DCIT 8(2), MUMBAI V. NICO EXTRUSIONS P.LTD, MUMBAI

ITA 4674/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83861 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Keywords: Rule of consistency; Transactions in derivatives

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.4674/MUM/2013 (A.Y.2009-10) THE DY. CIT, CIR. 8(2), ROOM NO.216-A, AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 (APPELLANT ) VS. M/S. NICO EXTRUSIONS PVT. LTD. 12, NIRAJ INDUSTRIAL ESTATE, OFF. MAHAKALI CAVES ROAD, ANDHERI (EAST), MUMBAI 400093 PAN:AADCM 5540R (RESPONDENT) APPELLANT BY : SHRI PAVAN KUMAR BEER LA RESPONDENT BY : SHRI P ARESH SHAPARIA DATE OF HEARING : 01/10/2014 DATE OF PRONOUNCEMENT : 01 /10/2014 ORDER PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE REVENUE AND IT IS D IRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-17, MUMBAI DATED19/11/2012 FOR ASSESSMENT YEAR 2009-10. GROUNDS OF APPEAL READ AS UNDER: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 13,05,884/- ON ACC OUNT OF UNREALISED FOREIGN EXCHANGE LOSS ON EXPORTS OUTSTANDING IGNORING THAT THE SAID LOSS IS NEITHER ACTUAL NOR AN ACCRUED LOSS AND HENCE NOT ALLOWABLE UNDER THE PROVISIONS O F THE INCOME-TAX ACT 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF IS. 13,05,884/-- ON AC COUNT OF UNREALISED FOREIGN EXCHANGE LOSS ON EXPORTS OUTSTANDING BY PLACING RELIANCE UPO N THE DECISION OF THE APEX COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD (SC)(20 09) 312 JTR 0254 IGNORING THAT THE FACTS IN THE SAID DECISION ARE ENTIRELY DIFFERENT F ROM THE FACTS OF THE INSTANT CASE AND HENCE, THE RATIO OF THE SAID DECISION IS NOT APPLIC ABLE TO THE INSTANT CASE ITA NO.4674/MUM/2013 (A.Y.2009-10) 2 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND PROCESSING OF FERROUS AND NON FERROUS METALS. THE A.O DISALLOWED MARK TO MARKET LOSS ON COMMODITY AND FOREIGN EXCHANGE AMOUNTIN G TO RS.13,05,884/-. THE AO OBSERVED IN THE ASSESSMENT ORDER THAT IT IS IN THE NATURE OF NOTIONAL LOSS WHICH IS LIABLE TO CHANGE AT THE TIME OF SUBSEQUENT SETTLEME NT OF FOREIGN EXCHANGE TRANSACTION AND THERE IS NO PROVISION IN THE ACT FOR ALLOWABILI TY OF SUCH DEDUCTION OF UNREALIZED FOREIGN EXCHANGE, THEREFORE, HE PROPOSED FOR DISAL LOWANCE OF THE SAME TO WHICH ASSESSEE AGREED DURING THE COURSE OF ASSESSMENT PRO CEEDINGS. ACCORDINGLY, THE ADDITION WAS MADE. SUBSEQUENTLY, THE ADDITION WAS CHALLENGED IN AN APPEAL FILED BEFORE LD. CIT(A). IT WAS SUBMITTED THAT DURING TH E YEAR UNDER CONSIDERATION ASSESSEE HAS UNDERTAKEN COMMODITY TRANSACTION OF M CX WITH VARIOUS BROKERS IN CONNECTION WITH FERROUS AND NON-FERROUS METALS IN O RDER TO HEDGE THE STOCK HELD BY THE ASSESSEE. THE ASSESSEE HAS OFFERED INCOME OF MCX OF RS.3,09,70,851/- AFTER CONSIDERING THE MARK TO MARKET LOSS OF RS.13,05,884 /. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LEDGER ACCOUNT OF THE TRANSA CTION DONE ON MCX WITH THE BROKERS WERE SUBMITTED INCLUDING TRANSACTIONS JOI NTLY DONE WITH M/S. METAPLAST EXIM (I) PVT. LTD., WHICH WAS SUBMITTED TO AO VIDE LETTER DATED 13/09/2011. M/S. METAPLAST EXIM (I) PVT. LTD HAD OBTAINED VARIOUS EX PORT ORDERS FROM FOREIGN PARTIES FOR SUPPLY AND HAD OBTAINED ADVANCES AGAINST THE OR DERS. M/S. METAPLAST EXIM (I) PVT. LTD IN TURN ADVANCED FUNDS TO M/S.NICO EXTRUSI ONS PVT. LTD. TO PROCESS AND MANUFACTURE GOODS AT ITS SILVASA UNIT FOR EXPORT ORDER. THE ASSESSEE IN TURN HAD STARTED IMPORTING/PROCURING OF RAW MATERIALS AND IN CREASED ITS INVENTORY LEVEL. DUE TO POSTPONEMENT OF THE ORDER DUE TO DRASTIC FALL IN THE PRICES OF VARIOUS FERROUS AND NON-FERROUS METALS, THE EXPORT PARTIES OF M/S. META PLAST EXIM (I) PVT. LTD STALLED THE ORDERS AS IT WAS NOT AVAILABLE FOR THEM. IN ORDER TO HEDGE SOME OF THE RAW MATERIALS JOINT TRANSACTION OF MCX WAS CARRIED OUT BY THE ASS ESSEE WITH M/S. METAPLAST EXIM (I) PVT. LTD. WHICH ARE REFLECTED IN THE LEDGER ACC OUNT SUBMITTED TO THE AO. THE ASSESSEE HAS IMPORTED RAW MATERIAL OF RS.70,58,07,4 68/- AND EXPORT OF RS.7,13,35,000/-. THE OPENING AND CLOSING STOCK OF RAW MATERIAL IS RS.39.54 CRORES AND RS.72.41 CRORES RESPECTIVELY. AS PER ACCOUNTIN G GUIDELINES OF ICAI THE MARKET PRICE OF CONTRACT WAS TAKEN AS ON 31/3/2009 AND L OSS WAS COMPUTED AS PER ITA NO.4674/MUM/2013 (A.Y.2009-10) 3 GUIDELINES OF ICAI. THE ASSESSEE HAS ALSO SUBMITTE D THE FOLLOWING CALCULATION TO SHOW THAT THE LOSS SHOWN BY THE ASSESSEE WAS IN ACCORDA NCE WITH THE GUIDELINES ISSUED BY ICAI. BROKER EXPIRY DATE SCRIP NAME LOT BUY QTY/ LOT TOTAL RATE CLOSING AS ON 31/3/09 MARK TO MARK AMAR FERRO METALS PVT. LTD. 30/04/2009 NICKEL BUY 411 250 102750 513.54 501.10 1278310 1278310 METAPLAST EXIM PVT. LTD. (MCXSX) 28/04/2009 USD 187 1000 187000 50.77 50.92 27574 27574 TOTAL 1305884 THE AMOUNT OF RS.13,05,884/- IS REDUCED FROM THE MC X (RS.1278310- COMMODITIES) & MCXSX (RS. 27574 FOREIGN EXCHANGE) PROFIT RECORDED IN THE P&L A/C. AND IS SHOWN AS A LIABILITY UNDER THE HEAD OTHER LIABILITIES. THE ASSESSEE HAS RECORDED THE LOSS OF RS.13,05,884/ - ON ITS OPEN CONTRACTS AS UNDER: 2.1 IT WAS FURTHER SUBMITTED THAT THE LOSS SHOWN BY THE ASSESSEE IS NEITHER NOTIONAL LOSS NOR A CONTINGENT LOSS BUT IT IS ACTU AL, WHICH IS ENTITLED TO BE DEDUCTED. UPON CONSIDERING THE SUBMISSIONS OF THE ASSESSEE LD . CIT(A) HAS RETURNED A FINDING THAT M/S. METAPLAST EXIM (I) PVT. LTD, WHICH IS SI STER CONCERN OF THE ASSESSEE HAD OBTAINED VARIOUS EXPORT ORDERS FROM FOREIGN PARTIE S FOR SUPPLY AND HAD OBTAINED ADVANCES AGAINST THE ORDERS AND IN TURN ADVANCED FU NDS GIVEN TO THE ASSESSEE TO PROCESS AND MANUFACTURE GOODS AT ITS SILVASA UNIT FOR THE EXPORT ORDER AND IN CASE OF M/S. METAPLAST EXIM (I) PVT. LTD HE HAS ALLOWED THE RELIEF TO THE ASSESSEE UNDER SIMILAR FACTS AND CIRCUMSTANCES WHEREIN RELYING UPO N SEVERAL DECISIONS THE MARK TO MARKET LOSS OF FOREIGN EXCHANGE WAS ALLOWED AS BUS INESS LOSS. THUS LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE REVENUE IS A GGRIEVED, HENCE, HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. 3. DURING THE COURSE OF HEARING IT WAS BROUGHT TO T HE NOTICE OF LD. DR THAT AS PER FINDING RECORDED BY LD. CIT(A) THE LOSS RETURNED BY THE ASSESSEE IS WITH RESPECT TO TRADE OF THE ASSESSEE. NO MATERIAL HAS BEEN BROUGH T ON RECORD BY LD. DR TO SUGGEST THAT HOW THE FACTS OF THE ASSESSEES CASE WERE DIFF ERENT FROM THE FACTS IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD., 312 ITR 2 54(SC). AND PROPOSITION DECIDED ITA NO.4674/MUM/2013 (A.Y.2009-10) 4 BY HONBLE SUPREME COURT IN THAT CASE. COPY OF THIS DECISION IS PLACED AT PAGES 2 TO 12 OF THE PAPER BOOK. IN THE SAID CASE ASSESSEE COMPANY HAD DEBITED IN ITS P&L ACCOUNT CERTAIN UNREALIZED LOSS DUE TO FOREIGN EXCH ANGE FLUCTUATION IN FOREIGN CURRENCY TRANSACTION ON REVENUE ITEMS. THE AO DISA LLOWED THE SAME ON THE GROUND THAT IT WAS AN UNASCERTAIN- LIABILITY AND IT WAS A CONTINGENT LIABILITY. LD. CIT(A) UPHELD THE ACTION OF THE AO. THE TRIBUNAL RELYING UPON THE EARLIER DECISIONS IN ASSESSEES OWN CASE HELD THAT THE CLAIM OF THE ASSE SSEE FOR DEDUCTION OF UNREALIZED LOSS DUE TO FOREIGN EXCHANGE FLUCTUATION AS ON THE LAST DATE OF THE PREVIOUS YEAR WAS ALLOWABLE AND THE DECISION OF THE TRIBUNAL WAS UPHE LD BY THE HIGH COURT. THEIR LORDSHIPS OF HONBLE SUPREME COURT HAVE UPHELD THE ORDER OF HONBLE HIGH COURT. 3.1 HOWEVER, LD. DR COULD NOT POINT OUT ANY DIFFERE NCE IN THE FACTS OF THE ASSESSEES CASE TO SHOW THAT THESE ARE DIFFERENT FROM THE PROPOSITION DECIDED IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD. ( SUPRA). 4. ON THE OTHER HAND, LD. AR HAS PLACED SEVERAL ORD ERS OF THE TRIBUNAL IN WHICH SIMILAR PROPOSITION HAS BEEN LAID DOWN AND THE APPE ALS FILED BY THE REVENUE ON THIS ISSUE HAVE BEEN DISMISSED. THE DECISIONS ARE FILED IN THE PAPER BOOKS AND LIST IS FILED AT PAGE ONE OF THE PAPER BOOK WHICH READ AS UNDER: CIT VS. WOODWARD GOVERNOR INDIA P. LTD.. 312 ITR 254 (SC). CIT VS. BECTON DICKINSON INDIA PVT. LTD.: SLP(C) NO.19477 OF 2009 DCITS BANK OF BAHRAIN & KUWAIT I 32 1 TI 505 (S 13) ONGC VS. DCIT 83 ITD 151 (DELSB). ACIF S VIMAL EXPORT I.T.A. NO.661 0/M 2012 DATED 8.1.2011 RELIANCE INDUSTRIES LIMITED VS CIT ITA NO.7223/M UM2011 DATED 20.11.2013 ACIT VS SHAREKHAN FINANCIAL SERVICES PVT LTD I.T. A. NO.6342/MUM 2011 21.7.2013 DCIT VS KOTAK MAHINDRA INVESTMENT LIMITED 2013-TI OL-362-ITA F-MUM, BHAVANI GEMS VS ACIT I.T.A. NO.2855/MUM 2010 DATE D 30.3.2011 ADIT VS J.P. MORGAN CHASE BANK 2010 11011 85 ITAT MUM. ABN AMRO SECURITIES INDIA PVT LTD V. ITO ITA NO: 7073/MUM/06 DATED 26.08.2011 HLS ASIA LTD. VS. DCIT 5-ITR (TRIB)-774) (DELHI) EDELWEISS CAPITAL LTD. VS. ITO ITA NO.5324 MUM/2 007 (AY-2004-05) DATED 10.11.2010 RAMESH KUMAR DAMANI VS ADDL.CIT IN ITA NO. 1443 /MUM/2009 (AY-2006-07) DATED 26.11.2010. ITA NO.4674/MUM/2013 (A.Y.2009-10) 5 5. IN THIS VIEW OF THE SITUATION, AFTER HEARING BO TH THE PARTIES, RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISIONS WE FIND NO MERIT IN THE DEPARTMENTAL APPEAL. FOR COMPLETION OF THE MATTER WE MAY MENTION THAT IN THE AFOREMENTIONED DECISION IN THE CASE OF ACIT VS. VIMAL EXPORT (SUPRA) THE DEPA RTMENT HAD AGITATED THE DELETION OF MARK TO MARKET LOSS OF RS.23,72,500/- WHICH WAS DELETED BY LD. CIT(A) AND THE ORDER PASSED BY LD. CIT(A) WAS UPHELD WITH THE FOLL OWING OBSERVATIONS: 5. DURING THE PROCEEDINGS BEFORE US, LD DR HEAVILY RELIED ON THE ORDER OF THE AO. 6. ON THE OTHER HAND, NONE APPEARED ON BEHALF OF TH E ASSESSEE TO REPRESENT THE CASE, 7. WE HAVE HEARD THE LD DR, PERUSED THE ORDERS OF T HE REVENUE AUTHORITIES AND THE RELEVANT MATERIAL PLACED BEFORE US AS WELL AS THE C ITED DECISIONS OF THE ITAT CITED BEFORE US. ON PERUSAL OF THE CIT (A)S ORDER IN GENERAL, P ARA 6 IN PARTICULAR, WE FIND THAT THE SAME IS RELEVANT WHICH READS AS UNDER: 6. THUS, THE JUDICIAL DECISIONS OF THE HONBLE SUP REME COURT AND VARIOUS OTHER AUTHORITIES ARE CLEARLY IN FAVOUR OF THE APPELLAN T ON THIS ISSUE. THAT APART, AS DISCUSSED EARLIER, THE LIABILITIES IN FOREIGN EXCHA NGE WERE INCURRED DURING THE NORMAL COURSE OF THE APPELLANTS BUSINESS AND THE R ESTATEMENT OF THE FORWARD CONTRACT OBLIGATIONS WAS DOES AS PER AS-11 IN A CO NSISTENT 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 REASON 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 APPELLANT IS NOT A DEALER IN FOREIGN EXCHANGE UNLIKE THE BANK OF BAHRAIN, AND THEREFORE, THE SAI D DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE. IT IS NOT OUT OF P/ACE TO ME NTION THAT THE HON BLE SUPREME COURT, IN THE CASE OF ONGC CITED ABOVE, UPHELD THE SAME PRINCIPLES THAT WERE LAID DOWN IN THE CASE OF ONGC CITED ABOVE UPHELD THE SAM E PRINCIPLES THAT WERE LAID DOWN IN THE CASE OF WOODWORD GOVERNOR, AND THE LOSS WAS HELD ALLOWABLE IN SIMILAR CIRCUMSTANCES, WHERE THE BUSINESS OF ONGC I S NOT THAT OF A FOREIGN EXCHANGE DEALER. FURTHER, IT IS NOT THE NATURE OF B USINESS OR THE STOCK DEALT WITH I.E., CURRENCY OR COMMODITIES OR GOODS LIKE DIAMON DS IN THE PRESENT CASE THAT MATTERS. WHAT MATTERS IS WHETHER THE FORWARD CONTRA CT TRANSACTION WAS ENTERED DURING THE COURSE OF APPELLANTS REGULAR BUSINESS O R WHETHER IT IS TAINTED WITH A COLOUR OF SPECULATIVE TRANSACTION. AT PRESENT, THE AO DOES NOT DISPUTE THAT THE IMPUGNED TRANSACTION IS SPECULATIVE IN NATURE. FURT HER, THE AFORESAID ISSUE OF ALLOWING THE LOSS ON ACCOUNT OF REVALUATION OF PEND ING FORWARD CONTRACTS WAS CONSIDERED BY THE 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 A Y 2006-2007 AND THE SAID LOSS WAS ALLOWED AS BUSINESS LOSS AND T HE ISSUE WAS HELD TO BE COVERED BY THE SPECIAL BENCH DECISION IN THE CASE O F DCIT VS. BANK OF BAHRAIN. THEREFORE, IN MY CONSIDERED OPINION THE FACTS OF TH E APPELLANTS CASE ARE FULLY COVERED BY THE ABOVE DATED DECISIONS OF THE HONBLE SUPREME COURT AND THE ITAT, MUMBAI BENCH. ACCORDINGLY, I HOLD THAT THE L OSS INCURRED BY THE APPELLANT ITA NO.4674/MUM/2013 (A.Y.2009-10) 6 ON RESTATEMENT OF PENDING FORWARD CONTRACT AGREEMEN TS AT THE YEAR-END IS AN ALLOWABLE BUSINESS LOSS. APPELLANT SUCCEEDS ON THIS GROUND. 8. CONSIDERING THE ABOVE SETTLED POSITION OF THE IS SUE AND ALSO FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE ARE OF THE OPINION THAT THE DECISIO N TAKEN BY CIT (A) BY HOLDING THAT THE LOSS INCURRED ON RESTATEMENT OF PENDING FORWARD CO NTRACT AGREEMENTS AT THE YEAR-END IS AN ALLOWABLE BUSINESS LOSS IS FAIR AND REASONABLE A ND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, WE ALLOW THE APPEAL IN F AVOUR OF THE ASSESSEE AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. IT MAY BE MENTIONED HERE THAT ONE OF US I.E. JUDICI AL MEMBER IS PARTY TO THE SAID DECISION. 5. IN VIEW OF ABOVE DISCUSSIONS, DEPARTMENTAL APPEA L IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/10/2014 ! ' #$ % &'( 01/10/2014 ' ) SD/- SD/- ( /SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; &' DATED 01/10/2014 ! !! ! ' '' ' *+, *+, *+, *+, -,$+ -,$+ -,$+ -,$+ / COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. *0./ / THE RESPONDENT. 3. 1 ( ) / THE CIT(A)- 4. 1 / CIT 5. ,2) *+' , , / DR, ITAT, MUMBAI 6. )3 4 / GUARD FILE. !' !' !' !' / BY ORDER, 0,+ *+ //TRUE COPY// 5 55 5 / 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS