CHORON DIAMONDS (I) P.LTD, MUMBAI V. ACIT 5(1), MUMBAI

ITA 7203/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79418 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 04-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Speculation loss
• Section: 14A; 43(5); 28

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 7203/M/2012 ( / ASSESSMENT YEAR : 2009 - 2 0 10 ) CHORON DIAMONDS (I) P LTD., 1008, PANCHRATNA, MAMA PARAMANAND MARG, OPERA HOUSE, MUMBAI - 400004. / VS. ACIT 5(1), MUMBAI - 20. ./ PAN : AABCC 5715 G ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI HARI S RAHEJA / RESPONDENT BY : SHRI RAVINDER SINDHU / DATE OF HEARING : 14 .7.2014 / DATE OF PRONOUNCEMENT : 25 .7.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 4.12.2012 IS AGAINST THE ORDER OF THE CIT (A) - 9, MUMBAI DATED 25.10.2012 FOR THE ASSESSMENT YEAR 2009 - 2010. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE AND IN LAW THE LD CIT (A) ERRED IN CONFIRMING THE AOS ACTION OF HOLDING THAT THE LOSS ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACTS IN FOREIGN EXCHANGE OF RS. 6,87,42,872/ - IS SPECULATION LOSS AND C ONSEQUENTLY THE SAME CANNOT BE SET OFF AGAINST BUSINESS PROFITS OF THE CURRENT YEAR. 2. IN ANY EVENT THE LD CIT (A) ERRED IN NOT ALLOWING THE SET OFF OF LOSS INCURRED OF RS. 6,32,96,250/ - ARISING ON CANCELLATION OF 10 FORWARD CONTRACTS WHICH WERE TERMINATE D BY THE BANK DUE TO THE APPELLANTS INABILITY TO PROVIDE ADDITIONAL MARGIN. 3. THE LD CIT (A) ERRED IN CONFIRMING THE AOS ACTION IN DISALLOWING A SUM OF RS. 2,23,422/ - BY INVOKING PROVISIONS OF SECTION 14A R.W. RULE 8D . 3. DURING THE PROCEEDINGS BEFORE US, SHRI HARI S. RAHEJA, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE GROUNDS AND MENTIONED THAT THE ISSUE RELATING TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A READ WITH RULE 8D 2 MENTIONED IN GROUND NO.3 IS NOT PRESSED . AFTER HEARING THE LD DR, THE SAID GROUND NO.3 IS DISMISSED AS NOT PRESSED. 4. REFERRING TO GROUNDS NO.1 AND 2, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE CORE ISSUE RAISED IN THESE GROUNDS RELATING TO THE ALLOWABILITY OF LOSS ON A CCOUNT OF CANCELLATION OF FORWARD CONTRACTS IN FOREIGN EXCHANGE IF IT IS A SPECULATION LOSS AND THE SAME IS ENTITLED TO FOR SET OFF AGAINST THE BUSINESS PROFITS OF THE CURRENT YEAR. IN CONNECTION WITH THIS ISSUE, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR AT TENTION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) LTD VS. DCIT VIDE ITA NO.6169/M/2012, DATED 11.10.2013 PLACED AT PAGE 34 TO 55 OF THE PAPER BOOK AND MENTIONED THAT THIS ISSUE CAN BE REMANDED TO THE FILE OF THE AO FOR DEC IDING THE MATTER STRICTLY IN THE LIGHT OF THE SAID ORDER OF THE TRIBUNAL (SUPRA). 5. ON THE OTHER HAND, LD DR HAS NO OBJECTION IN THE MATTER. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED ORDER OF THE TRIBUNAL IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) LTD (SUPRA). ON HEARING BOTH THE PARTIES AND ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL (SUPRA), DATED 11.10.2013 WE FIND THE PARAS 16 TO 36 OF THE TRIBUNALS ARE ORDER ARE RELEVANT IN THIS REG ARD. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAID PARAGRAPHS ARE REPRODUCED HERE UNDER: DECISION OF THE TRIBUNAL 16. THE ISSUES FOR ADJUDICATION IN THIS ORDER INCLUDE (I) IF THE FCS ENTERED INTO WITH THE BANK CONSTITUTES THE INTEGRAL OR INCIDENTA L TO THE ACTIVITY OF EXPORT OF THE DIAMONDS BY THE ASSESSEE, WHO IS NOT THE DEALER IN FOREIGN EXCHANGE. (II) FURTHER, WE NEED TO EXAMINE IF THE AO IS JUSTIFIED IN NOT SETTING OFF AGAINST THE PROFITS ON ACTUAL REALIZATION OR REVALUATION AS SPECULATION PROFI TS. SCOPE OF THE SPECULATION TRANSACTIONS AND BUSINESS 17. BEFORE DECLARING THE DECISIONS OF THE TRIBUNAL ON THE ISSUES RAISED BEFORE US, WE FIND IT RELEVANT TO SCAN THE RELEVANT PROVISIONS IE SECTION 43(5) OF THE ACT, EXPLANATION TO SECTION 28 ETC. DEFINITIONS OF THE SPECULATION TRANSACTION ON SPECULATION BUSINESS: 18 . THE PROVISIONS OF SECTION 43(5) PROVIDES FOR DEFINITION OF SPECULATION TRANSACTIONS . THE SAID PROVISIONS READ AS UNDER: 43. (1) (2). (3) (4). ( 5 ) ' SPECULATIVE TRANSACTION ' MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: 3 PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE ( A ) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR ( B ) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR ( C ) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWARD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; [OR] [( D ) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE [( AC )] OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE; [ OR ] ] ( E ) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNISED ASSOCIATION, SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. 19. THE ABOVE PROVISION PROVIDES THAT A TRANSACTION IN WHICH A CONTRACT IN RESPECT OF TRADING OF ANY COMMODIT Y INCLUDING STOCKS AND SHARES IS SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF COMMODITY / SCRIPS. HERE THE MEANING OF EXPRESSION ANY COMMODITY IS A MATTER OF DEBATE. THIS DEFINITION PROVIDES FOR EXCLUSION OF CERTAIN SPECIFIED CONTRACTS DISCUSSED IN CLAUSE (A) TO (E) OF THE PROVISO TO SECTION 43(5) OF THE ACT. CLAUSE (A) OF THE PROVISO DEALS WITH THE HEDGING CONTRACTS ENTERED INTO IN THE COURSE OF MANUFACTURING AND MERCHANDIZING OF THE BUSINESS TO GUARD AGAINST THE LOSSES THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF CONTRACTS FOR ACTUAL DELIVER. CLAUSE (B) DEALS WITH THE CONTRACTS ENTERED INTO BY DEALER OR INVESTOR IN RESPECT OF STOCK EXCHANG E AND CLAUSE (D) DEALS WITH AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING DERIVATIVES CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE. CLAUSE (E) DEALS WITH ELIGIBLE TRANSACTIONS IN RESPECT OF THE TRADING IN COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASS OCIATION. THESE FIVE TYPES OF CONTRACTS / ELIGIBLE TRANSACTIONS SHALL NOT BE DEEMED AS SPECULATIVE TRANSACTIONS. ALTHOUGH THERE IS DECISION OF THE TRIBUNAL WHERE IT IS HELD THAT THE FCS ARE NOT COMMODITIES, CONSIDERING THE JUDGMENT OF HONBLE HIGH COURT O F CALCUTTA IN THE CASE OF SOORAJ MUILL MAGARMULL SUPRA, WHICH WAS FOLLOWED BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF BADRIDAS GAURIDU PVT LTD (SUPRA), NEEDS TO BE FOLLOWED BY US. THE PRINCIPLE OF JUDICIAL DISCIPLINE ASSUMES IMPORTANCE A ND THEREFORE, THE COMMODITY INCLUDES THE FORWARD CONTRACT. THUS, IN PRINCIPLE, THE FORWARD CONTRACTS, BEING COMMODITY, SHOULD FALL IN THE DEFINITION OF SPECULATION TRANSACTION AND THE SAME IS SUBJECTED TO FULFILLMENT OF OTHER CONDITIONS SPECIFIED IN SUB - SECTION (5) OF SECTION 43 OF THE ACT. HAVING HELD SO, WE SHALL NOW EXAMINE IF THE IMPUGNED CONTRACTS/TRANSACTIONS CONSTITUTE HEDGING TRANSACTIONS AND COVERED BY THE EXCLUSION PROVISIONS OF CLAUSE (A) TO THE PROVISO TO SECTION 43(5) OF THE ACT. THE C LAUSE (A) OF THE PROVISO TO SECTION 43(5) PROVIDES FOR EXCLUSION OF THE HEDGING TRANSACTION FROM THE DEFINITION OF THE SPECULATION TRANSACTIONS. THERE ARE NUMBER OF JUDGMENTS IN SUPPORT OF THE ASSESSEE AND RELEVANT RATIOS OR CONCLUSIONS ARE DISCUSSE D IN THE SUCCEEDING PARAGRAPHS. 20. BEFORE TAKING UP THESE DISCUSSIONS, WE SHALL NOW TAKE UP THE PROVISIONS OF THE EXPLANATION TO SECTION 28 OF THE ACT, WHICH ALSO PROVIDE DEFINITION OF SPECULATIVE BUSINESS . THE SAID EXPLANATION READS AS UNDER: 4 EXPLANA TION 2 . WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSINESS (HEREINAFTER REFERRED TO AS SPECULATION BUSINESS) SHALL BE DEEMED TO BE DISTINCT AND SEPARATE FROM ANY OTHER BUSINESS 21. EXPL ANATION TO SECTION 28 USES THE EXPRESSION SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, AND THUS, CONSIDERING THE NATURE OF THESE TRANSACTIONS, THE IMPUGNED FCS CANNOT BE DEEMED AS THE SPECULATION BU SINESS WITHOUT GOING INTO THE NATURE OF THE TRANSACTIONS . FOR ANALYZING THE NATURE, WE NEED TO EXAMINE WHY THE FC TRANSACTIONS ARE ENTERED, HOW THESE TRANSACTIONS ARE DEALT WITH DURING THEIR SUSTENANCE TILL THEY ARE CANCELLED BY THE ASSESSEE OR TERMINATE D BY THE BANKS AND IF THEY CONSTITUTE HEDGING TRANSACTIONS ETC. BASING ON THE NATURE , CERTAIN SPECULATION TRANSACTIONS SHALL CONSTITUTE AS SPECULATION BUSINESS AND SUCH SPECULATION BUSINESS SHALL BE DEEMED TO BE DISTINGUISHED AND SEPARATE FROM ANY OTHER BUSINESS. FURTHER, THE PROVISION OF SECTION 73 RELATING TO LOSS IN SPECULATION BUSINESS IS ANOTHER RELEVANT PROVISION IN THIS REGARD. THUS, THE EXPLANATION 2 TO SECTION 73 ALSO DEALS WITH DEEMED SPECULATION BUSINESS WHERE THERE IS SOME TRADING ACTIVITY OF SHARES BY THE ASSESSEE BEING OTHER BUSINESS ACTIVITY. NOW, WE SHALL TAKE UP RELEVANT JUDGMENTS ON THE SUBJECT RAISED BEFORE US. 22. RELEVANT JUDGMENTAL LAWS: IN THIS REGARD, RELEVANT DECISIONS INCLUDE THE DECISION IN THE CASE OF D KISHORE KUMAR AND CO SUPRA, BINDING JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BADRIDAS GAURIDU PVT LTD (SUPRA), JUDGMENT IN THE CASE OF SOORAJ MUILL MAGARMULL 129 ITR 169 (PARA 3) FROM CALCUTTA HIGH COURT. THE JUDGMENTS FROM THE HIGH COUR T OF AHMEDABAD IN THE CASES OF FRIENDS AND FRIENDS SHIPPING PVT. LTD (SUPRA) AND IN THE CASE OF PANCHAMAHAL STEEL LTD ( SUPRA) ARE ALSO RELEVANT. THESE DECISIONS / JUDGMENTS ARE UNANIMOUSLY RELEVANT FOR THE PROPOSITION THAT THE FC TRANSACTIONS, WHEN ENTERED INTO WITH THE BANKS FOR HEDGING THE LOSSES DUE TO FOREIGN EXCHANGE FLUCTUATIONS ON THE EXPORT PROCEEDS, ARE TO BE CONSIDERED INTEGRAL OR INCIDENTAL TO THE EXPORT ACTIVITY OF THE ASSESSEE. THEREFORE, THE LOSSES OR GAINS CONSTITUTE THE BUSINESS LOSS OR GAINS AND NOT THE SPECULATION ACTIVITIES. IN THE PRECEDING PARAGRAPHS OF THE ORDER, IN THE PORTIONS ASSIGNED TO THE ARS ARGUMENTS, WE HAVE ANALYZED THE SE ISSUES AND THE DR HAS NOT PROVIDED ANY REASONS TO REJECT THE SAID ARGUMENTS OF LD COUNSEL FOR THE ASSESSEE. THEREFORE, IN PRINCIPLE, WE AGREE WITH THE ARGUMENTS OF LD COUNSEL FOR THE ASSESSEE. FURTHER, WE ALSO AGREE WITH THE LD COUNSELS ARGUMENT THAT T HE FACT OF PREMATURE CANCELLATION CANNOT ALTER THE NATURE OF THE TRANSACTION. THUS, LD COUNSELS COMMENTS ON CIT(A) CONCLUSIONS ON TREATING OR EQUATING THE FCS AS DERIVATIVES OF CURRENCY IS ALSO ALLOWED CONSIDERING THE SPECIFIC DEFINITION PROVIDED TO D ERIVATIVES IN SECTION 2(AC) OF SECURITIES CONTRACT REGULATION ACT, 1956 AND IT IS NOT THE REQUIREMENT OF THE LAW THAT THE 1:1 CORRELATION BETWEEN THE FCS AND THE EXPORT INVOICES SHOULD EXIST AND SHOULD BE ESTABLISHED BY THE ASSESSEE. SO LONG AS THE TOTAL V ALUE OF THE FCS DOES NOT EXCEED, THE CLAIM OF THE ASSESSEE IS SUSTAINABLE AS BUSINESS LOSS. WE HAVE ALSO ANALYZED THE DECISIONS RELIED ON BY LD DR AND FIND THEY ARE DISTINGUISHABLE. NOW, WE SHALL PROCEED TO IMPORT SOME CONCLUSIONS OF THE SAID DECISIONS. RE LEVANT JUDGMENTAL LAWS CONCLUSIONS & HELD PORTIONS 23. RELEVANT EXTRACTS FROM THE CITED JUDGMENTS ARE INSERTED IN THE SUCCEEDING PARAGRAPHS HERE AS UNDER: A. HELD PORTION IN THE CASE OF D. KISHOREKUMAR 2 SOT 769 (MUM) THE DETAILS OF FORWARD EXCHANGE CONT RACT CLEARLY SHOW THAT ALL THE FORWARD EXCHANGE CONTRACTS WERE IN RESPECT OF EACH SPECIFIC IMPORT ORDER PLACED BY THE ASSESSEE. THE PURPOSE OF THESE TRANSACTIONS WAS CLEARLY TO MINIMISE ASSESSEES RISK ON ACCOUNT OF FALL IN VALUE OF RUPEE, BUT THE QUANTUM OF FOREIGN EXCHANGE 5 COVERED BY THESE FORWARD CONTRACTS WAS LIMITED TO THE EXTENT OF ASSESSEES ACTUAL EXPOSURE IN RESPECT OF IMPORT VALUE COMMITMENTS. THAT ASPECT IS NOT DISPUTED. ON THESE FACTS, EVEN THOUGH THE TRANSACTIONS HAVING BEEN SETTLED WITHOUT DEL IVERY, THE CONDITIONS OF S. 43(5), DESCRIBING SPECULATIVE TRANSACTIONS, ARE CLEARLY FULFILLED, THE REQUIREMENT OF EXPLN. 2 TO S. 28 IS NOT FULFILLED INASMUCH AS IT CANNOT BE CONCLUDED THAT THE TRANSACTIONS ARE SUCH A NATURE AS TO CONSTITUTE A BUSINESS BY ITSELF. THESE TRANSACTIONS ARE GENUINE BUSINESS TRANSACTION TO HEDGE AGAINST INCREASED COST OF PURCHASES OF ROUGH DIAMOND IMPORTS. IT IS A COMMONLY ACCEPTED PART OF THE FINANCIAL MANAGEMENT PRACTICES TODAY THAT THE RISK ELEMENT, DUE RISE IN VALUE OF FOREIGN CURRENCY IN RESPECT OF THE IMPORT TRANSACTIONS ENTERED, IS MINIMISED BY ENTERING INTO FORWARD CONTRACTS FOR PURCHASE OF THAT CURRENCY. THIS IS PARTICULARLY NECESSARY IN A MARKET IN WHICH THE VALUE OF DOMESTIC CURRENCY IS FALLING, WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSEE REALIZED PROFITS ON CANCELLATION OF THOSE CONTRACTS. THESE TRANSACTIONS ARE INTEGRAL PART OF THE EXPORT BUSINESS AND CANNOT BE CONSIDERED IN ISOLATION OF THE EXPORT BUSINESS IN THE COURSE OF WHICH THE TRANSACTIONS HAVE BEEN ENTERED INTO . AS A MATTER OF FACT, THIS PROFIT ON CANCELLATION OF FORWARD CONTRACTS IS GENERALLY REVENUE NEUTRAL BECAUSE THE QUE STION OF PROFIT ON CANCELLATION OF FORWARD CONTRACTS CAN ONLY ARISE IN A SITUATION WHEN THE VALUE OF FOREIGN CURRENCY IS INCREASING VIS - A - VIS DOMESTIC CURRENCY, AND WHEN THE FOREIGN EXCHANGE VALUE IS SO INCREASING THE ULTIMATE PAYMENT MADE IN FOREIGN EXCHA NGE BY THE ASSESSEE ALSO INCREASES. SINCE IT IS AN UNDISPUTED POSITION THAT THE IMPORTS, IN CONNECTION WITH WHICH THE ASSESSEE HAD ENTERED INTO FORWARD CONTRACTS, ACTUALLY TOOK PLACE, THIS PROFIT ON CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACTS EFF ECTIVELY ONLY REDUCES THE COSTS OF PURCHASES IN RESPECT OF THOSE IMPORTS, AND CANNOT BE, BY ANY LOGIC, CONSTRUED AS TRANSACTIONS INDEPENDENT OF ASSESSEES BUSINESS OF IMPORTING ROUGH DIAMONDS AND EXPORTING CUT AND POLISHED DIAMONDS. THERE IS ONE MORE ASPEC T OF THE MATTER, AND THAT IS THE REASON AS TO WHY THE FORWARD CONTRACTS WERE CANCELLED MIDWAY AND THE PROFITS WERE BOOKED ON THE SAME INSTEAD OF USING THESE CONTRACTS TO ACTUALLY MEET THE FOREIGN EXCHANGE REQUIREMENTS AT THE TIME OF PAYING THE IMPORT BILLS . THE DUE DATES OF PAYMENT AT THAT POINT OF TIME WERE ONLY 16 DAYS TO 77 DAYS AWAY . THE DECISION AS TO WHETHER FURTHER HEDGING AGAINST THE INCREASE IN FOREIGN CURRENCY IS WARRANTED OR NOT IS ESSENTIALLY A COMMERCIAL DECISION WHICH DEPENDS ON A NUMBER OF FACTORS, MOST IMPORTANT FACTOR BEING THE TREND OF CURRENCY MARKETS AT THAT POINT OF TIME AND BUSINESSMANS PERCEPTION ABOUT FUTURE TRENDS OF THE CURRENCY MARKET. FOR EXAMPLE, WHEN A BUSINESSMAN PERCEIVES THAT THE MARKET VALUE OF FOREIGN CURRENCY VIS - A - VIS THE DOMESTIC CURRENCY WILL NOT GO ANY HIGHER OR WHEN THE MARKET STARTS THE DECLINING TREND, HE MAY SEE BUSINESS EXPEDIENCY IN CANCELLATION OF CONTRACT. THE FACT OF PREMATURE CANCELLATION , THEREFORE, CANNOT ALTER THE NATURE OF TRANSACTION. FOR ALL THESE REA SONS, THE CREDIT SHOWN IN THE P&L A/C AS PROFIT ON CANCELLATION OF FORWARD CONTRACTS IS AS INTEGRAL PART OF THE EXPORT BUSINESS, AS PURCHASES OR IMPORTS.. THE ASSESSEE SUCCEEDS ON THIS ISSUE. IN THE RESULT, THE APPEAL IS ALLOWED. 24. ALTHOUGH, THE SAID DECISION WAS PRONOUNCED IN THE CONTEXT OF SECTION 80HC OF THE ACT, THE RATIO OF THE SAID DECISION IS OF PARAMOUNT IMPORTANCE. B. BOMBAY HIGH COURT JUDGMENT IN THE CASE OF CIT VS. BADRIDAS GAURIDU (P) LTD. [2004] 134 TAXMAN 376 (BOM.) 25. IN THIS CASE, HONBLE HIGH COURT OF BOMBAY ANSWERED THE FOLLOWING QUESTION IN FAVOUR OF THE ASSESSE AND THE QUESTION READS THAT, - WHETHER, WHERE ASSESSEE, NOT BEING A DEALER IN FOREIGN EXCHANGE BUT AN EXPORTER OF COTTON, HAD BOOKED FOREIGN EXCHANGE IN FORWARD MARKET WITH BANK IN ORDER TO HEDGE AGAINST LOSSES , TO CLAIM DEDUCTION IN RESPECT OF LOSS SUFFERED BY IT AS A BUSINESS LOSS - HELD YES . 6 25.1. RELEVANT FINDING IS DISCUSSED IN PARA 3 OF THE JUDGMENT AND THE SAME READS AS FOLLOWS: - 3. THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS A COTTON EXPORTER. THE ASSESSEE WAS AN EXPORT HOUSE. THEREFORE, FOREIGN EXCH ANGE CONTRACTS WERE BOOKED ONLY AS INCIDENTAL TO THE ASSESSEES REGULAR COURSE OF BUSINESS. THE TRIBUNAL HAS RECORDED A CATEGORICAL FINDING TO THIS EFFECT IN ITS ORDER. THE ASSESSING OFFICER HAS NOT CONSIDERED THESE FACTS. UNDER SECTION 43(5) OF THE INCOM E TAX ACT, SPECULATIVE TRANSACTION HAS BEEN DEFINED TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF COMMODITY IS SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF SUCH COMMODITY. HOWEVER, AS STATED ABOVE, THE ASSESSEE WA S NOT A DEALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS AN EXPORTER OF COTTON. IN ORDER TO HEDGE AGAINST LOSSES, THE ASSESSEE HAD BOOKED FOREIGN EXCHANGE IN THE FORWARD MARKET WITH THE BANK . HOWEVER, THE EXPORT CONTRACTS ENTERED INTO BY THE ASSESSEE FOR EX PORT OF COTTON IN SOME CASES FAILED . IN THE CIRCUMSTANCES, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION IN RESPECT OF RS. 13.50 LAKHS AS A BUSINESS LOSS . THIS MATTER IS SQUARELY COVERED BY THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SO ORAJ MULL NAGARMULL (1981) 129 ITR 169. JUDGMENT OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SOORAJ MULL NAGARMULL [1981] 129 ITR 169 (CAL.) HELD : THE ASSESSEE USED TO CARRY ON EXPORT AND IMPORT OF JUTE BUSINESS. IN THE COURSE OF NORMAL BUSINESS IT USED TO ENTER INTO FOREIGN EXCHANGE CONTRACTS IN ORDER TO COVER UP LOSS AND DIFFERENCE IN FOREIGN EXCHANGE VALUATION. THE ASSESSEE UTILIZED PART OF THE AMOUNT OF THE FOREIGN EXCHANGE COVERED. THIS FINDING OF FACT HAS NOT BEEN CHALLENGED. IF IN THE COURSE OF NORMAL CARRYING ON OF BUSINESS CERTAIN LOSS OR OBLIGATION OR INTEREST ARISE THESE MUST BE DEFERRABLE TO THE CARRYING ON THE BUSINESS AND THESE MUST BE INCIDENTAL TO THE CARRYING ON OF THE BUSINESS. UNDOUBTEDLY, THE CONTRACT FOR FOREIGN EXCHANGE AS SUCH CAN BE TREATED AS A CONTRACT FOR COMMODITY. THE CONCLUSION OF THIS JUDGMENT AS REPORTED READS AS UNDER: WHERE IN THE NORMAL COURSE OF BUSINESS O F IMPORT AND EXPORT OF JUTE, THE ASSESSEE ENTERED INTO FOREIGN EXCHANGE CONTRACT TO COVER UP THE LOSSES AND DIFFERENCES IN EXCHANGE VALUATION, THE TRANSACTION IS NOT A SPECULATIVE TRANSACTION. 26. THE ABOVE EXTRACTS UNANIMOUSLY SUPPORT THAT THE FCS ENTERED BY THE ASSESSEE, AN EXPORTER AND NOT THE DEALER IN FOREIGN EXCHANGE, WITH THE BANKS AS INCIDENTAL TO THE EXPORT BUSINESS, ARE BUSINESS TRANSACTIONS AND LOSS OR GAINS IS NOT OF SPECULATION NATURE. THE ONLY RELEVANT DECISION CITED BY LD DR IS THE ONE DELIVE RED IN THE CASE OF S. VINODKUMAR DIAMONDS PVT. LTD, (SUPRA) AND IN THIS CASE, AO ALLOWED THE RELEVANT LOSS AS BUSINESS LOSS AND RELEVANT PORTION IS EXTRACTED AS UNDER: 4HE FURTHER HELD THAT LOSSES INCURRED BY THE ASSESSEE DURING THE YEAR ON ACCOUNT OF CHANGE IN VALUE OF CURRENCIES AT THE TIME OF PAYMENT WAS ALLOWED WHILE FINALISING THE ASSESSMENT, THAT M TO M LOSSES WERE OF NOTIONAL LOSSES AND CONTINGENT IN NATURE. FINALLY, LOSS ON A/C. OF OUTSTANDING FORWARD CONTRACT AS ON 31.03.2008 WERE DISALLOWED BY HIM. 27. WE HAVE SO FAR ANALYZED THE SCOPE OF THE LEGAL PROPOSITIONS AND RELEVANT JUDGMENTS. NOW, WE SHALL APPLY THE SAME TO THE ISSUES RAISED IN THE APPEAL. ANALYSIS OF THE CLAIMS OF THE ASSESSEE AND DISPUTES ETC., 28. THE DETAILS OF THE CLAIM MADE BY THE ASSESSEE IN THE RETURN ARE TABULATED AS UNDER: 7 GAINS (IN RS) LOSS (IN RS) DIFFERENCE (IN RS) PROFIT ON PAYMENT OF REALISATION OF EXPORT RECEIVABLES 4,31,44,019 LOSS ON CANCELLATION OF FCS 4,69,42,680 PROFITS ON REVALUATION OF O/S DEBTORS AS ON 31.3.2009 2.48,13,534 6,79,57,553 4,69,42,680 2,10,14,873 29. THUS, THE ASSESSEE CREDITED RS 2,10,14,873/ - TO THE P & L ACCOUNT FOR THE YEAR AFTER SET OFF AND THE SAME IS THE SUBJECT MATTER OF DISPUTE BETWEEN THE PARTIES AS THE AO DID NOT ALLOW SUCH SET OFF. 30. AS EXPLAINED EARLIER, AO TREATED WHOLE OF THE LOSS OF RS 4,69,42,680/ - AS THE SPECULATION LOSS OF THE ASSESSEE. THE PROFILE OF THE TOTAL FORWARD CONTRACTS (FCS) BOOKED AND CANCELLATION OF THE FCS AND THE TIMING THEREOF ARE TABULATED AS UNDER: TOTAL AMT O F FCS (US$) AMOUNT OF CANCELLED FC (US$) LOSS ON FCS CANCELLED ON/ AFTER DUE DATE (INR) LOSS ON FCS CANCELLED 3 DAYS PRIOR FROM DUE DATE (INR) LOSS ON FCS CANCELLED PRIOR TO MORE THAN 3 DAYS (INR) TOTAL OF 3+4+5 (INR) 1 2 3 4 5 6 19,444,000 10,704,760 41,488,805 4,218,940 1,892,078 46,942,680 31. THUS, THE ABOVE TABLE SUGGESTS THAT OUT OF THE TOTAL LOSS, LOSS OF RS. 4,14,88,805/ - WAS TO THE BANKS ON ACCOUNT OF LOSS ON CANCELLATION OF MATURED FCS I.E., CANCELLED ON OR AFTER THE DUE DATE. THIS LOSS IS PAYABLE TO THE BANK AS PART OF THE TERMINATION OF CONTRACTS AFTER THE FULL PERIOD OF CONTRACT. IT IS ATTRIBUTABLE TO THE GENUINE FAILURE OF THE TRADE DEBTORS, WHO FAILED TO COMPLY WITH THE CREDIT TERMS AND CONDITIONS. IN OTHER WORDS, THE Y ARE NOT THE CASES OF PREMATURE TERMINATION OR CANCELLATION OF THE IMPUGNED FCS. WHEREAS THE OTHER LOSS OF RS 42,18,940/ - IN COLUMN 4 OF THE ABOVE TABLE, IT IS STATED THAT THE ASSESSEE CANCELLED THE CONTRACTS THREE DAYS IN ADVANCE AS THE CONTRACT DUE DAT ES FELL IN THE WEEKEND DAYS, WHERE THE BOOKS REMAIN CLOSED. FINALLY THE LOSS OF RS 18,92,078/ - IS RELEVANT TO THE FCS CANCELLED PREMATURELY AND THERE IS NO SPECIFIC EXPLANATION FROM THE ASSESSEE IN THIS REGARD. HOWEVER, THE STANDARD EXPLANATION REVOLVES A ROUND THE COMMERCIAL NATURE OF DECISION OF THE ASSESSEE, WHICH HE CAN TAKE AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES AND THE SAID DECISION IS TAKEN FOR PREVENTION OF FURTHER LOSSES IF ANY. 32. FLUCTUATIONS RELATED FACTS: - FURTHER, THE FACTS RELATI NG TO DOLLAR FLUCTUATIONS ARE UNDISPUTED. THE PERUSAL OF THE CHART FURNISHED BY THE ASSESSEE REFLECTING THE DOLLAR VALUE IN RUPEES IN THE MONTH OF APRIL AND FOUND THAT THE FLUCTUATIONS ARE VARYING FROM RS. 39.8550 TO RS. 40.6550 IN THE MONTH OF APRIL. FURT HER, ASSESSEE ALSO FURNISHED ANOTHER CHART FOR THE FY UNDER CONSIDERATION SHOWING CHANGING THE DOLLAR VALUE FOR THE YEAR AND IT IS THE FACT THAT THE DOLLAR VALUE PER INR VARIED FROM RS. 39.85 TO RS. 51.21 PER $ REGISTERING THE VARIATIONS NEARLY RS. 12/ - DURING THE YEAR. 33. CORRELATION OF FORWARD CONTRACTS VIS - - VIS EXPORT INVOICES: ASSESSEE FILED A CHART FURNISHING THE EXPORT INVOICES RAISED IN THE YEAR UNDER CONSIDERATION AND RELATED FORWARD CONTRACTS B OOKED AND MATURED IN THE YEAR UNDER CONSIDERATION. THE DETAILS SUGGEST THAT THERE IS A BROAD CONNECTION IS ESTABLISHED AND OF COURSE IT IS NOT UP TO THE EXTENT OF RUPEE . IT IS THE CASE OF THE REVENUE THAT THE CORRELATION SHOULD BE PRECISE TO THE LAST RUP EE OF THE INVOICE AMOUNT. THE SAID ARGUMENT WAS MADE OUT BY THE ASSESSEE RELYING ON THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF FRIENDS AND FRIENDS SHIPPING PVT. LTD (SUPRA) AND PANCHAMAHAL STEEL LTD ( SUPRA). CONSIDERING THE ABOVE STATED SCOPE OF THE RELEVANT PROVISIONS ON ONE SIDE AND THE PRECEDENTS ON THE OTHER, NOW WE SHALL TAKE UP THE CORE ISSUE OF ADJUDICATION OF THE GROUNDS RAISED IN THE APPEAL AND THE FATE OF THE IMPUGNED LOSSES OF RS. 8 4,69,42,680/ - . RELEVANT PORTION FROM THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF FRIENDS AND FRIENDS SHIPPING PVT. LTD (SUPRA) IS AS FOLLOWS: IT IS TRUE THAT THE C IT (A) HAS MADE SOME OBSERVATIONS WHICH WOULD PRIMA FACIE SUGGEST THAT THERE WAS NO DIRECT CO - RELATION BETWEEN THE EXCHANGE DOCUMENT AND THE PRECISE CONTRACT. HOWEVER, SUCH OBSERVATIONS CANNOT BE SEEN IN ISOLATION. .WE FIND THAT THE DECISIONS OF THE BOMBAY HIGH COURT AND THE CALCUTTA HIGH COURT NOTED ABOVE WOULD COVER THE SITUATION. 34. FROM THE ABOVE ANALYSIS AND SUMMARY OF JUDGMENTS, IT IS SAFELY CONCLUDED THAT THE IMPUGNED FCS ARE COMMODITIES . HOWEVER, CONSIDERING THE FACT THAT THESE FCS ARE INTEGRAL PART OR INCIDENTAL TO THE CORE BUSINESS OF EXPORT OF DIAMONDS OR THE OUTSTANDING RE CEIVABLES OF EXPORT PROCEEDS, IN PRINCIPLE, THE IMPUGNED FCS CONSTITUTE HEDGING TRANSACTION AND NOT THE SPECULATIVE CONTRACTS. AS SUCH, THE BANKS DO NOT ENTERTAIN FCS OF SPECULATIVE NATURE WITH THE CUSTOMERS LIKE THE ASSESSEE, THE EXPORTER. AS SUCH, THE EXTENTION OF FCS, IN CASE OF NON - RECEIPT OF EXPORT PROCEEDS ON THE DUE DATES, IS NOT ALLOWED WITHOUT CANCELLING THE EXISTING FCS. HOWEVER, THE ONUS IS ON THE ASSESSEE TO EXPLAIN SATISFACTORILY WHY THE ASSESSEE RESORTED TO PREMATURE CANCELLATION OF SO ME FCS. FURTHER, IT IS NOT THE REQUIREMENT THAT THERE MUST BE 1:1 PRECISE CORRELATION BETWEEN FC AND THE CORRESPONDING EXPORT INVOICE. SO LONG AS THE TOTAL FCS DOES NOT EXCEED THE EXPORTS OF THE YEAR PLUS OUTSTANDING EXPORT RECEIVABLE, THE FCS CAN CONSTI TUTE HEDGING TRANSACTION. FURTHER ALSO, THE PREMATURE CANCELLATION OF FCS MAY NOT ALTER THE ABOVE CONCLUSIONS SO LONG AS THE ASSESSEE HAS VALID AND ACCEPTABLE EXPLANATION FOR SUCH CANCELLATIONS. IT SHOULD NOT BE THE CASE, TO START WITH, FC CAN BE A H EDGING TRANSACTION BUT THE ENDING OF SUCH FC IS SPECULATION. IN THE LIGHT OF THIS SYNOPSIS OF OUR VIEWS IN THE MATTER, WE SHALL NOT DELIBERATE ON THE IMPUGNED LOSSES. 35. THE SUBDIVISIONS OF THE LOSS OF RS. 4,69,42,680/ - : WE HAVE ALREADY TABULATED ABO VE THE THREE SUBDIVISIONS OF THE IMPUGNED LOSSES BASED ON THE TIMING OF THE CANCELLATION OF THE FCS. BROADLY THE LOSS IS DIVIDED INTO TWO TYPES AND THE ADJUDICATION OF THE EACH SUBDIVISION OF LOSS IS GIVEN AS UNDER: (A) LOSS ON CANCELLATION OF MATURED FCS AMOUNTING TO RS 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 MATURITY 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 W HICH ARE INTEGRAL OR INCIDENTAL 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 KISHORE KUMAR AND CO (SUPRA), BADRIDAS GAURIDU PVT LTD (SUPRA), SOORAJ MUI LL MAGARMULL, ( SUPRA) ETC. 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. (B) (I) LOSS ON CANCELLATION OF PRE - MATURED FCS IS THE OTHER SEGMENT OF LOSS RELATES TO THE FCS CANCELLED PRIOR TO THE DATE OF MATURITY . THE QUESTION TO BE ANSWERED BY THE ASSESSEE RELATES TO THE ACCEPTABILITY OF THE EXPLANATION FOR SUCH PREMATURE CANCELLATION OF THE FCS BEFORE THE DUE DATE OF MATURITY OF THE CONTRACT. IT I S A SETTLED ISSUE THAT THE ASSESSEE HAS TO DISCHARGE THE ONUS ON WHY HE HAD TO RESORT TO PREMATURE CANCELLATION. IN THIS CASE, THE EXPLANATION OF THE ASSESSEE REVOLVES AROUND THE FACT THAT THE MATURITY OF DATE OF SOME OF SUCH PREMATURE CANCELLED FCS FELL D URING THE WEEK - END DAYS AND THEREFORE, THE ASSESSEE CANCELLED SUCH FCS THREE DAYS PRIOR TO THE DUE DATE. RELATED LOSS IS QUANTIFIED AT RS 42 ,18,940/ - . IN OUR OPINION, THE EXPLANATION OF THE ASSESSEE IS ACCEPTABLE AND THE AO IS DIRECTED TO ALLOW THE CLAIM AND OF COURSE, AFTER DUE VERIFICATION OF THE FACTUM OF WEEK - ENDS. THUS, THIS PART OF THE GROUND OF THE ASSESSEE IS ALLOWED AS ABOVE WITHOUT G OING INTO THE ALTERNATE ARGUMENTS RELATING TO DAMAGES. 9 (II) THE OTHER SHADE OF LOSS OF PREMATURE CANCELLATION OF FCS RELATES TO THE FCS CANCELLED PRIOR TO LONGER THAN THREE DAYS CONSTITUTES ANOTHER FRACTION OF THE LOSS AND THE ASSESSEES EXPLANATION IN THIS REGARD REVOLVES AROUND THE GENERAL EXPLANATION OF REDUCTION OF LOSSES. RELEVANT LOSS IS WORKED OUT AT RS 18,92,078/ - . THIS SEGMENT OF LOSSES RELATES TO PREMATURE CANCELLATIONS OF THE FCS AND THE EXPLANATION OF THE ASSESSEE IS VERY GENERAL. AS SUCH, PR EMATURE CANCELLATIONS SHOULD ALSO BE ALLOWED AS BUSINESS LOSS IN VIEW OF THE DECISIONS DISCUSSED IN THE PRECEDING PARAGRAPHS, SO LONG AS THE RELATED FCS ARE INTEGRAL PART OF THE EXPORTS. HOWEVER, THERE IS SOMETHING CALLED FOR IS THE ASSESSEES EXPLANATION AND ITS CREDIBILITY AND ACCEPTABILITY BY THE AO. IN OUR OPINION, THESE EXPLANATIONS WERE NOT EXAMINED BY THE LOWER AUTHORITIES OF THE REVENUE. ASSESSEE NEEDS TO ANSWER AS TO WHY IT WENT FOR PREMATURE TERMINATION AND THE ONUS IS ON THE ASSESSEE AS PER THE R ATIO OF THE SC JUDGMENT IN THE CASE OF JOSEF JOHN (SUPRA) . FURTHER, DURING THE PROCEEDINGS BEFORE US, ON THIS ISSUE, LD COUNSEL FOR THE ASSESSEE PUT FORWARDED VARIOUS NEW ARGUMENTS DESCRIBING THE IMPUGNED LOSS AS DAMAGES PAYABLE TO THE BANKS FOR BREACH O F CONTRACTS OR SETTLEMENT OF THE CONTRACTS. THESE ASPECTS ARE NOT EMANATING FROM THE ORDERS OF THE LOWER AUTHORITIES. ONE NEEDS TO STUDY THE CORRESPONDENCE WITH THE BANKS AND THE RBI GUIDELINES ON THE ISSUE WHETHER SUCH PAYMENTS TO BANK SHOULD BE TREATED A S DAMAGES FOR BREACH OF CONTRACT. ONE NEEDS TO EXAMINE WHO THE BANK TREATS THE SAME AND RELEVANT ACCOUNTING PRINCIPLES . IN THIS REGARD, LD COUNSEL ALSO FILED WRITTEN SUBMISSION TOO. IN PRINCIPLE, THIS PART OF THE LOSSES RELATING TO PREMATURE CANCELLATIONS OF FCS AMOUNTING TO RS 18,92,078/ - SHOULD BE REMANDED TO THE FILE OF THE AO FOR WANT OF SPEAKING ORDER ON THIS ISSUE AFTER CONSIDERING THE CITED JUDGMENTS LIKE SHANTILAL (P) LTD [1983] 144 ITR 57 (SC) AND OTHERS ON THIS ISSUE . AO IS DIRECTED TO DISALLOW THIS LOSS IN THE ABSENCE OF SPECIFIC EXPLANATION, IF ANY. AS SUCH, IMPUGNED ORDER IS DEFICIENT ON THESE ASPECTS OF THE ISSUE. THUS, THIS PART OF THE GROUND IS ALLOWED PRO - TANTO. 36. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 7. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE ISSUE RAISED IN BOTH THE GROUNDS OF 1 & 2 SHOULD BE REMANDED TO THE FILE OF THE AO FOR READJUDICATION OF THE ISSUE STRICTLY IN THE LIGHT OF THE PROPOSITION LAID DOWN IN THE ABOVE SAID ORDER OF THE TRIBU NAL. IN THE REMAND PROCEEDINGS, AO SHALL NOTE AND EXAMINE ALL THE 34 FORWARD CONTRACTS WHICH YIELDED LOSSES. HE SHALL NOTE THAT THE IMPUGNED LOSSES INCLUDES THE FOLLOWING I.E., (I) ON ACCOUNT OF CANCELLATION OF ORDERS BY THE FOREIGN BUYERS (RELATABLE LOSS WORKS OUT TO RS. 54,46,622/ - ) AND (II) ON ACCOUNT OF ASSESSEES FAILURE TO PROVIDE ADDITIONAL CASH COLLATERALS TO THE BANKS (RS. 6,32,96,250/ - ). ASSESSEES SUBMISSION, INCORPORATED IN PARA 4.1 OF THE IMPUGNED ORDER, IS RELEVANT HERE. AO SHALL EXAMINE BO TH THE TYPES OF LOSSES IN THE LIGHT OF THE CITED DECISION OF THE TRIBUNAL IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) LTD (SUPRA) AND ALSO THE SET PRINCIPLES LAID DOWN BY THE VARIOUS COURTS ON THE ABOVE ISSUES. AO SHALL GRANT A REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUNDS NO.1 AND 2 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 10 ORDER PRON OUNCED IN THE OPEN COURT ON 2 5 T H JULY, 2014. S D / - S D / - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 2 5 .7.2014 . . ./ 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, MUMBA I