DCIT CC 46, MUMBAI V. INTERNATIONAL GOLD COMPANY LTD, MUMBAI

ITA 4604/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2109 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Department
• Bench Allotted: I
• Next Hearing Date: 24-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 12-06-2013
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: NITESH JOSHIVIPUL MODI

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH , JM ./ ITA NO . 4604 / MUM/20 13 ( / ASSESSMENT YEAR :200 9 - 10 ) DCIT CC 46, MUMBAI - 20 VS. INTERNATIONAL GOLD COMPANY LTD., G - 48, GEMS & JEWELLERY COMPLEX, SEEPZ, ANDHERI (E), MUMBAI - 96. ./ ./ PAN/GIR NO. : A AAC I 2830 H ( / APPELLAN T ) .. ( / RESPONDENT ) /REVENUE BY : SHRI PREMANAND J. /ASSESSEE BY : SHRI NITESH JOSHI/VIPUL MODI / DATE OF HEARING : 27 /0 8 /2015 / DATE OF PRONOUNCEMENT 07/10 /2015 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY TH E REVENUE AGAINST THE ORDER OF CIT(A), MUMBAI, FOR THE ASSESSMENT YEAR 200 9 - 10 , IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T.ACT. 2. THE ONLY GRIEVANCE OF THE REVENUE RELATES TO DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF MARK TO MARKET LOSS. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE ASSESSEES CLAIM OF MARK TO MARKET LOSS WAS DECLINED BY THE AO. BY THE IMPUGNED ORDER THE CIT(A) ALLOWED ASSESS EES CLAIM AFTER OBSERVING AS UNDER : - ITA NO. 4604/13 2 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE ORDER OF THE AO. THE TRANSACTIONS OF THE APPELLANT ARE FOR THE PURPOSE OF HEDGING ONLY. THE APPELLANT HAS BEEN FOLLOWING THE SAME SYSTEM OF ACCOUNTING FO R THE LAST SEVERAL YEARS AND THE DEPARTMENT HAD ACCEPTED THE SAME. 5.3 SIMILAR ISSUE HAS BEEN CONSIDERED BY SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF BANK OF BAHARAIN & KUWAIT (132 TTJ [MU M ] 505 (SB)) WHEREIN THE ASSESSEE BANK ENTERED INTO FORWARD CON TRACT WITH CLIENTS TO BUY OR SELL FOREIGN EXCHANGE AT AN AGREED PRICE ON A FUTURE DATE IN ORDER TO HEDGE AGAINST POSSIBLE FUTURE FINANCIAL LOSS ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN CURRENCY. THEREFORE ASSESSEE CLAIMED LOSS ON EVALUATION OF UN - M ATURED FORWARD FOREIGN EXCHANGE CONTRACT. THE SPECIAL BENCH HAS HELD THAT DEDUCTION IS ALLOWABLE UNDER INCOME TAX ACT IN RESPECT OF THOSE LIABILITIES WHICH CRYSTALLIZED DURING THE PREVIOUS YEAR. A CONTINGENT LIABILITY DEPENDS PURELY ON HAPPENING OR NOT HA PPENING OF AN EVENT, WHEREAS IF AN EVENT HAS ALREADY TAK EN PLACE, WHICH, IN THE PRESENT CASE IS OF ENTERING INTO THE CONTRACT AND UNDERTAKING OF OBLIGATION TO MEET THE LIABILITY, AND ONLY CONSEQUENTIAL EFFECT OF THE SAME IS TO BE DETERMINED, THEN, IT CAN NOT BE SAID THAT IT IS IN THE NATURE OF CONTINGENT LIABILITY. IT WAS FURTHER STATED THAT IN CASE OF LOSS/EXPENSE, IT IS THE CONCEPT OF REASONABLE CERTAINTY TO MEET AN EXISTING OBLIGATION WHICH COMES INTO PLAY WHICH IN LEGAL TERMINOLOGY IS SAID TO BE 'CRYST ALLIZATION OF LIABILITY'. WHEN OUTFLOW OF ECONOMIC RESOURCES IN SETTLEMENT OF PRESENT OBLIGATION CAN BE ANTICIPATED WITH REASONABLE ACCURACY THEN IT IS TO BE RECOGNIZED AS CRYSTALLIZED LIABILITY. THE TRIBUNAL DID NOT AGREE WITH REVENUE'S CONTENTION THAT LI ABILITY CAN ARISE ONLY WHEN THE CONTRACT MATURED AS IT IS DIVORCED OF THE PRINCIPLES OF COMMERCIAL ACCOUNTING. IT WAS HELD THAT BOTH LEGAL OBLIGATION AND COMMERCIAL PRINCIPLES HAVE TO BE TAKEN INTO CONSIDERATION FOR DECIDING SUCH ISSUES. THEREFORE ANTICIP ATED LOSSES ON ACCOUNT OF EXISTING OBLIGATION AS ON 31ST MARCH, DETERMINABLE WITH REASONABLE CURRENCY, BEING IN THE NATURE OF EXPENDITURE/ ACCRUED LIABILITY, HAVE TO BE TAKEN INTO ACCOUNT WHILE PREPARING FINANCIAL STATEMENT. 5.4 IN VIEW OF THE ABOVE DECI SIONS AND THE FACT THAT THE DEPARTMENT HAD ACCEPTED THE ACCOUNTING METHOD OF THE APPELLANT FOR LAST SEVERAL YEARS, THE MARK TO MARKET LOSSES ON ACCOUNT OF FOREIGN EXCHANGE FORWARD CONTRACTS DONE TO HEDGE THE RISK OF EXCHANGE FLUCTUATIONS IS ALLOWED. THE AO IS DIRECTED TO DELETE THE ADDITION AND THE GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 3. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT FORWARD CONTRACTS WERE HEDGED AGAINST THE DEBTORS. ACCORDINGLY RESULTANT LOSS WAS CLAIMED AS MARK TO MARKET LOSS. THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE ORDER OF ITAT SPECIAL BENCH ITA NO. 4604/13 3 IN THE CASE OF BANK OF BAHRAIN AND KUWAIT, 132 TTJ 505, WHICH HAVE BEEN ELABORATELY DEALT BY THE CIT(A) WHILE REACHING TO THE CONCLUSION THAT MARK T O MARKET LOSS ON ACCOUNT OF FOREIGN CONTRACT DONE TO HEDGE THE RISK OF EXCHANGE FLUCTUATIONS IS ALLOWABLE AS BUSINESS LOSS AND WHICH HAS BEEN DETERMINED AS PER ACCOUNTING METHOD REGULARLY FOLLOWED BY THE ASSESSEE. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN T HE ORDER OF CIT(A). 7 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 07/10 / 201 5 . SD/ - SD/ - ( ) ( PAWAN SINGH ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 07/10 /2015 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//