ACIT 16(3), MUMBAI V. S. RAJIV & CO., MUMBAI

ITA 7095/MUM/2012

• Counselvise Citation: 709519914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 27-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: AARATI VISSANJI
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 7095 / MUM./ 2012 ( / ASSESSMENT YEAR : 20 0 9 10 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1 6( 3 ), MATRU MANDIR TARDEO ROAD, MUMBAI 400 007 .. / APPELLANT V/S M/S. S. RAJIV & CO. 5, VIPUL CHSL 28 A, RIDGE ROAD WALKESHWAR, MUMBAI 400 006 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAA FS3629K / REVENUE BY : MR. ASHOK SURI / ASSESSEE BY : MS. AARATI VISSANJI / DATE OF HEARING 04 . 0 2 .201 4 / DATE OF ORDER 12.02.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENUE CHALLENG ING THE IMPUGNED ORDER DATED 20 TH SEPTEMBER 2012 , PASSED BY THE COMMISSIONER (APPEALS) X XV I I , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 M/S. S. RAJIV & CO. 2 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 09 10 , ON THE FOLLOW ING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT MARK TO MARKET LOSS OF ` 13,85,718 ARISING ON VALUATION OF FORWARD EXCHANGE CONTRACTS ON THE CLOSING DATE OF ACCOUNTING YEAR IS NOT A NOTIONAL LOSS AND, THEREFORE, ALLOWABLE. 2 . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DIAMONDS. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS DEBITED SUM OF ` 13,85,7 18 AS LOSSES ON ACCOUNT OF OUTSTANDING / OPEN FOREIGN EXCHANGE FORWARD CONTRACTS. BEFORE THE ASSESSING OFFICER, IT WAS EXPLAINED THAT THESE LOSSES ARE ON ACCOUNT OF MARK TO MARKET REVALUATION OF THE FORWARD CONTRACTS AS PER THE RUPEE VALUE OF US$ AS ON 31 S T MARCH 2009. AS AT 31 ST MARCH 2009, THE ASSESSEE HAS OUTSTANDING RECEIVABLE IN FOREIGN CURRENCY OF US $ 4507723 WHICH WERE RESTATE D AT CLOSING RATE AND GAIN OF ` 1,78,11,968 HAS BEEN RECOGNIZED AS INCOME. SIMILARLY, IN ORDER TO HEDGE RISK ARISING OUT OF V ARIATION IN EXCHANGE RATE, ASSESSEE HAD ENTERED IN TO F ORWARD C ONTRACTS FOR SALE OF US $ 1029008 WHICH WAS PENDING MATURITY AS AT YEAR END I.E. 31 ST MARCH 2009 . IN RESPECT OF THESE CONTRACTS, IT HAS RECOGNIZED LOSS OF ` 13,85,718 BY REVALUIN G THE SAME AT T HE RATE P REVALENT ON YEAR END DATE. THE ASSESSEE HAS STRONGLY RELIED UPON THE SPECIAL BENCH DECISION OF THE TRIBUNAL, MUMBAI BENCH IN DCIT V/S BANK OF BAHRAIN, ITA NO.4404 AND 1183/MUM./2004 AND ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN C IT V/S WOO DWARD GOVERNOR INDIA P. LTD. , [2009] 312 ITR 254 (SC) . THE ASSESSING OFFICER REJECTED THE ASSESSEES CON T ENTION AND DISALLOWED THE LOSS AS PER THE REASONS STATED IN PAGE 2 TO 4 OF THE ASSESSMENT ORDER. M/S. S. RAJIV & CO. 3 3 . THE LEARNED COMMISSIONER (APPEALS) ALLOWED THE LOSS AFTER DETAIL REASONING AND RELIED UPON THE SPECIAL BENCH DECISION OF THE TRIBUNAL, MUMBAI BENCH, AND THE DECISION OF THE HON'BLE SUPREME COURT IN IN WOODWARD GOVERNOR INDIA PVT. LTD. (SUPRA). THE DETAIL REASONING OF THE LEARNED COMMISSIONER (APPEALS) HAS B EEN GIVEN FROM PAGE 4 TO 10 OF THE APPELLATE ORDER. 4 . BEFORE US, IT HAS BEEN SUBMITTED THAT THIS ISSUE HAD COME UP FOR CONSIDERATION IN SERIES OF DECISIONS OF THE CO ORDINATE BENCH OF THE TRIBUNAL. STRONG RELIANCE WAS PLACED ON THE LATEST DECISION OF THE TR IBUNAL, MUMBAI BENCH, IN LONDON STAR DIAMOND CO. INDIA PVT. LTD. V/S DCIT, ITA NO.6169/MUM./2012, ORDER DATED 11 TH OCTOBER 2013. THE RELEVANT CONCLUSION OF THE TRIBUNAL IS AS UNDER: 35. X X X X (A) LOSS ON CANCELLATION OF MATURED FCS AMOUNTING TO ` 4 ,14,88,805 RELATES TO THE FCS CANCELLED OR TERMINATED ON OR AFTER THE DUE DATE. IN OTHER WORDS, THE FCS BOOKED AS INTEGRAL PART OF THE EXPORT INVOICES LIVED ITS BOOKING PERIOD IN FULL AND THEY WERE EITHER TERMINATED BY THE BANK ON OR AFTER DUE DATE OF MATU RITY DATE OF THE CONTRACT AS THE ACTUAL REALIZATION WERE NOT RECEIVED IN TIME. THESE ARE NOT PREMATURE CANCELLATIONS BY THE ASSESSEE AND THEREFORE, IN OUR CONSIDERED VIEW, THE SAID LOSS OF RS 4,14,88,805/ - , BEING RELATED TO THE FCS WHICH ARE INTEGRAL OR IN CIDENTAL TO THE EXPORTS OF THE DIAMONDS, SHOULD BE ALLOWED AS BUSINESS LOSS IN VIEW OF THE BINDING HIGH COURT OR TRIBUNAL DECISIONS/JUDGMENTS IN THE CASE OF D KISHARE KUMAR AND C O (SUPRA), BADRIDAS GAURIDU PVT LTD (SUPRA), SAAROJ MUI LL MAGARMU LL (SUPRA), E TC. THUS, LOSS ARISING FROM CANCELLATION OF THE MATURED CONTRACTS IS ALLOWED IN FAVOUR OF THE ASSESSEE. THUS, THIS PART OF THE GROUND OF THE ASSESSEE IS ALLOWED. 5 . FURTHER, WE FIND THAT THIS ISSUE HAS ALSO BEEN DECIDED BY THE SPECIAL BENCH OF THE TRIBUNAL, MUMBAI BENCH, IN DCIT V/S BANK OF BAHRAIN (SUPRA) WHEREIN THE TRIBUNAL, WHILE HOLDING THAT MARK TO MARKET LOSSES IN RESPECT OF FORWARD FOREIGN EXCHANGE CONTRACT DEBITED TO PROFIT & LOSS ACCOUNT IS AN ALLOWABLE DEDUCTION ON THE FOLLOWING REASONING: M/S. S. RAJIV & CO. 4 I) A BINDING OBLIGATION ACCRUED AGAINST THE APPELLANT THE MINUTES IT ENTERED INTO FORWARD FOREIGN EXCHANGE CONTRACTS. II) A CONSISTENT METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT CANNOT BE DISREGARDED. THE APPELLANT HAS CONSISTENTLY FOLLOWED THE SAME METH OD OF ACCOUNTING IN REGARD TO RECOGNITION OF PROFIT OR LOSS BOTH, IN RESPECT OF FORWARD FOREIGN EXCHANGE CONTRACT AS PER THE RATE PREVAILING ON MARCH, 31. III) A LIABILITY IS SAID TO HAVE CRYSTALLIZED WHEN A PENDING OBLIGATION ON THE BALANCE SHEET DATE I S DETERMINABLE WITH REASONABLE CERTAINTY. IV) AS PER AS - 11, WHEN THE TRANSACTION IS NOT SETTLED IN THE SAME ACCOUNTING PERIOD AS THAT IN WHICH IT OCCURRED, THE EXCHANGE DIFFERENCE ARISES OVER MORE THAN ONE ACCOUNTING PERIOD. V) IN VIEW OF THE DECISION O F THE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (I) P. LTD., THE APPELLANT'S CLAIM IS ALLOWABLE. VI) IN THE ULTIMATE ANALYSIS, THERE IS NO REVENUE EFFECT AND IT IS ONLY THE TIMING OF TAXATION OF LOSS/PROFIT . 6 . THUS, IN VIEW OF THE ABOVE, WE U PHOLD THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) FOR ALLOWING LOSS INCURRED BY THE ASSESSEE ON RE - STATEMENT OF PEND ING FORWARD CONTRACT AGREEMENT AT THE YEAR END AS ALLOWABLE BUSINESS LOSS . THUS, THE GROUND RAISED BY THE REVENUE IS TREATED AS DISMI SSED. 7 . 7 . IN THE RESULT, REVENUES APPEAL IS TREATED AS ALLOWED. 12 TH FEBRUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY 2014 SD / - . D. KARUNAKARA RAO ACC OUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 12 TH FEBRUARY 2014 M/S. S. RAJIV & CO. 5 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE C IT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI