ACIT 16(3), MUMBAI V. VIMAL EXPORT, MUMBAI

ITA 6610/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75234 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 31-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule of consistency
• Section: 143(3)

Judgement Text

F IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , . , BEFORE SHRI I.P. BANSAL, JM AND SHRI KARUNAKARA RAO, AM ./I.T.A. NO.6610/M/2012 ( / ASSESSMENT YEAR: 2009 - 2010 ) ACIT - 16(3), MATRU MANDIR, TARDEO ROAD, MUMBAI 400 004. / VS. M/S. VIMAL EXPORT, 2202, PANCHRATANA, OPERA HOUSE, MUMBAI 400004. ./ PAN : AAAFV 0703 H ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI RAVI PRAKASH, DR / RESPONDENT BY : NONE / DATE OF HEARING : 2.1.2014 / DATE OF PRONOUNCEMENT : 8 . 1.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 31.10.2012 IS AGAINST THE ORDER OF THE CIT (A) - 27, MUMBAI DATED 24.8.2012 FOR THE ASSESSMENT YEAR 2009 - 2010. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUND WHICH READS AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD CIT (A) HAS ERRED IN HOLDING THAT MARK TO MARKET LOSS OF RS. 23,72,500/ - ARISING ON VALUATION OF FORWARD EXCHANGE CONTRACTS ON THE CLOSING DATE OF ACCOUNTING YEAR IS NOT A NOTIONAL LOSS AND THEREFORE, ALLOWABLE. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF IMPORT AND EXPORT OF DIAMONDS. ASSESSEE FIELD THE RETURN DECLARING THE TOTAL INCOME OF RS. 78,71,167/ - . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 1,02,43,670/ - . WHILE COMPUTING THE ASSESSMENT, AO DISALLOWED RS. 23,72,500/ - CLAIMED BY THE ASSESSEE AS LOSSES ON ACCOUNT OF REVALUATION AS PER RATE OF US DOLLAR ON 31.3.2009 FOR 2 OUTSTANDING FOREIGN EXCHANGE FORWARD CONTRACT . DURING THE ASSESSMENT PROCEEDINGS, AO OBSERVED THAT THE ASSESSEE ENJOYS WORKING CAPITAL FACILITY FROM THE BANKS WHICH INCLUDES FOREIGN CURRENCY. THE AS SESSEE ALSO CARRIES CURRENCY RISK IN RESPECT OF ITS STOCK AS IT IS MOST LIKELY TO BE SOLD BY WAY OF EXPORTS. THEREFORE, IN THE PRESENT CASE FORWARD CONTRACTS ARE ENTERED INTO TO HEDGE THESE CURRENCY RISK ASSOCIATED WITH NORMAL BUSINESS TRANSACTION. AS PER THE ASSESSEE T HESE DERIVATIVE CONTRACTS ARE ENTERED INTO AS PER THE GUIDELINES OF RBI AND THE MAIN INTENTIONS OF ENTERING INTO THESE CONTRACTS IS TO SAFEGUARD ITSELF AGAINST EXCHANGE FLUCTUATION RISK ON FOREIGN CURRENCY RECEIVABLES OR PAYABLES. TH ESE DERIVATIVE TRANSACTIONS HAVE BEEN EITHER IN RESPECT OF SALE OF FOREIGN CURRENCY IN RESPECT OF ITS EXPOSURE TO FOREIGN CURRENCY RECEIVABLE OR PURCHASE OF FOREIGN CURRENCY IN RESPECT OF IT EXPOSURE TO FOREIGN CURRENCY PAYABLES. FURTHER, ASSESSEE HAS BEE N CONSISTENTLY FOLLOWING THE ACCOUNTING METHOD WHEREIN YEAR - END RESTATEMENT OR MARK TO MARKET GAIN OR LOSS IN RESPECT OF ALL ASSETS OR LIABILITIES D ENOMINATED IN FOREIGN CURRENCY I.E., DEBTORS, CREDITORS, LOAN & FORWARD CONTRACT, IS BEING RECOGNIZED AS GAIN ON LOSS IN PROFIT & LOSS ACCOUNT. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS RECOGNIZED GAIN OF RS. 1,27,28,572/ - BY RESTATING THE RECEIVABLES AT CLOSING RATE. ASSESSEE HAS FOLLOWED THE ACCOUNTING STAN DARDS FOR REALIZING THE EFFECT OF THE TRANSACTIONS UNDERTAKEN DURING THE YEAR. DURING THE PROCEEDINGS BEFORE THE ASSESSING OFFICER, ASSESSEE RELIED ON THE ORDER OF THE ITAT IN THE CASE OF DCIT VS. BANK OF BAHRAIN AND KUWAIT (ITA NOS. 4404 & 1883/MUM./2004) , WHEREIN IT WAS HELD THAT MARK TO MARKET LOSS IN RESPECT OF FOREIGN EXCHANGE CONTRACTS DEBITED TO PROFIT & LOSS ACCOUNT IS ALLOWABLE. AO DID NOT SATISFY WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND DISALLOWED THE SAID AMOUNT OF RS. 23,72,500/ - BY HOLDI NG THAT THE FACTS OF THE CITED DECISION OF THE TRIBUNAL DO NOT APPLY TO THE CASE OF THE ASSESSEE. AGGRIEVED WITH THE DECISION OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AU THORITY, ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE VIDE PARA 6 OF HIS ORDER DATED 24.8.2012. AGGRIEVED WITH THE DECISION OF THE CIT (A), REVENUE F ILED THE PRESENT APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 3 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 THE ASSESSEE TO REPRESENT THE CASE. 7. WE HAVE HEARD THE LD DR , PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND THE RELEVANT MATERIAL PLACED BEFORE US AS WELL AS THE CITED DECISIONS OF THE ITAT CITED BEFORE US. ON PERUSAL OF THE CIT (A)S ORDER IN GENERAL, PARA 6 IN PARTICULAR, WE FIND THAT THE SAME IS RELEVANT WHICH READS AS UNDER: 6. THUS, THE JUDICIAL DECISIONS OF THE HONBLE SUPREME COURT AND VARIOUS OTHER AUTHORITIES ARE CLEARLY IN FAVOUR OF THE APPELLANT ON THIS ISSUE. THAT APART, AS DISCUSSED EARLIER , THE LIABILITIES IN FOREIGN EXCHANG E WERE INCURRED DURING THE NORMAL COURSE OF THE APPELLANTS BUSINESS AND THE RESTATEMENT OF THE FORWARD CONTRACT OBLIGATIONS WAS DOES AS PER AS - 11 IN A CONSISTENT 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 LOSS 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 SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE. IT IS NOT OUT OF PLACE TO MENTION THAT THE HONB LE 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 SAME PRINCIPLES THAT WERE LAID DOWN IN THE CASE OF WOODWORD GOVERNOR, AND THE LOSS WAS HELD ALLOWABLE IN SIMILAR CI RCUMSTANCES, WHERE THE BUSINESS OF ONGC IS NOT THAT OF A FOREIGN EXCHANGE DEALER. FURTHER, IT IS NOT THE NATURE OF BUSINESS OR THE STOCK DEALT WITH I.E., CURRENCY OR COMMODITIES OR GOODS LIKE DIAMONDS IN THE PRESENT CASE THAT MATTERS. WHAT MATTERS IS WHE THER THE FORWARD CONTRACT TRANSACTION WAS ENTERED DURING THE COURSE OF APPELLANTS REGULAR BUSINESS OR WHETHER IT IS TAINTED WITH A COLOUR OF SPECULATIVE TRANSACTION. AT PRESENT, THE AO DOES NOT DISPUTE THAT THE IMPUGNED TRANSACTION IS SPECULATIVE IN NATU RE. FURTHER, THE AFORESAID ISSUE OF ALLOWING THE LOSS ON ACCOUNT OF REVALUATION OF PENDING 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 AY 2006 - 2007 AND THE SAID LOSS WAS ALLOWED AS BUSINESS LOSS AND THE ISSUE WAS HELD TO BE COVERED BY THE SPECIAL BENCH DECISION IN THE CASE OF DCIT VS. BANK OF BAHRAIN . THEREFORE, IN MY CONSIDERED OPINION THE FACTS OF THE APPELLANT S CASE ARE FULLY COVERED BY THE AB OVE CITED DECISIONS OF THE HONBLE SUPREME COURT AND THE ITAT MUMBAI BENCH. ACCORDINGLY, I HOLD THAT THE LOSS INCURRED BY THE APPELLANT ON RESTATEMENT OF PENDING FORWARD CONTRACT AGREEMENTS AT THE YEAR - END IS AN ALLOWABLE BUSINESS LOS S. APPELLANT SUCCE EDS ON THIS GROUND. 8. CONSIDERING THE ABOVE SETTLED POSITION OF THE ISSUE AND ALSO FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE ARE OF THE OPINION THAT THE DECISION TAKEN BY CIT (A) BY HOLDING THAT THE LOSS INCURRED ON RESTATEMENT OF PENDING FORWARD CONTR ACT AGREEMENTS AT THE YEAR - END IS AN ALLOWABLE BUSINESS LOSS IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, WE ALLOW THE APPEAL IN FAVOUR OF THE ASSESSEE AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 4 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOU NCED IN THE OPEN COURT ON 8 T H DAY OF JANUARY, 2014. S D / - S D / - (I.P. BANSAL) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 8 /01/2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI