DEPUTY COMMISSIONER OF INCOME TAX (CIRCLE)-6(2)(1) , MUMBAI V. CREATIVE GARMENTS P.LTD, MUMBAI

ITA 4735/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4271 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 04-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Assessee Lawyers: DHAWAL SHAH
• Keywords: Depreciation; Cost of acquisition; Speculation loss
• Section: 37(1); 43(5); 145; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJEET SINGH, JUDICIAL MEMBER ITA NO.4735/M/2017 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME TAX (CIR)-6(2)(1), R. NO.563, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI - 20 VS. M/S. CREATIVE GARMENTS PVT. LTD., 103, CAMA INDUSTRIAL ESTATE, SUN MILL COMPOUND, LOWER PAREL, MUMBAI 400 013 PAN: AAACC0431C (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI DHAWAL SHAH, A.R. REVENUE BY : SHRI ABI RAMA KARTIKEYAN, D.R. DATE OF HEARING : 06.03.2019 DATE OF PRONOUNCEMENT : 13.03.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 07.04.2015 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2009-10. 2. THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST THE ORDER OF LD. CIT(A) DELETING THE ADDITION OF RS.2,18,36,954/ - AS MADE BY THE AO BY MAKING DISALLOWANCE OF FOREIGN EXCHANGE L OSS. 3. THE FACTS IN BRIEF ARE THAT DURING THE ASSESSMEN T PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAS CLAIME D FOREIGN EXCHANGE LOSS OF RS.2,18,36,954/-WITHOUT MAKING ENT RIES IN THE ITA NO.4735/M/2017 M/S. CREATIVE GARMENTS PVT. LTD. 2 BOOKS OF ACCOUNTS. THE AO ALSO NOTED THAT ASSESSEE HAS NOT FURNISHED ANY INFORMATION/DETAILS OF LOSS ARISING O UT OF FOREX FLUCTUATIONS. THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF EXPORTS OF GARMENTS TO USA. BEFORE THE AO, THE LD. A.R. SU BMITTED THAT THE SAID LOSS WAS INCURRED BY THE ASSESSEE IN THE O RDINARY COURSE OF BUSINESS AND IT IS NOT A SPECULATION LOSS . THE ASSESSEE SUBMITTED THAT THE ASSESSEE RECEIVES PAYMENT FROM T HE DEBTORS IN FOREIGN EXCHANGE WHICH IS SUBJECT TO FLUCTUATION . SIMILARLY, THE RAW MATERIAL IS IMPORTED FROM ABROAD AND ASSESS EE HAS TO MAKE PAYMENTS UNDER CONTRACTUAL OBLIGATION IN FOREX . BOTH THESE TRANSACTIONS ARE DONE IN THE ORDINARY COURSE OF BUSINESS AND THEREFORE ANY LOSS ARISING FROM THE SAID TRANSA CTIONS IS ALLOWABLE UNDER THE ACT. HOWEVER, THE AO RELYING O N THE ACCOUNTING STANDARD -11 AND CBDT INSTRUCTION NO.3/2 010 ADDED THE SAID LOSS TO THE INCOME OF THE ASSESSEE O N THE GROUND THAT THE SAID LOSS HAS NOT ARISEN ON THE SETTLEMENT OF THE TRANSACTIONS AND IF AT ALL THE SAID LOSS RELATES TO TRADE/MANUFACTURING ACTIVITY THE SAME WERE NOT ROU TED THROUGH THE BOOKS OF ACCOUNTS. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 6.3 I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND THE SUBM ISSION OF THE APPELLANT. IT IS SEEN THAT THE AO HAS DISALLOWED TH E CLAIM OF THE APPELLANT ON TWO GROUNDS. FIRSTLY/ THE AO HELD THAT THE APPELLANT HA S NOT PASSED THE RELEVANT ENTRIES IN THE BOOKS OF ACCOUNT AND HENCE THE CLAIM OF FORE IGN EXCHANGE LOSS IS NOT ALLOWABLE. SECONDLY, THE AO HELD THAT IN VIEW OF IN STRUCTION NO 3/2010 THAT THE LOSS IS A NOTIONAL LOSS AND THEREFORE, IT IS NOT ALLOWAB LE. IT IS SEEN THAT THE APPELLANT HAD INCURRED THE LOSS ON FOLLOWING HEADS. SR. NO. PARTICULARS ABN CM STAND. CHART. TOTAL ITA NO.4735/M/2017 M/S. CREATIVE GARMENTS PVT. LTD. 3 1 PCFC (31,03,053) (26,86,443) (36,63,078) (94,52,574) 2 DEBTORS 32,67,469 3 FIRC (21,49,724) 4 FORWARD (4,14,000) (1,30,98,125) - (1,35,12,125) (35,17,053) (1,57,84,568) (36,63,078) (2,18,46,954) OUT OF THE ABOVE, THE AO HAS NOT SPECIFICALLY STATE D WHICH IS A LOSS ARISING ON ACCOUNT OF NOTIONAL BASIS IN VIEW OF INSTRUCTION NO 3/2010. THE CBDT'S INSTRUCTION NO 3 IS WITH RELATION TO THE SECTION 43(5) OF THE I NCOME TAX ACT, BUT THE CASE HERE, IS THAT OF LOSS ARISING ON ACCOUNT OF REVALUATION OF A SSETS AND LIABILITIES AND FORWARD CONTRACT ENTERED BY THE APPELLANT COMPANY. THE AO, NOWHERE IN THE ASSESSMENT ORDER HAS MADE ANY OBSERVATION THAT THE FORWARD CON TRACT ENTERED BY THE APPELLANT IS A SPECULATIVE TRANSACTION OR THE LOAN TAKEN WAS FOR ACQUISITION OF FIXED ASSETS. THEREFORE, IT IS HELD THAT LOANS AND FORWARD CONTRA CT ARE HELD FOR REVENUE ACCOUNT AND SO IT COMES U/S. 37(1) OF THE I.T. ACT. THE HON'BLE SUPREME COURT IN THE CASE OF WOODWARD G OVERNOR INDIA(P) LTD (179 TAXMAN 326) HELD AS UNDER THERE WAS NO DISPUTE THAT IN THE PREVIOUS YEARS, WH ENEVER THE DOLLAR RATE STOOD REDUCED, THE DEPARTMENT HAD TAXED THE GAINS W HICH ACCRUED TO THE ASSESSEE ON THE BASIS OF ACCRUAL AND IT WAS ONLY IN THE YEAR IN QUESTION WHEN THE DOLLAR RATE STOOD INCREASED RESULTING IN A LOSS , THAT THE DEPARTMENT HAD DISALLOWED THE DEDUCTION/DEBIT. THAT FACT WAS IMPOR TANT. IT INDICATED THE DOUBLE STANDARD ADOPTED BY THE DEPARTMENT. [PARA 10 ] THE WORD 'EXPENDITURE' IS NOT DEFINED IN THE ACT. T HE WORD 'EXPENDITURE' IS, THEREFORE, REQUIRED TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED. SECTION 37 ENJOINS THAT ANY EXPENDITURE NOT BEING E XPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS, SHOULD BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS'. IN SECTIONS 30 TO 36, THE EXPRESSION 'EXPENSES INCURRED' AS WELL AS ' ALLOWANCES AND DEPRECIATION' HAVE ALSO BEEN USED. FOR EXAMPLE, DEP RECIATION AND ALLOWANCES ARE DEALT WITH IN SECTION 32. THEREFORE, THE PARLIAMENT HAS USED THE EXPRESSION 'ANY EXPENDITURE' IN SECTION 37 TO C OVER BOTH. THEREFORE, THE EXPRESSION 'EXPENDITURE' AS USED IN SECTION 37 MAY, IN THE CIRCUMSTANCES OF ITA NO.4735/M/2017 M/S. CREATIVE GARMENTS PVT. LTD. 4 A PARTICULAR CASE, COVER AN AMOUNT WHICH IS REALLY A 'LOSS', EVEN THOUGH SAID AMOUNT HAS NOT GONE OUT FROM THE POCKET OF THE ASSE SSEE. [PARA 13] THE PROVISIONS OF SECTION 145 RECOGNISE THE RIGHTS OF A TRADER TO ADOPT EITHER THE CASH SYSTEM OR THE MERCANTILE SYSTEM OF ACCOUNT ING. THE QUANTUM OF ALLOWANCES PERMITTED TO BE DEDUCTED UNDER DIVERSE H EADS UNDER SECTIONS 30 TO 43C FROM THE INCOME, PROFITS AND GAINS OF A B USINESS WOULD DIFFER ACCORDING TO THE SYSTEM ADOPTED. THIS IS MADE CLEAR BY DEFINING THE WORD 'PAID' IN SECTION 43(2), WHICH IS USED IN SEVERAL S ECTIONS FROM SECTIONS 30 TO 43C, AS MEANING ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING UPON THE BASIS OF WHICH PROFITS OR GAINS ARE COMPUTED UNDER SECTION 28/29. THAT IS WHY, IN DECIDING THE QUESTIO N, AS TO WHETHER THE WORD 'EXPENDITURE' IN SECTION 37(1) INCLUDES THE WORD 'L OSS', ONE HAS TO READ SECTION 37(1) WITH SECTIONS 28, 29 AND 145(1). ACCO UNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS ARE TO BE TAKEN AS CORREC T, UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UN RELIABLE. UNDER SECTION 28(T), ONE NEEDS TO DECIDE THE PROFITS AND GAINS OF ANY BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE DURING THE PREVIOUS YEAR . THEREFORE, ONE HAS TO TAKE INTO ACCOUNT STOCK-IN-TRADE FOR DETERMINATION OF PROFITS. THE ACT MAKES NO PROVISION WITH REGARD TO VALUATION OF STOCK. BUT THE ORDINARY PRINCIPLE OF COMMERCIAL ACCOUNTING REQUIRES THAT IN THE PROFIT A ND LOSS ACCOUNT, THE VALUE OF THE STOCK-IN-TRADE AT THE BEGINNING AND AT THE END OF THE YEAR SHOULD BE ENTERED AT COST OR MARKET PRICE, WHICHEVE R IS LOWER. THIS IS HOW BUSINESS PROFITS ARISING DURING THE YEAR NEED TO BE COMPUTED. THIS IS ONE MORE REASON FOR READING SECTION 37(1) WITH SECTION 145. FOR VALUING THE DOSING STOCK AT THE END OF A PARTICULAR YEAR, THE V ALUE PREVAILING ON THE LAST DATE IS RELEVANT, BECAUSE PROFITS/LOSS IS EMBEDDED IN THE CLOSING STOCK. WHILE ANTICIPATED TOSS IS TAKEN INTO ACCOUNT, ANTIC IPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BR OUGHT INTO ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASE IN PROFI TS BEFORE ACTUAL REALIZATION. THIS IS THE THEORY UNDERLYING THE RULE THAT THE DOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER. AS PROFITS FOR INCOME-TAX PURPOSE ARE TO BE COMPUTED IN ACCORDANCE WITH ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLESS SUCH PR INCIPLES STAND SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENTS, U NREALIZED PROFITS IN THE SHAPE OF APPRECIATED VALUE OF GOODS REMAINING UNSOL D AT THE END OF THE ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING Y EAR'S ACCOUNT IN A CONTINUING BUSINESS ARE NOT BROUGHT TO THE CHARGE A S A MATTER OF PRACTICE, THOUGH LOSS DUE TO FALL IN THE PRICE BELOW COST IS ALLOWED EVEN THOUGH SUCH LOSS HAS NOT BEEN REALIZED ACTUALLY. THE SAID SYSTE M OF COMMERCIAL ACCOUNTING CAN BE SUPERSEDED OR MODIFIED BY LEGISLA TIVE ENACTMENT. UNDER SECTION 145(2), THE CENTRAL GOVERNMENT IS EMPOWERED TO NOTIFY FROM TIME- TO-TIME THE ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF THE ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. ACC ORDINGLY, UNDER SECTION 209 OF THE COMPANIES ACT, MERCANTILE SYSTEM OF ACCO UNTING HAS BEEN MADE MANDATORY FOR COMPANIES. IN OTHER WORDS, ACCOUNTING STANDARD, WHICH IS CONTINUOUSLY ADOPTED BY AN ASSESSEE, CAN BE SUPERSE DED OR MODIFIED BY LEGISLATIVE INTERVENTION. HOWEVER, BUT FOR SUCH INT ERVENTION OR IN CASES FALLING UNDER SECTION 145(3), THE METHOD OF ACCOUNT ING UNDERTAKEN BY THE ITA NO.4735/M/2017 M/S. CREATIVE GARMENTS PVT. LTD. 5 ASSESSEE CONTINUOUSLY IS SUPREME. IN THE INSTANT CA SE, THERE WAS NO FINDING GIVEN BY THE ASSESSING OFFICER ON THE CORRECTNESS O R COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. EQUALLY, THERE WAS NO FIN DING GIVEN BY THE ASSESSING OFFICER STATING THAT THE ASSESSEE HAD NOT COMPLIED WITH THE ACCOUNTING STANDARDS. [PARA 14] THEREFORE, IN THE INSTANT CASE, THE 'LOSS' SUFFERED BY THE ASSESSEE ON ACCOUNT OF THE EXCHANGE DIFFERENCE AS ON THE DATE OF THE BA LANCE SHEET WAS AN ITEM OF EXPENDITURE UNDER SECTION 37(1). [PARA 15] THUS, IT IS CLEAR THAT PROFITS AND GAINS OF THE PRE VIOUS YEAR ARE REQUIRED TO BE COMPUTED IN ACCORDANCE WITH THE RELEVANT ACCOUNTING STANDARD. IT IS IMPORTANT TO BEAR IN MIND THAT THE BASIS ON WHICH S TOCK-IN-TRADE IS VALUED IS PART OF THE METHOD OF ACCOUNTING. IT IS WELL-ESTABL ISHED THAT ON GENERAL PRINCIPLES OF COMMERCIAL ACCOUNTING, IN THE PROFIT AND LOSS ACCOUNT, THE VALUE OF THE STOCK-IN-TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUNTING YEAR SHOULD BE ENTERED AT COST OR MARKET VALUE, WHI CHEVER IS LOWER - THE MARKET VALUE BEING ASCERTAINED AS ON THE LAST DATE OF THE ACCOUNTING YEAR AND NOT AS ON ANY INTERMEDIATE DATE BETWEEN THE COM MENCEMENT AND THE CLOSING OF THE YEAR, FAILING WHICH IT IS NOT POSSIB LE TO ASCERTAIN THE TRUE AND CORRECT STATE OF AFFAIRS. NO GAIN OR PROFIT CAN ARI SE UNTIL A BALANCE IS STRUCK BETWEEN THE COST OF ACQUISITION AND THE PROCEEDS OF SALE. THE WORD 'PROFIT' IMPLIES COMPARISON BETWEEN THE STATE OF BUSINESS AT TWO SPECIFIC DATES, USUALLY SEPARATED BY AN INTERVAL OF TWELVE MONTHS. STOCK-IN-TRADE IS AN ASSET. IT IS A TRADING ASSET. THEREFORE, THE CONCEPT OF PR OFIT AND GAINS MADE BY BUSINESS DURING THE YEAR CAN ONLY MATERIALIZE WHEN A COMPARISON OF THE ASSETS OF THE BUSINESS AT TWO DIFFERENT DATES IS TA KEN INTO ACCOUNT. SECTION 145(1) ENACTS THAT FOR THE PURPOSE OF SECTIONS 28 A ND 56 ALONE, INCOME, PROFITS AND GAINS MUST BE COMPUTED IN ACCORDANCE WI TH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THER EFORE, SECTION 145(1) WAS ATTRACTED TO THE FACTS OF THE INSTANT CASE. UND ER THE MERCANTILE SYSTEM OF ACCOUNTING, WHAT IS DUE IS BROUGHT INTO CREDIT B EFORE IT IS ACTUALLY RECEIVED; IT BRINGS INTO DEBIT AN EXPENDITURE FOR W HICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT WAS ACTUALLY DISBURSED. THE REFORE, THE ACCOUNTING METHOD FOLLOWED BY AN ASSESSEE CONTINUOUSLY FOR A G IVEN PERIOD OF TIME NEEDS TO BE PRESUMED TO BE CORRECT TILL THE ASSESSI NG OFFICER WOULD COME TO THE CONCLUSION FOR REASONS TO BE GIVEN THAT THE SYS TEM DO NOT REFLECT TRUE AND CORRECT PROFITS. IN THE INSTANT CASE, THERE WAS NO FINDING GIVEN BY THE ASSESSING OFFICER ON THE CORRECTNESS OF THE ACCOUNT ING STANDARD FOLLOWED BY THE ASSESSEE. [PARA 16] AS-11 DEALS WITH GIVING OF ACCOUNTING TREATMENT FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES. IN CASE OF THE REVENUE ITEM S FALLING UNDER SECTION 37(1), PARA 9 OF AS-11, WHICH DEALS WITH RECOGNITIO N OF EXCHANGE DIFFERENCES, NEEDS TO BE CONSIDERED. UNDER THIS PARA, EXCHANGE D IFFERENCES ARISING ON FOREIGN CURRENCY TRANSACTIONS HAVE TO BE RECOGNIZED AS INCOME OR AS EXPENSE IN THE PERIOD IN WHICH THEY ARISE. THE IMPO RTANT POINT TO BE NOTED IS THAT AS-11 STIPULATES EFFECT OF CHANGES IN EXCHA NGE RATE VIS-A-VIS MONETARY ITEMS DENOMINATED IN A FOREIGN CURRENCY TO BE TAKEN INTO ACCOUNT FOR GIVING ITA NO.4735/M/2017 M/S. CREATIVE GARMENTS PVT. LTD. 6 ACCOUNTING TREATMENT ON THE BALANCE SHEET DATE. THE REFORE, AN ENTERPRISE HAS TO REPORT THE OUTSTANDING LIABILITY RELATING TO IMPORT OF RAW MATERIALS USING CLOSING RATE OF EXCHANGE. ANY DIFFERENCE, LOS S OR GAIN ARISING ON CONVERSION OF THE SAID LIABILITY AT THE CLOSING RAT E, SHOULD BE RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT FOR THE REPORTING PERIO D. [PARA 18] IN CONCLUSION, IT MAY BE STATED THAT IN ORDER TO FI ND OUT IF AN EXPENDITURE IS DEDUCTIBLE, THE FOLLOWING FACTORS HAVE TO BE TAKEN INTO ACCOUNT (I) WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSES I S MERCANTILE SYSTEM, WHICH BRINGS INTO DEBIT THE EXPENDITURE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED A ND BRINGS INTO CREDIT WHAT IS DUE, IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED; (II) WHETHER THE SAME SYSTEM IS FOLLOWED BY THE ASSESSES 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 AND TO THE GAINS THAT MAY A CCRUE TO IT; (IV) WHETHER THE ASSESSEE HAS BEEN CONSISTENT AND DEFINITE IN MA KING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES AND GAINS; (V) W HETHER THE METHOD ADOPTED BY THE ASSESSEE FOR MAKING ENTRIES IN THE B OOKS BOTH IN RESPECT OF LOSSES AND GAINS AS PER NATIONALLY ACCEPTED ACCOUNT ING STANDARDS; (VI ) WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCE THE INCIDENCE OF TAXATION. THEREFORE, IN VIEW OF THE ABOVE, IT IS HELD THAT TH E LOSS ARISING ON ACCOUNT OF REVALUATION OF ASSETS AND LIABILITY OF THE COMPANY AND FORWARD CONTRACT ENTERED BY THE APPELLANT FOR THE PURPOSE OF BUSINES S IS ALLOWABLE EXPENDITURE IN VIEW OF SECTION 37(1) OF THE ACT. TH EREFORE, GROUND NO 1 OF THE APPEAL IS ALLOWED. 5. THE LD. D.R. SUBMITTED BEFORE THE BENCH THAT THE ORDER OF LD. CIT(A) IS INCORRECT TO THE EXTENT THAT HE ALLOW ED THE FOREIGN EXCHANGE LOSS WHEN SAME WAS NOT ROUTED THROUGH THE BOOKS OF THE ASSESSEE. THE ASSESSEE ONLY CLAIMED THE LOSS IN THE COMPUTATION OF INCOME AT THE TIME OF FILING THE RET URN OF INCOME. IT WAS ALSO CLAIMED BY THE LD. D.R. THAT NO DETAILS WERE FILED BEFORE THE AO AS TO HOW THE LOSS HAS ARISEN AND HOW THIS IS CONNECTED WITH THE ORDINARY COURSE OF BUSINESS OF T HE ASSESSEE. THE LD. D.R., THEREFORE, PRAYED THAT IN VIEW OF THE CIRCULAR OF THE CBDT NO.3/2010 DATED 23.03.2010 AND ACCOUNTING STAN DARD- 11, THE ASSESSEE HAS NOT INCURRED ANY FOREIGN EXCHA NGE LOSS BUT HAS ONLY CLAIMED A NOTIONAL LOSS WHICH IS NOT ALLO WABLE AND ITA NO.4735/M/2017 M/S. CREATIVE GARMENTS PVT. LTD. 7 THEREFORE THE ORDER OF LD. CIT(A) BEING WRONG AND AGAINST THE PROVISIONS OF LAW MAY BE REVERSED. 6. THE LD. A.R., ON THE OTHER HAND, SUBMITTED BEFOR E THE BENCH THAT THOUGH THE ASSESSEE HAS NOT ENTERED/MADE THE ENTRIES IN THE BOOKS OF ACCOUNTS ACCOUNTING THE FO REIGN EXCHANGE LOSS INTO THE BOOKS OF ACCOUNTS. HOWEVER, AT THE TIME OF FILING THE RETURN OF INCOME THE SAME WAS CLAIMED IN THE COMPUTATION OF INCOME. THE LD. A.R. IN DEFENCE OF HIS ARGUMENTS RELIED ON THE DECISION OF APEX COURT IN T HE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT 82 ITR 363. T HE LD. A.R., THEREFORE, PRAYED BEFORE THE BENCH THAT IN VIEW OF THE RATIO LAID DOWN BY THE APEX COURT IN KEDARNATH JUTE MFG. CO. L TD. (SUPRA) THE CLAIM AS MADE BY THE ASSESSEE IN THE TURN OF IN COME BEING VALID AND AS PER LAW BE ALLOWED IRRESPECTIVE OF TH E FACT THAT WHETHER THE ASSESSEE HAS MADE ANY ENTRIES IN THE BO OKS OF ACCOUNTS OR NOT. 7. SO FAR AS THE ALLOWABILITY OF THE FOREIGN EXCHAN GE LOSS IS CONCERNED, THE LD. A.R. SUBMITTED THAT THE SAME WAS INCURRED IN THE ORDINARY COURSE OF BUSINESS AND HAS TO BE ALLOW ED TO THE ASSESSEE. THE LD. A.R. RELIED ON THE DECISION OF A PEX COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA P. LTD. 312 ITR 254, IN THE CASE OF OIL AND NATURAL GAS CORPORATIO N LTD. VS. CIT 322 ITR 180 AND HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. D. CHETAN AND CO. 390 ITR 36. THE LD. A.R., TH EREFORE, PRAYED BEFORE THE BENCH THAT IN VIEW OF THE RATIO L AID DOWN BY THE APEX COURT AND THE HONBLE BOMBAY HIGH COURT TH E LOSS INCURRED IS REAL LOSS AS PER THE SYSTEM OF ACCOUNTI NG AND THEREFORE MAY BE ALLOWED TO THE ASSESSEE. ITA NO.4735/M/2017 M/S. CREATIVE GARMENTS PVT. LTD. 8 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THA T ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORTING GARMENTS TO US A. IN THE PROCESS THE ASSESSEE HAS TO SELL GOODS ON CREDIT AN D THERE ARE RECEIVABLES AND ALSO IMPORTS MATERIAL IN THE ORDIN ARY COURSE OF BUSINESS INCURRING LIABILITY TOWARDS CREDITORS FO R THE PURCHASE OF MATERIAL. BOTH THE TRANSACTIONS OF RECEIVABLES AND PAYABLES ARE SETTLED IN FOREIGN CURRENCY AND IS SUBJECT TO C HANGE DUE TO FLUCTUATION IN THE FOREX RATES. EVEN IF THE TRANSAC TIONS ARE NOT SETTLED AT THE YEAR END, THESE DEBTORS AND CREDITOR S HAVE TO BE EVALUATED AT THE YEAR END VIS--VIS. THE EXCHANGE R ATES. WE FIND MERIT IN THE ARGUMENTS OF THE LD. A.R. THAT THE FOR EIGN EXCHANGE IS INVOLVED IN ORDER TO SETTLE ALL THESE TRANSACTIO NS AND WHATEVER FLUCTUATIONS ,IF ANY , ARE ACCOUNTED FOR AT THE YEA R END. IN OUR OPINION, THE LOSS RESULTING FROM THE SAID TRANSACTI ONS IS BUSINESS LOSS AND NOT A CONTINGENT LOSS. SO FAR AS THE NON R OUTING OF THE LOSS IN THE BOOKS OF ACCOUNTS IS CONCERNED, THE APE X COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. (SUPRA) WH EREIN IT HAS BEEN HELD THAT EVEN IF THE ASSESSEE HAS NOT MADE EN TRIES IN THE BOOKS OF ACCOUNTS, DEDUCTION MUST BE ALLOWED BY THE ITO AS THE ASSESSEE WILL LOSE THE RIGHT OF CLAIMING OR WILL BE DEBARRED FROM BEING ALLOWED THE DEDUCTION FOR THE FACT THAT ASSES SEE HAS NOT ACCOUNTED THE ENTRIES IN THE BOOKS OF ACCOUNTS. AC CORDINGLY, THE ISSUE OF ALLOWABILITY OF FOREIGN EXCHANGE LOSS IS S QUARELY COVERED BY THE DECISION OF APEX COURT IN THE CASE OF CIT VS . WOODWARD GOVERNOR INDIA P. LTD. (SUPRA), OIL AND NATURAL GAS CORPORATION LTD. (SUPRA) AND ALSO THE DECISION OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT VS. D. CHETAN AND CO. (SUP RA). WE, THEREFORE, FOLLOWING THE RATIO LAID DOWN BY THE HON BLE APEX ITA NO.4735/M/2017 M/S. CREATIVE GARMENTS PVT. LTD. 9 COURT AND HONBLE JURISDICTIONAL BOMBAY HIGH COURT DISMISS THE APPEAL OF THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 13.03.2019. SD/- SD/- (AMARJEET SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 13.03.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.