ACIT 3(2)(1), MUMBAI V. LAVINO KAPUR COTTONS P.LTD, MUMBAI

ITA 7031/MUM/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6068 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 02-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Keywords: Business income; Speculation loss
• Section: 143(3); 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI JOGINDER SINGH (VICE PRESIDENT) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 7031/MUM/2016 ASSESSMENT YEAR: 2013 - 14 ACIT - 3(2)(1), R. NO. 608, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S LAVINO KAPUR COTTONS PVT. LTD. 121 - 122, MITTAL CHAMBERS NARIMAN PONT, MUMBAI - 400021. PAN NO. AAACL0824C APPELLANT RESPONDENT REVENUE BY : M R. SATISH CHANDRA RAJORE , DR ASSESSEE BY : MR. SURINDER MEHRA , AR DATE OF HEARING : 09/01/2019 DATE OF PRONOUNCEMENT : 22/01/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 2013 - 1 4 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) - 8 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUNDS OF APPEAL READ AS UNDE R: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS RIGHT IN DELETING THE ASSESSMENT OF NOTIONAL GAIN OF RS.89,13,109/ - EARNED M/S LAVINO KAPUR ITA NO. 7031/MUM/2016 2 ON FOREIGN CURRENCY FORWARD CONTRACT ASSESSED AS SPECULATION LOSS WHICH WAS ORIGINALLY NOT OFFER ED TO TAX BY THE ASSESSEE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN RELYING ON THE DECISION IN THE CASE OF INDIAN OVERSEAS BANK V/S CIT 183 ITR 200 (MAD) , EVEN THOUGH THE SAME IS DISTINGUISHABLE FROM T HE FACTS OF THE ASSESSEES CASE. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS RIGHT IN DELETING THE DISALLOWANCE ON ACCOUNT OF NOTIONAL GAIN ON FORWARD CONTRACTS WITHOUT APPRECIATING THE FACTS THAT THE SAID TRANSACTION I S SPECULATION IN NATURE AS PER CLAUSE (A) OF THE PROVISO TO SECTION 43(5) OF THE I.T. ACT, 1961 AS HELD IN ARASKA DIAMOND PVT. LTD. V. ACIT (MUM) (TRIB) AND S. VINODKUMAR DIAMONDS PVT. LTD. V/S ADDL. CIT (2013) 89 DTR 129 (MUM) (TRIB). 3. THE ABOVE GROUN DS OF APPEAL ARE DISCUSSED TOGETHER AS THEY ADDRESS A COMMON ISSUE. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2013 - 14 ON 16.09.2013 DECLARING TOTAL INCOME AT RS.11,82,62,300/ - . SUBSEQUENTLY, THE ASSESSEE REVISED ITS RETURN OF INCOME ON 03.03.2014 DEC LARING TOTAL INCOME OF RS.10,64,56,220/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) NOTICED FROM THE ANNUAL REPORT THAT THERE WAS A NOTIONAL GAIN OF RS.83,13,109/ - AS ON 31.03.2013 IN RESPECT OF FORWARD CONTRACT. IT IS ALSO RE PORTED IN THE ANNUAL REPORT THAT THE SAID NOTIONAL GAIN HAS NOT BEEN CONSIDERED AS INCOME. IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN WHY THE NOTIONAL GAIN OF RS.83,13,109/ - SHOULD NOT BE BROUGHT TO TAX, THE ASSESSEE FILED A REPLY DATED 30.11.2015 STATING THAT AS PER THE PRACTICE FOLLOWED BY THEM, NOTIONAL GAIN/LOSSES ON FOREIGN CURRENCY FUTURE CONTRACT WHICH ARE NOT SETTLED AT THE CLOSE OF THE YEAR ARE SHOWN IN THE M/S LAVINO KAPUR ITA NO. 7031/MUM/2016 3 YEAR IN WHICH THE SAID CONTRACT IS SETTLED. HOWEVER, THE AO WAS NOT CONVINCED WITH T HE ABOVE EXPLANATION OF THE ASSESSEE FOR THE REASON THAT THE ABOVE TRANSACTION IS OF SPECULATIVE NATURE. AS PER THE AO, THE NOTIONAL GAIN ON FORWARD CONTRACT IS A SPECULATIVE GAIN IN CASE OF THE ASSESSEE AND IT HAS TO BE OFFERED FOR TAXATION IN THE SAME AC COUNTING YEAR AND NOT ON SETTLEMENT OF CONTRACT AS CONTENDED BY THE ASSESSEE. THUS THE AO, REFERRING TO THE MERCANTILE SYSTEM OF ACCOUNTING AND MATCHING PRINCIPLES, BROUGHT TO TAX THE NOTIONAL GAINS OF RS.83,13,109/ - AS SPECULATIVE BUSINESS INCOME LIABLE T O TAXATION DURING THE YEAR UNDER CONSIDERATION. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) RELIED ON THE ORDER OF HIS PREDECESSOR - IN - OFFICE FOR THE AY 2010 - 11 AND DELETED THE ADDITIO N OF RS.83,13,109/ - MADE BY THE AO ON ACCOUNT OF NOTIONAL GAIN OF FORWARD CONTRACT. 5. BEFORE US, THE LD. DR RELIES ON THE ORDER PASSED BY THE AO. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE FILES A COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR THE AY 2011 - 12 AND RELIES ON IT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE ITAT F BENCH MUMBAI IN ASSESSEES OWN CASE FOR AY 2 011 - 12 (ITA NO. 3157/MUM/2015). THE TRIBUNAL HELD AS UNDER: 7. FROM THE RECORD, WE FOUND THAT AS PER THE PRACTICE FOLLOWED BY THE ASSESSEE - COMPANY, THE NOTIONAL GAIN OR LOSS ON FORWARD CONTRACT IS DEBITED OR CREDITED TO THE P&L ACCOUNT FOR THE YEAR IN WHICH THE FORWARD CONTRACT IS M/S LAVINO KAPUR ITA NO. 7031/MUM/2016 4 SETTLED. THE FUNDAMENTAL PRINCIPLE OF TAXING INCOME UNDER THE MERCANTILE SYSTEM OF ACCOUNTING IS THE TIME OF ACCRUAL. IT IS NOT MATERIAL WHETHER THE AMOUNT HAS BEEN RECEIVED AT THE TIME OF ACCRUAL OR NOT. THE INCOME IS ACCRUED WHEN THE ASSESSEE ACQUIRES THE RIGHT TO RECEIVE IT. 8. WHILE DELETING THE ADDITION MADE ON ACCOUNT OF NOTIONAL GAIN ON FORWARD CONTRACT THE CIT(A) HAD TAKEN NOTE OF THE FACT THAT IN CASE OF WOODWARD GOVERNOR INDIA PVT. LTD., (SUPRA), HONBLE SUPREME COUR T HAD DEALT WITH THE LOSS SUFFERED BY ASSESSEE IN RESPECT OF REVENUE LIABILITY ON ACCOUNT OF EXCHANGE DIFFERENCE AS ON THE DATE OF BALANCE SHEET. THEREAFTER, CONSIDERING THE DECISION OF MADRAS HIGH COURT IN CASE OF INDIAN OVERSEAS BANK 183 ITR 200, CIT(A) CONCLUDED THAT ESTIMATED, ANTICIPATED INCOME ARRIVED AT ON THE BASIS OF RATE OF EXCHANGE WHICH PREVAILED ON THE LAST DATE OF FORWARD CONTRACT IN FOREIGN CURRENCIES ONLY REPRESENTS NOTIONAL PROFIT AND COULD NOT BE SUBJECT TO TAX. RESPECTFULLY FOLLOWING THE PROPOSITION LAID DOWN BY MADRAS HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION MADE BY AO ON ACCOUNT OF NOTIONAL GAIN ON FORWARD CONTRACT. HOWEVER, AO IS AT A LIBERTY TO VERIFY THAT THIS GAIN HAS BEEN OFFERED FOR TAXATION IN THE SUBSEQUENT YEARS WHEN IT ACTUALLY AROSE. WE DIRECT ACCORDINGLY. 6.1 FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDER OF THE CO - ORDINATE BENCH AND UPHOLD THE ORDER OF THE LD. CIT(A). 7. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOU NCED IN THE OPEN COURT ON 22/01/2019. SD/ - SD/ - (JOGINDER SINGH) (N.K. PRADHAN) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED: 22/01/2019 RAHUL SHARMA, SR. P.S. M/S LAVINO KAPUR ITA NO. 7031/MUM/2016 5 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 . BY ORDER, //TRUE COPY// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI