: Business income
• Section: 143(3)

Judgement Text

ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.3755/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) ASSISTANT COMMISSIONER OF INCOME TAX 16(3) MATRU MANDIR 2 ND FLOOR, ROOM NO.206 TARDEO ROAD MUMBAI - 400 007 / VS. MANI EXPORTS 1903,PANCHRATNA OPERA HOUSE MUMBAI -400 004 ! ./ ./PAN/GIR NO. AAEFM-2320-F ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) A SSESSEE BY : K.A.V A IDYALINGAM,LD. AR RE VENUE BY : SUMAN KUMAR, LD. DR / DATE OF HEARING : 02/08/2017 / DATE OF PRONOUNCEMENT : 09 /08/2017 ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT Y EAR [AY] 2009- 10 CONTESTS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-27 [CIT(A)], MUMBAI DATED 27/02/2013 QUA RELIEF PROVIDED TO ASSESSEE AGAINST MARK-TO-MARKET LOSSES OF RS.57.18 LACS ARISING ON REVALUATION OF FORWARD CONTRACT AGREEMENTS ON THE CLOSING DATE OF ACCOUNTING YEAR. 2. THE FACTS RELEVANT TO DISPUTE ARE THAT THE ASSES SEE BEING RESIDENT FIRM ENGAGED AS IMPORTER AND EXPORTER OF DIAMOND ETC. HAS BEEN ASSESSED U/S 143(3) FOR IMPUGNED AY ON 14/12/2011 W HERE THE LOSS OF THE ASSESSEE HAS BEEN DETERMINED AT RS.525.07 LACS AS AGAINST RETURNED LOSS OF RS.582.25 LACS E-FILED BY THE ASSESSEE ON 14/08/2009. THE ASSESSEE HAS SUFFERED DISALLOWANCE OF RS.57.18 LACS, BEING LOSS SUFFERED BY ASSESSEE ON ACCOUNT OF OUTSTANDING / OP EN FOREIGN EXCHANGE FORWARD CONTRACTS AND THE SAME IS SOLE SUBJECT MATT ER OF THIS APPEAL. 3. DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE EXPL AINED THAT THE IMPUGNED LOSS REPRESENT LOSSES ON ACCOUNT OF MARK-TO-MARKET REVALUATION OF A LIABILITY THAT HAS NOT YET CRYSTAL LIZED AND THE WAS IN TUNE WITH ACCOUNTING STANDARD-11 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. HOWEVER, NOT CONVINCED, LD. AO OPINED THAT THE SAME BEING A NOTIONAL AND CONTINGENT LOSS WAS NOT A LLOWABLE TO THE ASSESSEE. FINALLY, THE LOSS WAS DETERMINED AFTER DI SALLOWING THIS LOSS CLAIMED BY THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME SUCCE SSFULLY BEFORE LD.CIT(A) VIDE IMPUGNED ORDER DATED 27/02/2013 WHER E IT WAS ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 3 CONTENDED THAT THE ASSESSEE, BY FOLLOWING CONSISTEN T ACCOUNTING POLICY, HAS BEEN RESTATING ALL THE FOREIGN DENOMINATED ASSE TS AS WELL AS LIABILITIES AT YEAR-END DATE TO EQUIVALENT INDIAN C URRENCY AND RECOGNIZING THE RESULTANT GAIN / LOSS IN THE PROFIT & LOSS ACCO UNT. THE ATTENTION WAS DRAWN TO THE FACT THAT THE ASSESSEE, IN SIMILAR FAS HION, RECOGNIZED GAIN ON RECEIVABLES FOR RS.331.86 LACS IN THE PROFIT & L OSS ACCOUNT. RELIANCE WAS PLACED ON THE DECISION OF SPECIAL BENCH OF TRIB UNAL RENDERED IN DCIT VS. BANK OF BAHRAIN & KUWAIT [ITA NOS. 4404 & 1883/MUM/2004]. THE LD. CIT(A), AFTER CONSIDERING ASSESSEES SUBMIS SIONS / CONTENTIONS CONCLUDED THE MATTER IN ASSESSEES FAVOR BY MAKING FOLLOWING OBSERVATIONS:- 5. I HAVE CAREFULLY CONSIDERED THE CONTENTS OF THE ASSESSMENT ORDER AND THE APPELLANTS SUBMISSIONS THEREOF. 5.1 AT THE OUTSET, APPELLANT IS PREDOMINANTLY ENGAG ED IN THE BUSINESS OF IMPORT OF ROUGH DIAMONDS, MANUFACTURING I.E. CUTTIN G & POLISHING OF SAME IN TO POLISHED DIAMONDS AND EXPORTING THE SAID DIAMONDS. IN TOTAL SALE OF RS.99.48 CR, SALE DENOMINATED IN FOREIGN CURRENCY I S RS.99.13 CR. SECONDLY, ENTIRE PURCHASES OF RS. 69.37 CRS ARE DENOMINATED I N DOLLAR TERMS AND THE YEAR-END CREDITORS FOR GOODS ARE AT RS.23.26 PAYABL E IN US $. FURTHER, OUT OF RECEIVABLES FOR GOODS OF RS. 48.18 CRS AN AMOUNT OF RS. 48.16 CRS IS DENOMINATED IN US $. THUS IT IS EVIDENT THAT APPELL ANT IS EXPOSED TO RISK ARISING OUT OF FLUCTUATION IN EXCHANGE RATE AND AS A PRUDENT BUSINESSMEN LIKELY TO HEDGE ITS RISK. APPELLANT HAS BOOKED ALL THE FORWARD CONTRACTS IN RESPECT OF EXPORT RECEIVABLES ONLY. 5.2 FROM NOTES TO THE ACCOUNTS UNDER THE HEADING S IGNIFICANT ACCOUNTING POLICY FOLLOWED & ITS DISCLOSURE, IT IS EVIDENT TH AT APPELLANT IS REPORTING ALL MONETARY ITEMS I.E. EXPORT RECEIVABLE, IMPORT PAYAB LE AND FOREIGN CURRENCY WORKING CAPITAL LOAN APPEARING IN BALANCE SHEET AT CLOSING RATE AND RECOGNIZING THE EXCHANGE RATE DIFFERENCE IN PROFIT & LOSS ACCOUNT AS EXPENSES OR INCOME, AS THE CASE MAY BE. SIMILARLY OUTSTANDIN G FORWARD CONTRACT ARE MARKED TO MARKET AND RESULTING LOSS OR GAIN IS BEIN G RECOGNIZED AS EXPENSES OR INCOME IN PROFIT & LOSS ACCOUNT. IT MAY BE MENTI ONED THAT THIS METHOD OF RECORDING THE TRANSACTIONS DENOMINATED IN FOREIGN C URRENCY IS AS PER AS-1L IS CONSISTENTLY FOLLOWED. 5.3 IN THE ABOVE BACK GROUND, IT IS UNDISPUTED THAT APPELLANT IS IN THE BUSINESS OF EXPORTS AND HAS CERTAIN RECEIVABLES IN FOREIGN EXCHANGE AT ANY POINT OF TIME DURING THE YEAR. IT IS ALSO A FACT TH AT APPELLANT IS CONSTANTLY EXPOSED TO THE RISK ARISING OUT OF THE FLUCTUATION IN FOREIGN EXCHANGE RATES. ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 4 FURTHER SUCH RISK IS INTEGRAL TO THE APPELLANT'S BU SINESS AND IT ARISES OUT OF AND IS ASSOCIATED WITH SUCH BUSINESS. IT IS ALSO A FACT THAT THE AFORESAID RISK IS NOT BOUGHT BY THE APPELLANT INDEPENDENT TO THE BUSI NESS CARRIED ON BY HIM. IT IS ONLY WITH AN INTENTION TO MITIGATE THE RISK ASSO CIATED WITH BUSINESS THE APPELLANT HAS ENTERED INTO FORWARD EXCHANGE CONTRAC TS. THEREFORE, WHAT NEEDS TO BE SEEN IS WHETHER THE RISK WHICH APPELLAN T HAS HEDGED BY WAY OF A FORWARD CONTRACT HAS AN UNDERLYING ASSET OR A LIABI LITY BY WAY OF DEBTORS OR CREDITORS, IT IS ONLY IN THIS SENSE OF THE MATTER, COURTS HAVE HELD THAT THE PROFIT OR LOSS ARISING OUT OF FORWARD CONTRACTS EITHER ON MATURITY OR ON CANCELLATION OF SUCH CONTRACTS FORMS PART OF THE BUSINESS INCOME. I N OTHER WORDS, THE FORWARD CONTRACT ENTERED DURING THE COURSE OF BUSINESS CREA TES A LEGAL LIABILITY IRRESPECTIVE OF THE FACT THAT WHETHER IT MATURES DU RING THE ACCOUNTING YEAR OR BEYOND THE ACCOUNTING THE YEAR THEREFORE, IT IS NOT CORRECT TO STATE THAT THE CONTRACT DOES NOT RESULT IN AN ASSET OR A LIABILITY AND HENCE ITS REVALUATION DOES NOT ARISE. 5.4 TO CONSIDER AN EXAMPLE, APPELLANT IS AN EXPORTE R AND HAS EXPORTED GOODS 20000 US DOLLARS ON 5 TH FEBRUARY WITH A CREDIT PERIOD OF 90 DAYS THE PREVAILING EXCHANGE RATE ON 5 TH FEBRUARY WAS RS.45 PER DOLLAR AND THE EXPORT PROCEEDS ARE ACCORDINGLY REALIZABLE AT THAT RATE ON 5 TH MAY I.E. BEYOND THE ACCOUNTING YEAR. ON 5 TH MARCH THE EXCHANGE RATE WAS AT 48 PER DOLLAR AND THEREFORE TO HEDGE THE RISK OF FLUCTUATION IN EXCHA NGE RATE APPELLANT ENTERED INTO FORWARD CONTRACT FOR AN AMOUNT OF 10000 US DOL LARS AT THE SPOT RATE OF RS. 48 AND THE MATURITY OF CONTRACT FALLS ON 5 TH MAY I.E., BEYOND THE ACCOUNTING YEAR. IN THIS SITUATION A LEGALLY ENFORC EABLE CONTRACT WAS ENTERED AND A LIABILITY WAS CREATED AGAINST THE APPELLANT T O SELL 10000 US DOLLARS AT THE RATE OF RS. 48 PER DOLLAR, NOTWITHSTANDING THE FACT THAT THE MATURITY OF CONTRACT FALLS BEYOND THE ACCOUNTING YEAR. FURTHER, APPELLANT COULD ENTER INTO THE AFORESAID CONTRACT ONLY BASED ON THE FACT THAT HE HAS RECEIVABLES OF 20,000 US DOLLARS ON 5 TH MAY I.E., THE MATURITY DATE. IN OTHER WORDS RECEIVABLES OF APPELLANT TO THE EXTENT OF 10,000 US DOLLARS ARE LOCKED UP AS UNDERLYING ASSET TO THE AFORESAID FORWARD CONTRACT AND ONLY ON THE STRENGTH OF SUCH ASSET APPELLANT WAS ALLOWED TO ENTER INTO THE CONTRACT WITH BANK. NOW, APPELLANT HAS TO REVALUE HIS FOREIGN DEBTORS/ CREDI TORS ON 31 ST MARCH FOR THE PURPOSE OF CLOSING HIS BOOKS AND AS A MATTER OF PRU DENCE HE HAS TO PROVIDE FOR THE INCOME OR LOSS ARISING OUT OF HIS TRANSACTI ONS IN FOREIGN CURRENCY. THE CLOSING FOREIGN EXCHANGE RATE IS 50 PER DOLLAR. APP ELLANT HAS VALUED HIS DEBTORS OF 20,000 US DOLLARS AT THE RATE OF RS. 50 PER DOLLAR AND RECOGNIZED A GAIN OF RS.1,00,000/-. SIMILARLY, APPELLANT HAS ALS O RECOGNIZED A LOSS OF RS. 20,000/- ON FORWARD CONTRACT OF 10000 US DOLLARS (I .E.RS. 50RS.48). NOW, APPELLANT HAS SHOWN THE ABOVE GAIN/ LOSS SEPARATELY FOR THE PURPOSE OF PRESENTING THE ACCOUNTS. IT IS IN THIS BACK GROUND THAT THE AO HELD THE LOSS OF RS. 20,000/- IS NOTIONAL AND HENCE NOT ALLOWABLE, W HILE HE HAS ACCEPTED THE PROFIT OF RS.1,00,000/- OFFERED TO TAX. IN FACT, IT IS THE NET GAIN OF 80,000/- BASED ON ASCERTAINED BOOKED RATE THAT WOULD FORM PA RT OF APPELLANT'S INCOME AND NOT THE AMOUNT OF RS. 1,00.000/-. 5.5 THE IMPUGNED TRANSACTIONS ARE TWO SIDES OF THE SAME COIN AND BY IGNORING ONE SIDE THE COIN LOSES ITS VALUE. THEREFO RE, IN MY CONSIDERED OPINION, THE AO CANNOT DETERMINE THE NATURE AND EFF ECT OF A TRANSACTION ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 5 BASED MERELY ON ITS PRESENTATION, WITHOUT GOING INT O ITS SUBSTANCE. WHEN A LEGALLY TENABLE CONTRACT IS IN EXISTENCE, DULY SUPP ORTED BY AN UNDERLYING ASSET AND THE CONTRACT HAVING BEEN ENTERED DURING THE COU RSE OF BUSINESS AND FURTHER THAT THE EXCHANGE RATE AS ON DATE OF ENTERI NG THE CONTRACT AND AS AT THE YEAR-END BEING ASCERTAINABLE, DUE EFFECT OF THE CONTRACT AT THE YEAR-END HAS TO BE CONSIDERED WHILE ASSESSING APPELLANTS INC OME. HERE, IT IS NOT OUT OF PLACE TO MENTION THAT THE UPPER LIMITS OF EXPOSURE TO FORWARD CONTRACTS ARE ALWAYS REGULATED BY THE RBI GUIDELINES THAT THEY AR E ALLOWED ONLY TO CERTAIN EXTENT OF RECEIVABLES OR PAYABLES AND NOT TO THE FU LL EXTENT. FURTHER BANKS ALSO INSIST ON COLLECTING MARGINS IN CASE THE MOVEM ENT OF FORWARD CONTRACTS BEFORE MATURITY IS AGAINST THE EXPORTER/IMPORTER. I N OTHER WORDS, THE ENTIRE GAMUT OF THE IMPUGNED TRANSACTIONS IS INTEGRAL TO T HE APPELLANTS BUSINESS AND IT CANNOT BE CALLED A CONTINGENT TRANSACTION. THERE IS NO MERIT IN THE AO'S ARGUMENT IN TREATING THE IMPUGNED TRANSACTION AS IN DEPENDENT TO THAT OF APPELLANTS BUSINESS AND STATE THAT THE FLOW OF BENE FIT IS NOT KNOWN OR IT DEPENDS ON ANY ONE OF THE VARIOUS EVENTS LISTED BY HIM. IN FACT THE AO HAS FAILED TO SEE THAT SUCH EVENTS ARE PART AND PARCEL OF THE APPELLANT'S BUSINESS AND NOT EXTERNAL TO IT. THEREFORE, WHATEVER MAY BE THE RESULT OF THE EVENTS LISTED OUT BY THE AO, SUCH RESULT HAS TO BE TREATED AS BUSINESS RESULT AT THE TIME OF ITS HAPPENING AND HENCE THE EFFECT OF THE F ORWARD CONTACT AS AT THE YEAR-END HAS TO BE CONSIDERED FOR THE PURPOSE OF AR RIVING AT APPELLANTS INCOME. 5.6 SECONDLY, THE ISSUE OF NOTIONAL LOSS IS LIKELY TO ARISE IN THE CONTEXT OF APPELLANT'S EXPOSURE TO FORWARD CONTRACTS EXCEEDING THE UNDERLYING ASSETS/LIABILITIES, WHICH MAY BE IN CASE OF LUMPSUM FORWARD CONTRACTS. APPELLANTS AR HAS EXPLAINED THAT WHENEVER A LUMPSU M FORWARD CONTRACT WAS ENTERED, IT WAS IMMEDIATELY COVERED BY THE VALUE OF SUBSEQUENT EXPORTS AND THE SUM OF SUCH FORWARD CONTRACTS NEVER EXCEEDED TH E VALUE OF THE UNDERLYING DEBTORS AT ANY POINT OF TIME DURING THE YEAR. APPELLANT HAS PLACED ON RECORD THE MONTH WISE POSITION OF THE DEBTORS VI S-A-VIS THE FORWARD CONTRACTS IN DOLLAR TERMS TO DEMONSTRATE THE ABOVE POSITION. FURTHER, TO REITERATE, APPELLANT HAS BEEN CONSISTENTLY FOLLOWIN G THE MERCANTILE SYSTEM OF ACCOUNTING AND HAS BEEN VALUING THE YEAR-END OUTSTA NDING FOREIGN EXCHANGE TRANSACTIONS IN TERMS THE ACCOUNTING STANDARD AS-11 . 5.7 IN THE CASE OF WOODWARD GOVERNOR HON. DELHI HIG H COURT HAS OBSERVED AS UNDER (294 ITR 451). IN THE INSTANT CASES, ON T HE OTHER HAND, THE LIABILITY ARISES OUT OF ALREADY CONCLUDED CONTRACTS. THE LIAB ILITY ALREADY STANDS ACCRUED THE MINUTE THE CONTRACT WAS ENTERED INTO. THE MERE POSTPONEMENT OF THE PAYMENT TO DIFFERENT DATE CANNOT EXTINGUISH THE LIA BILITY AND RENDER IT NOTIONAL OR CONTINGENT. THE DECISION OF HON.SUPREME COURT IN BHARAT EARTH MOVERS SETTLES THE POSITION. THAT DECISION EXPLAINS THAT W HAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY AND IT BEING ESTIMATED W ITH REASONABLE CERTAINTY EVEN IF THE EXACT QUANTIFICATION IS NOT FEASIBLE. EVEN I F THE LIABILITY IS DISCHARGED AT A FUTURE DATE, IT WILL NEVERTHELESS BE A LIABILITY WH ICH IS CERTAIN AND NOT CONTINGENT. THIS APPROACH IS CONSISTENT WITH AND IN FORMED BY THE ACCOUNTING PRACTICES IN THE MERCANTILE SYSTEM, WITH FURTHER GU IDANCE FROM THE ACCOUNTING STANDARDS OF THE ICAI WHICH HAVE RECEIVED JUDICIAL ACKNOWLEDGEMENT.' ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 6 5.8 THIS DECISION HAS BEEN APPROVED BY HON SUPREME COURT IN CIT V WOODWARD GOVERNOR INDIA P LTD (312 ITR 254) AND IN CONCLUSION THE BENCH STATED THAT IN ORDER TO FIND OUT IF AN EXPENDITURE IS DEDUCTIBLE THE FOLLOWING HAVE TO BE TAKEN INTO ACCOUNT (I) WHETHER THE SYSTE M OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS MERCANTILE SYSTEM, WHICH BRINGS INTO DEBIT THE EXPENDITURE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRE D BEFORE IT IS ACTUALLY DISBURSED AND BRINGS INTO CREDIT WHAT IS DUE, IMMED IATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED; (II) WHETHER THE SA ME SYSTEM IS FOLLOWED BY THE ASSESSEE FROM THE VERY BEGINNING AND IF THERE WAS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS BONA FIDE ; (III)WHETHER THE ASSESSEE HAS GIVEN THE SAME TREATMENT TO LOSSES CLAIMED TO HAVE ACCRUED AN D TO THE GAINS THAT MAY ACCRUE TO IT; (IV) WHETHER THE ASSESSEE HAS BEEN CO NSISTENT AND DEFINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF L OSSES AND GAINS; (V) WHETHER THE METHOD ADOPTED BY THE ASSESSEE FOR MAKI NG ENTRIES IN THE BOOKS BOTH IN RESPECT OF TOSSES AND GAINS IS AS PER NATIO NALLY ACCEPTED ACCOUNTING STANDARDS; (VI) WHETHER THE SYSTEM ADOPTED BY THE A SSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCI NG THE INCIDENCE OF TAXATION. 5.9 IN THE CASE OF DCIT V/S. BANK OF BAHRAIN AND KU WAIT (ITA NOS. 4404 & 1883/MUM/2004) THE SPECIAL BENCH OF JURISDICTIONAL MUMBAI ITAT WHILE HOLDING THAT MTM LOSSES IN RESPECT OF FORWARD FOREI GN EXCHANGE CONTRACTS DEBITED TO PROFIT AND LOSS ACCOUNT IS ALLOWABLE, OB SERVED AS UNDER: (I)A BINDING OBLIGATION ACCRUED AGAINST THE APPELLA NT THE MINUTES IT ENTERED INTO FORWARD FOREIGN EXCHANGE CONTRACTS. (II) A CONSISTENT METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT CANNOT BE DISREGARDED. THE APPELLANT HAS CONSISTENTLY FOLL OWED THE SAME METHOD OF ACCOUNTING IN REGARD TO RECOGNITION OF PR OFIT OR LOSS BOTH, IN RESPECT OF FORWARD FOREIGN EXCHANGE CONTRACT AS PER THE RATE PREVAILING ON MARCH,31. (III) A LIABILITY IS SAID TO HAVE CRYSTALLIZED WHEN A PENDING OBLIGATION ON THE BALANCE SHEET DATE IS DETERMINABLE WITH REAS ONABLE CERTAINTY. (IV) AS PER AS-11, WHEN THE TRANSACTION IS NOT SETT LED IN THE SAME ACCOUNTING PERIOD AS THAT IN WHICH IT OCCURRED, THE EXCHANGE DIFFERENCE ARISES OVER MORE THAN ONE ACCOUNTING PERIOD. (V) IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (I) P. LTD., THE APPELLANT S CLAIM IS ALLOWABLE. (VI) IN THE ULTIMATE ANALYSIS, THERE IS NO REVENUE EFFECT AND IT IS ONLY THE TIMING OF TAXATION OF LOSS/PROFIT. 5.10 IN THE CASE OF ONGC VS CIT 322 ITR 180 SUPREME COURT HAS REITERATED THE PRINCIPLES LAID DOWN ABOVE WHILE ANSWERING THE QUESTION THAT WHEN THE ASSESSEE MAINTAINED THEIR ACCOUNTS ON MERCANTILE SY STEM OF ACCOUNTING AND THERE WAS NO FINDING BY THE ASSESSING OFFICER ON TH E CORRECTNESS OR COMPLETENESS OF THE ACCOUNT AND THAT THE ASSESSEE H AD COMPLIED WITH THE ACCOUNTING STANDARDS, LAID DOWN BY THE CENTRAL GOVE RNMENT, CAN THE 'LOSS' SUFFERED BY IT ON ACCOUNT OF FLUCTUATION IN THE RAT E OF FOREIGN EXCHANGE AS ON THE DATE OF BALANCE-SHEET BE ALLOWED AS EXPENDITURE UNDER SECTION 31(1) OF THE ACT NOTWITHSTANDING THE FACT THAT THE LIABILITY HAD NOT BEEN ACTUALLY ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 7 DISCHARGED IN THE YEAR IN WHICH THE FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE HAD OCCURRED AND FINALLY DECIDED THAT THE LOSS INCU RRED ON ACCOUNT OF RESTATEMENT OF THE LIABILITIES IN FOREIGN EXCHANGE' IS ALLOWABLE AND ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. 6. THUS THE JUDICIAL DECISIONS OF THE HON. SUPREME COURT AND VARIOUS OTHER AUTHORITIES ARE CLEARLY IN FAVOUR OF THE APPELLANT ON THIS ISSUE. THAT APART, AS DISCUSSED EARLIER, THE LIABILITIES IN FOREIGN EXCHA NGE WERE INCURRED DURING THE NORMAL COURSE OF THE APPELLANT'S BUSINESS AND THE R ESTATEMENT OF THE FORWARD CONTRACT OBLIGATIONS WAS DONE AS PER AS-11 IN A CON SISTENT MANNER OVER THE YEARS. IN FACT THE GAIN EARNED ON SUCH REVALUATION WAS ACCEPTED AND BROUGHT TO TAX IN THE RESPECTIVE YEARS AND THERE IS NO REAS ON TO ARRIVE AT A DIFFERENT CONCLUSION AT PRESENT MERELY BECAUSE THERE IS A LOS S DURING THE YEAR. APPARENTLY, THE AO WAS OF THE VIEW THAT THE APPELLA NT IS NOT A DEALER IN FOREIGN EXCHANGE UNLIKE THE BANK OF BAHRAIN, AND TH EREFORE THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE. IT IS N OT OUT OF PLACE TO MENTION THAT THE HON. SUPREME COURT, IN THE CASE OF ONGC ABOVE U PHELD THE SAME PRINCIPLES THAT WERE LAID DOWN IN THE CASE OF WOODW ORD GOVERNOR, AND THE LOSS WAS HELD ALLOWABLE IN SIMILAR CIRCUMSTANCES, W HERE THE BUSINESS OF ONGC IS NOT THAT OF A FOREIGN EXCHANGE DEALER. FURT HER, IT IS NOT THE NATURE OF BUSINESS OR THE STOCK DEALT WITH I.E., CURRENCY OR COMMODITIES OR GOODS LIKE DIAMONDS IN THE PRESENT CASE THAT MATTERS. WHAT MAT TERS IS WHETHER THE FORWARD CONTRACT TRANSACTION WAS ENTERED DURING THE COURSE OF APPELLANTS REGULAR BUSINESS OR WHETHER IT IS TAINTED WITH A CO LOUR OF SPECULATIVE TRANSACTION. AT PRESENT, THE AO DOES NOT DISPUTE TH AT THE IMPUGNED TRANSACTION IS SPECULATIVE IN NATURE. FURTHER, THE AFORESAID ISSUE OF ALLOWING THE LOSS ON ACCOUNT OF REVALUATION OF PENDING FORWA RD CONTRACTS WAS CONSIDERED 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 AY 2006-07 AND THE SAID LOSS WAS ALLOWED AS BUSINESS L OSS AND THE ISSUE WAS HELD TO BE COVERED BY SPECIAL BENCH DECISION IN THE CASE OF DCIT VS. BANK OF BAHRAIN. THEREFORE, IN MY CONSIDERED OPINION THE FA CTS OF THE APPELLANT'S CASE ARE FULLY COVERED BY THE ABOVE CITED DECISIONS OF T HE HON. SUPREME COURT AND THE ITAT MUMBAI BENCH. ACCORDINGLY, I HOLD THAT THE LOSS INCURRED BY THE APPELLANT ON RESTATEMENT OF PENDING FORWARD CONTRAC T AGREEMENTS AT THE YEAR- END IS AN ALLOWABLE BUSINESS LOSS. APPELLANT SUCCEE DS ON THIS GROUND. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] PLACED RELIANCE ON THE FINDINGS OF LD. AO AND CONTENDED THAT NO DEDUCTION COULD BE ALLOWED TO ASSESSEE AGAINST NOTIONAL LOSS WHICH HAS NOT BEEN C RYSTALLIZED DURING THE YEAR. ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 8 6. PER CONTRA, LD. AR VEHEMENTLY SUPPORTED THE FINDINGS OF LD. CIT (A) AND CONTENDED THAT THE MATTER IS COVERED IN ASSESSE ES FAVOR BY SEVERAL JUDICIAL PRONOUNCEMENTS IN THIS REGARD. 7. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE RELEVANT MATERIAL ON RECORD. THE BASIC FACTS ARE NOT IN DISP UTE. THE ASSESSEE IS INTO THE BUSINESS OF IMPORT AND EXPORT OF DIAMONDS AND RESTATE FOREIGN DENOMINATED ASSETS AND LIABILITIES AT YEAR-END IN I NDIAN RUPEES AND RECOGNIZE RESULTANT PROFIT OR GAIN IN THE PROFIT & LOSS ACCOUNT. THIS ACCOUNTING METHODOLOGY IS CONSISTENTLY BEING FOLLOW ED BY THE ASSESSEE AND FURTHER THE SAME ACCOUNTING TREATMENT HAS BEEN GIVEN TO ASSETS AS WELL AS LIABILITIES. THE LD. CIT(A) HAS NOTED THAT THE ASSESSEE HAS RECOGNIZED GAIN IN SIMILAR FASHION FOR RS.331.86 LA CS IN THE IMPUGNED AY. 8. THE FOREIGN EXCHANGE CONTRACTS HAVE BEEN ENTERED INTO BY THE ASSESSEE TO HEDGE AGAINST THE FOREIGN EXCHANGE RISK ARISING AGAINST IMPORT / EXPORT TRANSACTIONS CARRIED OUT BY THE ASS ESSEE. IT IS ALSO AN ADMITTED FACT THAT QUANTUM OF FOREIGN EXCHANGE CONT RACTS STANDS FULLY COVERED BY THE UNDERLYING BUSINESS ASSETS I.E. SUND RY DEBTORS. 9. THEREFORE, ON FACTS AND CIRCUMSTANCES, WE FIND T HAT LD. CIT(A) HAS CLINCHED THE ISSUED IN THE RIGHT PERSPECTIVE. THE M ATTER STOOD IN ASSESSEES FAVOR BY SEVERAL JUDICIAL PRONOUNCEMENTS AS RIGHTLY OBSERVED BY LD. CIT(A). SIMILAR VIEW HAS BEEN TAKEN BY THIS TRIBUNAL IN ACIT VS. SHREE BALKRISHNA EXPORTS [ITA NO. 4185/MUM/2014 ORD ER DATED 08/02/2017] AND ACIT VS SANGHVI & SONS [ITA NO. 4484/MUM/2012 ORDER DATED 31/01/2017], A COPY OF WHICH HAS BEEN PLACED BEFORE US. ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 9 10. HOWEVER, IT IS OBSERVED THAT THE FOREIGN CURREN CY FORWARD CONTRACTS HAVE EXPIRED IN THE NEXT ASSESSMENT YEAR WHEN ACTUA L LOSS ON THESE TRANSACTIONS HAS BEEN ASCERTAINED. THEREFORE, IN PR INCIPAL, WHILE UPHOLDING THE DECISION OF LD. CIT(A), WE DEEM IT FI T TO RESTORE THE MATTER BACK TO THE FILE OF LD. AO FOR LIMITED PURPOSE OF V ERIFYING THE FACT THAT THE ACTUAL RESULTANT LOSS ON FORWARD CONTRACTS HAS FIRS T BEEN ADJUSTED FROM THE LOSS CLAIMED BY THE ASSESSEE IN THE IMPUGNED AY AND RESULTANT GAIN, IF ANY, HAS BEEN OFFERED TO TAX AND THERE IS NO DOU BLE DEDUCTION OF THE LOSSES. THE ASSESSEE IS DIRECTED TO PROVIDE THE REQ UISITE INFORMATION / DOCUMENTS TO SUBSTANTIATE HIS CLAIM IN THIS REGARD FAILING WHICH THE LD. AO SHALL BE AT LIBERTY TO DECIDE THE MATTER ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 11. RESULTANTLY, THE REVENUES APPEAL STANDS ALLOWE D FOR STATISTICAL PURPOSES IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH AUGUST, 2017. SD/- SD/- (JOGINDER SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 09.08.2017 SR.PS:- THIRUMALESH ITA NO. 3755/M/2013 MANI EXPORTS ASSESSMENT YEAR-2009-10 10 / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. $'- , - , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI