ASST CIT 16(3), MUMBAI V. SHREE BALKRISHNA EXPORTS, MUMBAI

ITA 4185/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8593 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Department
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 09-06-2014
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV; JAYANT KUMAR
• Keywords: Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 4185 /MUM/20 14 (ASSESSMENT YEAR 20 09 - 10 ) I.T.A. NO. 4186/MUM/2014 (ASSESSMENT YEAR 2010 - 11) ACIT 16(3) MATRU MANDIR 2 ND FLOOR, R.NO. 206 TARDEO ROAD MUMBAI - 400 007. VS. M/S. SHREE BALKRISHNA EXPORTS 411, THE JEWEL TATA ROAD NO. 1 OPERA HOUSE MUMBAI - 400 004. ( APPELLANT ) ( RESPONDENT ) C.O. NO. 207/MUM/2015 (ASSESSMENT YEAR 2009 - 10) C.O. NO. 208/MUM/2015 (ASSESSMENT YEAR 2010 - 11) M/S. SHREE BALKRISHNA EXPORTS 411, THE JEWEL TATA ROAD NO. 1 OPERA HOUSE MUMBAI - 400 004. VS. ACIT 16(3) MATRU MANDIR 2 ND FLOOR, R.NO. 206 TARDEO ROAD MUMBAI - 400 007. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAKFS6519E ASSESSEE BY SHRI VIJAY MEHTA & SHR I ANUJ KISNADWALA DEPARTMENT BY S HRI JAYANT KUMAR & AKHILENDRA YADAV DATE OF HEARING 24.1 . 201 7 DATE OF PRONOUNCEMENT 08 .2 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - M/S. SHREE BALKRISHNA EXPORTS 2 THE APPEALS FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DIRECTED AGAINST A COMMON ORDER DATED 21.3.2014 PASSED BY THE LEARNED CIT(A) - 27, MUMBAI AND THEY RELATE TO A.YS. 2009 - 10 & 2010 - 11. 2. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF IMPORT, MANUFACTURE, SALE AND EXPORT OF DIAMONDS. WE SHALL FIRST TAK E UP THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2009 - 10. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF ` 5,03,84,146/ - AS DEDUCTION ON ACCOUNT OF LOSS ARISING ON REVALUATION OF FOREIGN EXCHANGE FORWARD CONTRACTS OUTSTANDING AS ON 31.3 .2009. THE ASSESSEE EXPLAINED THE SAME AS LOSS ARISING ON ACCOUNT OF MARK TO MARKET REVALUATION OF FORWARD CONTRACTS AS PER RUPEE VALUE OF US DOLLAR AS ON 31.3.2009. THE ASSESSEE PLACED RELIANCE ON ACCOUNT OF ACCOUNTING STANDARD 11 ISSUED BY ICA I AND ALSO ON THE DECISION RENDERED IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. (312 ITR 254)(SC) AND DCIT VS. BANK OF BA HRAIN & KUWAIT (ITA NO. 4404 & 1883/MUM/2004) IN ORDER TO CONTEND THAT THE LOSS ARISEN ON ACCOUNT OF MARK TO MARKET REVALUATION FORWARD CONT RACTS IS AN ASCERTAINED LIABILITY ELIGIBLE FOR DEDUCTION. 3. HOWEVER, THE ASSESSING OFFICER TOOK THE VIEW THAT THE RATIO OF DECISION RENDERED IN THE ABOVE SAID CASES WOULD APPLY ONLY IN RESPECT OF OUTSTANDING DEBTORS , CREDITORS OR OTHER USUAL ITEMS OF A SSETS/ LIABILITIES AVAILABLE IN THE B ALANCE SHEET. HE FURTHER TOOK THE VIEW THAT ULTIMATE ECONOMIC BENEFIT ARISING IN THE CASE OF FORWARD CONTRACTS IN FOREIGN EXCHANGE IS CONTINGENT UPON OCCURRENCE OR OTHERWISE OF SEVERAL EVENT S AND HENCE LOSS CLAIMED BY TH E ASSESSEE IS A NOTIONAL LOSS . ACCORDINGLY, HE DISALLOWED THE CLAIM OF ` 5.03 CRORES REFERRED ABOVE. THE LEARNED CIT(A) HOWEVER ALLOWED THE CLAIM OF THE ASSESSEE AND HENCE THE REVENUE HAS FILED THIS APPEAL BEFORE US. 4. LEARNED DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT THE IMPUGNED FORWARD CONTRACTS ARE NOT H EDGING CONTRACTS AS PRESCRIBED IN SECTION 43(5)(C) OF THE ACT AND HENCE THE IMPUGNED LOSS SHOULD BE TREATED AS SPECULATIVE LOSS. HE FURTHER SUBMITTED THAT THE LEARNED CIT(A) HAS FAILED TO TAKE COGNI ZANCE OF M/S. SHREE BALKRISHNA EXPORTS 3 DECISION RENDERED BY MUMBAI BENCH OF ITAT IN THE CASE OF S. VINODKUMAR DIAMONDS PVT. LTD. (ITA NO. 506/MUM/2013 DATED 3.5.2013). 5. ON THE CONTRARY, LEARNED AR SUBMITTED THAT THE CASE OF THE ASSESSING OFFICER IN DISALLOWING THE CLAIM OF THE ASSES SEE IS THAT THE SAME IS NOTIONAL LOSS ONLY. ACCORDINGLY, LEARNED AR SUBMITTED THAT LEARNED DEPARTMENTAL REPRESENTATIVE WAS NOT ENTITLED TO DEFEND THE ORDER OF THE AO ON AN ALTOGETHER DIFFERENT GROUND LIKE SPECULATION LOSS . LEARNED AR FURTHER SUBMITTED TH AT HON'BLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF CIT VS. M/S. D. CHETAN & CO. (IT APPEAL NO. 278 OF 2014 DATED 1.10.2016) THAT THE DECISION OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS.BADRIDAS GARIDU (P) LTD. (2004) 134 TAXMAN 376) WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL WHEN IT RENDERED ITS DECISION IN THE CASE OF S. VINODKUMAR DIAMONDS PVT. LTD. (SUPRA). ACCORDINGLY, LEARNED AR SUBMITTED THAT THE REVENUE IS NOT JUSTIFIED IN TAKING SUPPORT OF DECISION RENDERED IN THE CASE OF S. VI NODKUMAR DIAMONDS PVT. LTD. (SUPRA) WHEN DECISION RENDERED BY HON'BLE JURISDICTIONAL HIGH COURT AS WELL AS OTHER COURTS ARE AVAILABLE IN FAVOUR OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. L EARNED AR SUBMITTED THAT THE ASSESSEE HAS ENTERED FORWARD CONTRACTS IN ORDER TO H EDG E ITS LIABILITIES WHENEVER IMPORTS WERE MADE AND ALSO TO PROTECT ITS ASSETS WHENEVER EXPORTS ARE MADE. HE ALSO SUBMITTED THAT THE ASSESSEE HAS REVALUED ALL ASSETS AND LIABILITIES HAVING FOREIGN CURREN CY EXPOSURE AS AT THE YEAR END AND SUCH REVALUATION HAS RESULTED IN LOSS DURING THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT THIS LOSS WOULD BE OFFSET WHEN THE FOREIGN EXCHANGE LIABILITY/ASSET/FORWARD CONTRACTS ARE ULTIMATELY SETTLED. HE SUBMIT TED THAT THE REVALUATION HAS RESULTED IN GAINS IN THE SUCCEEDING YEARS. LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE HAS REVALUED ASSETS AS PER THE ACCOUNTING STANDARD 11 ISSUED BY ICAI AND ALSO DECISIONS RENDERED IN VARIOUS CASES WHEREIN IT HAS BEEN HEL D THAT MARK TO MARKET LOSS ON ACCOUNT OF REVALUATION OF FOREIGN EXCHANGE LIABILITY/ASSET IS NOT NOTIONAL OR CONTINGENT LOSS. M/S. SHREE BALKRISHNA EXPORTS 4 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ONLY QUESTION URGED BEFORE IS WHETHER THE LOSS ARISING ON REVALUA TION OF FOREIGN EXCHANGE FORWARD CONTRACT IS A NOTIONAL LOSS OR NOT. IT APPEARS THAT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ENTIRE AMOUNT OF FOREIGN EXCHANGE FORWARD CONTRACTS ARE COVERED BY THE AMOUNT OF CREDITORS, DEBTORS AND OTHER ASSETS HAVING FOREIGN EXCHANGE EXPOSURE. WE NOTICED THAT THE LEARNED CIT(A) HAS TAKEN SUPPORT OF THE FOLLOWI NG DECISIONS IN ORDER TO HOLD THAT THE ABOVE SAID CLAIM OF THE ASSESSEE CANNOT BE CONSIDERED AS A NOTIONAL LOSS : - A) WOODWARD GOVERNNOR IND IA P. LTD. (312 ITR 254) B) DCIT VS. BANK OF BAHRAIN AND KUWAIT (2010) 41 SOT 290 C) BHARAT EARTH MOVERS VS. CIT (245 ITR 428) D) ONGC VS. CIT (322 ITR 180) 8. THE LD D.R RELIED UPON THE DECISION RENDERED BY THE CO - ORDINATE BENCH IN THE CASE OF S. VINODKUMAR DIAMO NDS PVT. LTD (SUPRA). HOWEVER, AS POINTED OUT BY LD D.R, THE ABOVE SAID DECISION CANNOT BE TAKEN SUPPORT OF IN VIEW OF THE OBSERVATIONS MADE BY HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. D. CHETAN & CO.(SUPRA). FURTHER, THE LD A.R HAS STATED THAT THE ASSESSEE HAS BEEN FOLLOWING THIS PRACTICE OF VALUING IN THE PAST AND ALSO IN THE SUCCEEDING YEARS. HE HAS STATED THAT THE VALUATION HAS RESULTED IN GAINS IN THE SUCCEEDING YEARS AND THEY HAVE BEEN OFFERED TO TAX. THE LD CIT(A) HAS ALSO NOTICED THAT THE C LAIM OF THE ASSESSEE IS SUPPORTED BY THE DECISIONS REFERRED ABOVE. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT MARK TO MARKET LOSS ON ACCOUNT OF REVALUATION OF FOREIGN CURRENCY FORWARD CONTRACT OUTSTANDIN G AS ON 31.3.2009 CANNOT BE CONSIDERED AS A NOTIONAL LOSS AND HENCE ALLOWABLE AS DEDUCTION WHILE COMPUTING INCOME UNDER THE HEAD BUSINESS. ACCORDINGLY, WE UPHOLD THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE. 9. WE SHALL NOW TAKE UP THE APPEAL FILE D BY THE REVENUE FOR A.Y. 2010 - 11. 10. IN THE ASSESSMENT RELATING TO A.Y. 2010 - 11, THE ASSESSEE CLAIMED THAT THE LOSS BROUGHT FORWARD FROM A.Y. 2009 - 10 SHOULD BE SET OFF AGAINST INCOME RELATING TO A.Y. 2010 - 11. THE ASSESSING OFFICER NOTICED THAT THE LOSS CLAIMED BY M/S. SHREE BALKRISHNA EXPORTS 5 THE ASSESSEE ON ACCOUNT OF REVALUATION OF FORWARD CONTRACTS AND OTHER ASSETS HAVE BEEN DISALLOWED . H ENCE THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE FOR SET OFF BROUGHT FORWARD LOSS. 11. IN THE APPELLATE PROCEEDINGS, THE LEARNED C IT(A) NOTICED THAT THE CLAIM OF THE ASSESSEE WAS ALLOWED IN A.Y. 2009 - 10 BY HIM AND HENCE THE ASSESSEE WOULD BE ELIGIBLE FOR SET OFF BROUGHT FORWARD LOSS. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO GRANT CONSEQUENTIAL RELIEF TO THE ASSESSEE. THE RE VENUE IS AGGRIEVED BY THE SAID DECISION THE LEARNED CIT(A). 1 2 . WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. IN THE PRECEDING PARAGRAPH, WE HAVE UPHELD THE DECISION RENDERED BY THE LEARNED CIT(A) IN A.Y. 2009 - 10 AND HENCE DIRECTION GIVEN BY TH E LEARNED CIT(A) IN A.Y. 2010 - 11 TO THE ASSESSING OFFICER TO GRANT CONSEQUENTIAL RELIEF TO THE ASSESSEE DOES NOT CALL FOR ANY INTERFERENCE. 13. THE CROSS OBJECTIONS FILED BY THE ASSESSEE IN BOTH THE YEARS DO NOT REQUIRE ANY ADJUDICATION AS THEY ONLY SUPP ORT THE ORDER PASSED BY THE LEARNED CIT(A). 14. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENUE AND BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 8 . 2 .201 7. SD/ - SD/ - (PAWAN SINGH ) (B.R.B ASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 8 / 2 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CI T 5. DR, ITAT, MUMBAI 6. GUARD FILE. M/S. SHREE BALKRISHNA EXPORTS 6 BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI