ASST CIT 16(3), MUMBAI V. GEM STAR COMPANY, MUMBAI

ITA 6667/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3387 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2016
• Appeal Filed By: Department
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 03-11-2014
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: B B JOKHAKAR
• Section: 143(3); 37

Judgement Text

, , G , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.6667/MUM/2014 ASSESSMENT YEAR: 2009-10 ACIT CIT 16(3), 2 ND FLOOR, MATRU MANDIR, TARDEO RD. MUMBAI-400007 / VS. GEM STAR COMPANY, 108 MEHTA BHAVAN 311, RMM ROY RD, OPERA HOUSE, MUMBAI ( REVENUE ) (REVENUE) P.A. NO. AAAFG1178M REVENUE BY SHRI A. RAMACHANDRAN (D R) RESPONDENT BY SHRI B.B. JOKHAKAR (A R) / DATE OF HEARING: 31/05/2016 / DATE OF ORDER: 03/06/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI- 27 {(IN SHORT CIT(A)}, DATED 08.08.2014 PASSED AG AINST ASSESSMENT ORDER U/S 143(3) DATED 30.03.2013 FOR TH E ASSESSMENT YEAR 2009-10 ON THE FOLLOWING GROUNDS: GEM STAR COMPANY 2 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS. 45,07,794/-MADE BY THE ASSESSING OFFICER ON ACC OUNT OF DISALLOWANCE OF LOSS ON FOREIGN EXCHANGE FORWARD CONTRACT WITHOUT APPRECIATING THE FACT THAT THE SAI D LOSS WAS A NOTIONAL LOSS AND HENCE CANNOT BE ALLOWED. 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN TREATING THE LOSS ON ACCOUNT OF REVALUATION OF FOREIGN EXCHANGE FORWARD CONTRACT AS BUSINESS LOSS WITHOUT APPRECIATING THE FACT THAT TH E ASSESSEE HAD DEBITED THE PROVISION FOR SUCH LOSSES WHICH IS NOTHING BUT A CONTINGENT LIABILITY AND HENCE CAN NOT BE ALLOWED AS DEDUCTIBLE EXPENDITURE U/S 37 OF THE IT. ACT 1961. 3.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN RELYING UPON THE DECISIONS O F HONBLE SUPREME COURT IN THE CASE OF ONGC VS CIT, DEHRADUN (322 ITR 180) AND CIT VS. WOODWARD GOVERNOR INDIA (P) LTD (312 ITR 254) WITHOUT APPRECIATING THAT THE FACTS OF THAT CASE ARE ENTIRE LY DIFFERENT FROM FACTS OF THE INSTANT CASE. 4.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI B.B. JOKHAKAR, (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI A. RAMACHANDRAN, DEPARTMENTAL REPRESENTATIVE (LD. D R) ON BEHALF OF THE REVENUE. 3 . THE SOLITARY ISSUE RAISED IN THIS APPEAL IS WITH REGARD TO DELETION OF THE DISALLOWANCE MADE BY THE AO ON ACCO UNT OF LOSS ON FOREIGN EXCHANGE FORWARD CONTRACT BY TREATING TH E SAME AS NOTIONAL LOSS. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND BY THE AO THAT THE ASSESSEE HAD BOOKED MARK-T O- GEM STAR COMPANY 3 MARKET LOSS ON OUTSTANDING FOREIGN EXCHANGE FORWARD CONTRACTS. HE DISALLOWED THE SAME BY TREATING IT AS NOTIONAL LOSS ON REVALUATION OF A LIABILITY THAT HA D NOT YET CRYSTALLIZED ON THE DATE OF DRAWING BALANCE SHEET I.E.31.03.2009. 3.2. BEING AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFOR E LD. CIT(A) AND MADE DETAILED SUBMISSIONS AND RELIED UPON MANY JUDGMENTS IN ITS FAVOUR IN SUPPORT OF ITS CLAI M. AFTER CONSIDERING THE FACTS OF THE CASE AND VARIOUS JUDGM ENTS RELIED UPON BY THE LD. COUNSEL, IT WAS FOUND BY LD. CIT(A) THAT THE IMPUGNED AMOUNT OF LOSS WAS ALLOWABLE TO T HE ASSESSEE AND THEREFORE HE DELETED THE DISALLOWANCE MADE BY THE AO TO THE EXTENT OF RS.45,07,794/-. 3.3. BEING AGGRIEVED, THE REVENUE FILED AN APPEAL BEFOR E THE TRIBUNAL. 3.4. DURING THE COURSE OF HEARING BEFORE US THE LD. DR RELIED UPON THE ORDER OF THE AO WHEREAS THE ASSESSE E RELIED UPON THE ORDER OF THE LD. CIT(A) AND ALSO RELIED UP ON VARIOUS CASE LAWS WHICH HAVE BEEN RELIED UPON BY TH E LD. CIT(A) FOR DECIDING THIS ISSUE IN FAVOUR OF THE ASS ESSEE. 3.5. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS JUDGMENT RELIED UPON BY THE LD. CIT(A). IT IS NOTED BY US THAT LD. CIT(A) HAS ANALY SED THE FACTS OF THIS CASE IN DETAIL AND ALSO VARIOUS JUDGM ENTS GEM STAR COMPANY 4 WHICH DIRECTLY DEAL WITH THIS ISSUE. IT IS NOTED TH AT LD. CIT(A) DISCUSSED AND RELIED UPON THE JUDGMENT OF HO NBLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDI A (P) LTD (312 ITR 254)(SC) WHEREIN IT WAS HELD THAT LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF EXCHANGE DIF FERENCE ON THE BALANCE SHEET DATE IS AN ITEMS OF EXPENDITUR E AS ON BALANCE SHEET DATE. THUS, IF THE ASSESSEE IS FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING AND ALSO APPLICABLE ACCOUNTING STANDARDS, THEN DEDUCTION ON ACCOUNT OF EXCHANGE RATE DIFFERENCE SHOULD BE ALLOWED TO THE ASSESSEE. IT IS FURTHER NOTED BY US THAT SIMILAR VI EW HAS BEEN TAKEN IN VARIOUS OTHER JUDGMENTS WHICH HAVE BE EN DISCUSSED IN DETAIL AND RELIED UPON BY THE LD. CIT( A) IN ITS ORDER VIZ: I. DCIT VS. BANK OF BAHRAIN & KUWAIT 41 SOT 290 II. BHARAT EARTH MOVERS LTD.245 ITR 428(SC) III. ONGC VS. CIT, DEHRADUN 322 ITR 180(SC) IV. RUSABH DIAMONDS V. ACIT 34 TAXMANN.COM 160 (MUMBAI-TRIB.) 3.6. IT IS FURTHER NOTED BY US THAT AFTER DISCUSSING TH E FACTS OF THE CASE AND ENTIRE LAW, THE LD. CIT(A) HA S GIVEN DETAILED REASONING TO DECIDE THIS ISSUE IN FAVOUR O F THE ASSESSEE, THE RELEVANT OBSERVATIONS OF HIS ORDER AR E REPRODUCED HEREUNDER: 2.3.20. THUS THE JUDICIAL DECISIONS OF THE HON. SU PREME COURT AND VARIOUS OTHER AUTHORITIES ARE CLEARLY IN FAVOUR OF THE APPELLANT ON THIS ISSUE. THE RESTATEMENT OF THE GEM STAR COMPANY 5 FORWARD CONTRACT OBLIGATIONS WAS DONE AS PER AS-11 IN A CONSISTENT MANNER OVER THE YEARS. IN FACT, THE GAIN EARNED ON SUCH REVALUATION WAS OFFERED TO TAX AND ACCEPTED BY THE LD. AO IN THE RESPECTIVE YEARS AND THERE IS NO REASON TO ARRIVE AT A DIFFERENT CONCLUSION MEREL Y BECAUSE THERE WAS A LOSS DURING THE YEAR. WHAT MATT ERS IS WHETHER THE FORWARD CONTRACT TRANSACTION WAS ENTERED DURING THE COURSE OF APPELLANT'S REGULAR BUSINESS OR WHETHER IT IS TAINTED WITH A COLOUR OF SPECULATIVE TRANSACTION. FURTHER, THE AFORESAID ISS UE OF ALLOWING THE LOSS ON ACCOUNT OF REVALUATION OF PENDING FORWARD CONTRACTS WAS CONSIDERED BY THE HONBLE. 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. 2006-07 AND THE SAID LOSS WAS ALLOWED AS BUSINESS LOSS AND THE ISSUE WAS HELD TO BE COVERED BY SPECIAL BENCH DECISION IN THE CASE OF DC IT VS. BANK OF BAHRAIN. THEREFORE, IN MY CONSIDERED OPINION, THE FACTS OF THE APPELLANT'S CASE ARE FULL Y COVERED BY THE ABOVE CITED DECISIONS OF THE HON. SUPREME COURT AND THE ITAT MUMBAI BENCH. 2.4.21 THUS THE JUDICIAL DECISIONS OF THE HON. SUPR EME COURT AND VARIOUS OTHER AUTHORITIES ARE CLEARLY IN FAVOUR OF THE APPELLANT ON THIS ISSUE. THAT APART, AS DISCUSSED EARLIER, THE TRANSACTIONS IN FOREIGN EXCH ANGE WHICH RESULTED IN MTM LOSS, WERE CARRIED OUT DURING THE NORMAL COURSE OF THE APPELLANT'S BUSINESS. WHAT MAT TERS IS WHETHER THE FORWARD CONTRACT TRANSACTION WAS GEM STAR COMPANY 6 ENTERED DURING THE COURSE OR APPELLANT'S REGULAR BUSINESS OR WHETHER IT IS TAINTED WITH A COLOUR OF SPECULATIVE TRANSACTION. IN MY CONSIDERED OPINION, THE FACTS OF THE APPELLANT'S CASE ARE FULLY COVERED BY THE ABOVE CITED DECISIONS OF THE HON. SUPREME COURT, DE LHI HIGH COURT AND THE ITAT MUMBAI BENCH. ACCORDINGLY, THIS PART OF THE GROUND IS ALLOWED. 3.7. FURTHER, IT IS NOTED FROM THE PERUSAL OF THE ORDER OF THE LD. CIT(A) THAT HE HAS PROPERLY DISCUSSED THE F ACTS OF THE CASE AS WELL AS APPROPRIATE POSITION OF LAW WHI LE DECIDING THIS ISSUE. THE FACTS BROUGHT BEFORE US AR E THAT ASSESSEE HAS BEEN MAINTAINING ITS ACCOUNTS ON MERCA NTILE SYSTEM AND HAS BEEN FOLLOWING ACCOUNTING SYSTEM(AS) -11 WITH REGARD TO THE IMPUGNED TRANSACTIONS. THE ASSES SEE HAS BEEN CONSISTENTLY FOLLOWING THIS PRACTICE AND N O DISALLOWANCE HAS EVER BEEN MADE WHILE THE ASSESSMEN TS WERE ALSO FRAMED U/S 143(3) IN THE EARLIER YEARS. I N VIEW OF THE GIVEN FACTS AND LEGAL POSITION AS DISCUSSED BY THE LD. CIT(A) IT IS CLEAR THAT THE LOSS BOOKED BY THE ASSE SSEE HAD ACCRUED TO THE ASSESSEE FOR THE YEAR UNDER CONSIDER ATION, AND HEDGING TRANSACTION WAS DONE BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS TO COVER THE RISK OF FLUCTUA TION IN FOREIGN EXCHANGE INVOLVED IN THE BUSINESS OF THE AS SESSEE. UNDER THESE CIRCUMSTANCES, WE FIND THAT LD. CIT(A) HAS RIGHTLY ALLOWED THE LOSS AFTER DISCUSSING THE FACTS AND APPLICABLE POSITION OF LAW. WE DO NOT FIND ANY JUST IFICATION TO MAKE INTERFERENCE IN THE WELL REASONED AND DETAI LED GEM STAR COMPANY 7 FINDINGS OF THE LD.CIT(A). NOTHING HAS BEEN BROUGHT BY THE LD. DR BEFORE US TO CONTRADICT THE FACTUAL ANALYSIS MADE BY THE LD. CIT(A) OR POSITION OF LAW AS WERE DISCUS SED BY THE LD. CIT(A). UNDER THESE CIRUMSTNACES WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL FILE D BY THE REVENUE. 4. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JUNE, 2016. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED : 03/06/2016 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -. / (01 , * % 012 , / DR, ITAT, MUMBAI 6. / 34 5 / GUARD FILE. / BY ORDER, ) -% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI