A.C.I.T.16(3), MUMBAI V. SANGHVI & SONS, MUMBAI

ITA 4484/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8488 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Department
• Bench Allotted: E
• Next Hearing Date: 30-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-07-2012
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLADR
• Assessee Lawyers: K A VAIDYALINGAN
• Keywords: Question of law
• Section: 260A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.4484/MUM/2012 ASSESSMENT YEAR:2009-10 ACIT-16(3), R. NO.206, 02 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI-400007 / VS. M/S SANGHVI & SONS, 308, PRASAD CHAMBERS, OPERA HOUSE, MUMBAI-400004 ( / REVENUE) ( !'# $ /ASSESSEE) PAN. NO . AAAFS3192F % & $ ' / DATE OF HEARING : 31/01/2017 & $ ' / DATE OF ORDER: 31/01/2017 ! / REVENUE BY MISS. ANUPAMA SINGLA-DR !'# $ ! / ASSESSEE BY SHRI K.A. VAIDYALINGAN ITA NO.4484/MUM/2012 M/S SANGHVI & SONS 2 / O R D E R PER JOGINDER SINGH(JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 30/04/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ONLY GROUND RAISED BY THE REVENUE PERTAINS IN H OLDING THAT MARK TO MARK LOSS OF RS.2,75,11,085/- ARISING ON VALUATION OF FORWARD EXCHANGE CONTRACT ON CLOSING D ATE OF ACCOUNTING YEAR IS NOT A NOTIONAL LOSS, THEREFORE, ALLOWABLE. 2. DURING HEARING, AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, SHRI K.A. VAIDYALINGAN, CLAIMED THAT THE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT VS M/S D. CHETAN & COMPANY (ITA NO.278 OF 2014) ORDER DATED 01/10/2016 AND DIT VS CITIBANK NA (ITA NO.330 OF 2013) ORDER DATED 11/03/2015. THIS FACTUA L MATRIX WAS CONSENTED TO BE CORRECT BY THE LD. DR, M ISS. ANUPAMA SINGLA. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE ORDER DATED 01/10/2016 OF HON'BLE JURISDIC TIONAL HIGH COURT FOR READY REFERENCE AND ANALYSIS:- THIS APPEAL UNDER SECTION 260A OF THE INCOME TAX A CT, 1961(ACT) CHALLENGES THE ORDER DATED 14 AUGUST 2013 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL (TRIBUNAL). THE IM PUGNED ORDER RELATES TO ASSESSMENT FOR ASSESSMENT YEAR 2009-10 . ITA NO.4484/MUM/2012 M/S SANGHVI & SONS 3 2. THE REVENUE HAS URGED THE FOLLOWING QUESTION OF LAW FOR OUR CONSIDERATION : WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HECASE AND I N LAW, THE TRIBUNAL WAS JUSTIFIED IN DELETINGTHE AD DITION OF 'MAR K TO MARKET' LOSS OF RS.78,10,000/ MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF LOS S ON FOREIGN EXCHANGE FORWARD CONTRACT LOSS AND NOT APPRECIATING THE FACT THAT THE SAID LOSS WAS A NOTIONAL LOSS AND HENCE CA NNOT BE ALLOWED.? 3. THE RESPONDENT ASSESSEE IS ENGAGED IN THE BUSINE SS OF IMPORT AND EXPORT OF DIAMONDS. DURING THE ASSESSMEN T PROCEEDINGS, THE OFFICER FOUND THAT RESPONDENT ASSE SSEE EXPLAINED THAT THE AMOUNT OF RS.78.10 LAKHS CLAIMED AS LOSS WAS ON ACCOUNT OF HAVING ENTERED INTO HEDGING TRANSACTI ONS TO SAFEGUARD VARIATION IN EXCHANGE RATES AFFECTING ITS TRANSACTIONS OF IMPORT AND EXPORT BY ENTERING INTO FORWARD CONTR ACTS. THE ASSESSING OFFICER BY ORDER OF ASSESSMENT DATED 27TH DECEMBER 2011 DISALLOWED THE CLAIM ON THE GROUND THAT IT IS NOTIONAL LOSS OF A CONTINGENT LIABILITY DEBITED TO PROFIT AND LOS ACCOUNT. RESULTANTLY, THE SAME WAS ADDED TO THE RESPONDENT-A SSESSEE'S TOTAL INCOME. 4. BEING AGGRIEVED, THE RESPONDENT-ASSESSEE CARRIED THE ISSUE IN APPEAL TO THE COMMISSIONER OF INCOME TAX (CIT (A PPEALS)). BY ORDER DATED 27 APRIL 2012, THE CIT(APPEALS) ALLO WED THE RESPONDENT ASSESSEE'S APPEAL INTER ALIA RELYING UPO N THE DECISIONS OF TRIBUNAL IN BHAVANI GEMS VS. ACIT AND THE SPECIAL BENCH DECISION IN THE CASE OF DCIT VS. BANK OF BAHR AIN AND KUWAIT. THE CIT (APPEALS) ON FACTS FOUND THAT THE T RANSACTION OF FORWARD CONTRACT WAS ENTERED INTO DURING THE COU RSE OF ITS BUSINESS. IT HELD IT WAS NOT SPECULATIVE IN NATURE NOR WAS IT THE CASE OF THE ASSESSING OFFICER THAT IT WAS SO. THUS THE LOSS INCURRED AS FORWARD CONTRACT INCURRED AS FORWARD CO NTRACT WAS ALLOWED AS A BUSINESS LOSS. 5. BEING AGGRIEVED, THE REVENUE PREFERRED AN APPEAL TO THE TRIBUNAL. THE IMPUGNED ORDER OF THE TRIBUNAL UPHELD THE FINDING OF THE CIT (APPEALS) THAT THE LOSS INCURRED BY THE RESPONDENT ASSESSEE WAS A REVENUE LOSS AND NOT CONN ECTED WITH ITA NO.4484/MUM/2012 M/S SANGHVI & SONS 4 ANY SPECULATION ACTIVITIES. THE TRIBUNAL FOUND THAT THE TRANSACTION OF FORWARD CONTRACT HAD BEEN ENTERED IN TO FOR THE PURPOSE OF HEDGING IN THE COURSE OF ITS NORMAL BUSI NESS ACTIVITIES OF IMPORT AND EXPORT OF DIAMONDS. THUS, THE REVENUE'S APPEAL WAS DISMISSED BY THE IMPUGNED ORDER OF THE T RIBUNAL. 6. MR. MALHOTRA, LEARNED COUNSEL APPEARING FOR THE REVENUE SUBMITS THAT THIS APPEAL HAD TO BE ADMITTED AS THE IMPUGNED ORDER HAS IGNORED ITS ORDER IN THE CASE OF S. VINO DKUMAR DIAMONDS PVT. LTD. VS. ADDL.CIT RENDERED ON 3 MAY 2 013 WHICH ON SIMILAR FACTS IS IN FAVOUR OF THE REVENUE . HE FURTHER SUBMITS THAT THE IMPUGNED ORDER OF THE TRIBUNAL IS SUSPECT BECAUSE IT ACCEPTS THE RESPONDENT ASSESSEE'S CLAIM WITHOUT CALLING UPON IT TO PROVE THAT THE SAME WAS NOT SPEC ULATIVE. LASTLY, HE SOUGHT TO PLACE RELIANCE UPON ACCOUNTING STANDARD- 11 TO CLAIM THAT SUCH A LOSS IS NOT ALLOWABLE THERE UNDER. 7. THE IMPUGNED ORDER OF THE TRIBUNAL HAS, WHILE UP HOLDING THE FINDING OF CIT(APPEALS), INDEPENDENTLY COME TO THE CONCLUSION THAT THE TRANSACTION ENTERED INTO BY THE RESPONDENT ASSESSEE IS NOT IN THE NATURE OF SPECULATIVE ACTIVITIES. FURTHE R THE HEDGING TRANSACTIONS WERE ENTERED INTO SO AS TO COVER VARIA TION IN FOREIGN EXCHANGE RATE WHICH WOULD IMPACT ITS BUSINE SS OF IMPORT AND EXPORT OF DIAMONDS. THESE CURRENT FINDIN G OF FACTS ARE NOT SHOWN TO BE PERVERSE IN ANY MANNER. IN FACT , THE ASSESSING OFFICER ALSO IN THE ASSESSMENT ORDER DOES NOT FIND THAT THE TRANSACTION ENTERED INTO BY THE RESPONDENT ASSESSEE WAS SPECULATIVE IN WAS DISMISSED BY THE IMPUGNED OR DER OF THE TRIBUNAL. NATURE. IT FURTHER HOLDS THAT AT NO POINT OF TIME DID REVENUE CHALLENGE THE ASSERTION OF THE RESPONDENT A SSESSEE THAT THE ACTIVITY OF ENTERING INTO FORWARD CONTRACT WAS IN THE REGULAR COURSE OF ITS BUSINESS ONLY TO SAFEGUARD AGAINST TH E LOSS ON ACCOUNT OF FOREIGN EXCHANGE VARIATION. EVEN BEFORE THE TRIBUNAL, WE FIND THAT THERE WAS NO SUBMISSION RECO RDED ON BEHALF OF THE REVENUE THAT THE RESPONDENT ASSESSEE SHOULD BE CALLED UPON' TO EXPLAIN THE NATURE OF ITS TRANSACT IONS. THUS, THE SUBMISSION NOW BEING MADE IS WITHOUT ANY FOUNDATION AS THE STAND OF THE ASSESSEE ON FACTS WAS NEVER DISPUTED. SO FAR AS THE RELIANCE ON ACCOUNTING STANDARD-11 IS CONCERNED, IT WOULD NOT BY ITSELF DETERMINE WHETHER THE ACTIVITY WAS A PART OF THE RESPONDENT-ASSESSEE'S REGULAR BUSINESS TRANSACTION OR IT WAS A SPECULATIVE TRANSACTION. ON PRESENT FACTS, IT WAS N EVER THE ITA NO.4484/MUM/2012 M/S SANGHVI & SONS 5 REVENUE'S CONTENTION THAT THE TRANSACTION WAS SPECU LATIVE BUT ONLY DISALLOWED ON THE GROUND THAT IT WAS NOTIONAL. LASTLY, THE RELIANCE PLACED ON THE DECISION IN S. VINODKUMAR (S UPRA) IN THE REVENUE'S FAVOUR WOULD NOT BY ITSELF GOVERN THE ISS UES ARISING HEREIN. (THIS IS SO AS EVERY DECISION IS RENDERED I N THE CONTEXT OF THE FACTS WHICH ARISE BEFORE THE AUTHORITY FOR ADJU DICATION. MERE CONCLUSION IN FAVOUR OF THE REVENUE IN ANOTHER CASE BY ITSELF WOULD NOT ENTITLE A PARTY TO HAVE AN IDENTICAL RELI EF IN THIS CASE. IN FACT, IF THE REVENUE WAS OF THE VIEW THAT THE FA CTS IN S. VINODKUMAR (SUPRA) ARE IDENTICAL/SIMILAR TO THE PRE SENT FACTS, THEN RELIANCE WOULD HAVE BEEN PLACED BY THE REVENUE UPON IT AT THE HEARING BEFORE THE TRIBUNAL. THE IMPUGNED ORDER DOES NOT INDICATE ANY SUCH RELIANCE. IT APPEARS THAT IN S. V INODKUMAR (SUPRA), THE TRIBUNAL HELD THE FORWARD CONTRACT ON FACTS BEFORE IT TO BE SPECULATIVE IN NATURE IN VIEW OF SECTION 4 3(5) OF THE ACT. HOWEVER, IT APPEARS THAT THE DECISION OF THIS COURT IN CIT VS. BADRIDAS GAURIDAS (P) LTD.' WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL WHEN IT RENDERED ITS DECISION IN S. VI NODKUMAR (SUPRA). IN THE ABOVE CASE, THIS COURT HAS HELD THA T FORWARD CONTRACT IN FOREIGN EXCHANGE WHEN INCIDENTAL TO CAR RYING ON BUSINESS OF COTTON EXPORTER AND DONE TO COVER UP LO SSES ON ACCOUNT OF DIFFERENCES IN FOREIGN EXCHANGE VALUATIO NS, WOULD NOT BE SPECULATIVE ACTIVITY BUT A BUSINESS ACTIVITY . 8. IN THE ABOVE VIEW, THE QUESTION OF LAW, AS FORMU LATED BY THE REVENUE DOES NOT GIVE RISE TO ANY SUBSTANTIAL O F LAW. THUS, NOT ENTERTAINED. 9. THE APPEAL IS DISMISSED. NO ORDER AS TO COSTS. WE FIND THAT THE HON'BLE HIGH COURT IN THE AFORESAI D CASE DULY CONSIDERED THE DECISION IN BHAVANI GEMS VS ACI T AND SPECIAL BENCH DECISION IN THE CASE OF DCIT VS BANK OF BAHRAIN AND KUWAIT ALONG WITH THE DECISION, RELIED UPON BY THE REVENUE, IN THE CASE OF S. VINODKUMAR DIAMOND P VT. LTD. VS ADDL. CIT RENDERED ON 03/05/2013 AND THEREA FTER THE DECISION IN CIT VS BADRIDAS GORIDAS PVT. LTD. A ND THEN REACHED TO A CONCLUSION UPHOLDING THE STAND OF THE TRIBUNAL. ITA NO.4484/MUM/2012 M/S SANGHVI & SONS 6 IDENTICAL IS THE SITUATION/FACTS IN THE APPEAL BEFO RE THIS TRIBUNAL. NO CONTRARY DECISION/FACTS WERE BROUGHT T O OUR NOTICE BY THE REVENUE, THEREFORE, RESPECTFULLY FOLL OWING THE DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT, WE HOLD THAT THE FORWARD CONTRACT IN FOREIGN EXCHANGE, INCIDENTA L TO CARRYING ON A BUSINESS OF EXPORTS AND DONE TO COVER UP THE LOSSES ON ACCOUNT OF DIFFERENCES IN FOREIGN EXCHANG E VALUATION WOULD NOT BE SPECULATIVE ACTIVITY BUT A B USINESS ACTIVITY. THE STAND TAKEN BY THE LD. COMMISSIONER O F INCOME TAX (APPEAL) IS, THEREFORE, AFFIRMED, RESULTING INT O DISMISSAL OF APPEAL OF THE REVENUE. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 31/01/2017. SD/- SD/- ( MANOJ KUMAR AGGARWAL ) (JOGINDER SINGH) '!# / ACCOUNTANT MEMBER $!# /JUDICIAL MEMBER % MUMBAI; ) DATED : 31/01/2017 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT (RESPECTIVE ASSESSEE) 2. ./,- / THE RESPONDENT. 3. 0 0 1$ ( + ) / THE CIT, MUMBAI. 4. 0 0 1$ / CIT(A)- , MUMBAI, 5. 34 .$! , 0 +' ! 5 , % / DR, ITAT, MUMBAI ITA NO.4484/MUM/2012 M/S SANGHVI & SONS 7 6. 6' 7% / GUARD FILE. ! / BY ORDER, /3+$ .$ //TRUE COPY// /! (DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI