ASST CIT 16(3), MUMBAI V. VISHINDA DIAMONDS, MUMBAI

ITA 7330/MUM/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3287 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 13-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI JASON P. BOAZ ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO. 7330/MUM/2013 (ASSESSMENT YEAR : 2009-10) THE ACIT-16(3), MATRU MANDIR, 2 ND FLOOR, R.NO.206,TARDEO ROAD, MUMBAI 400007 ... APPELLANT VS. M/S. VISHINDA DIAMONDS, CC-8011-8012-8013, BHARAT DIAMOND BOURSE, BANDRA-KURLA COMPLEX, BANDRA, MUMBAI 400 051 .... RESPONDENT APPELLANT BY : SHRI SUM IT KUMAR RESPONDENT BY : SHRI SUBHAS H S. SHETTY DATE OF HEARING : 27/01/2016 DATE OF PRONOUNCEMENT : 29/01/2016 ORDER PER JASON P. BOAZ, A.M: THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE OR DER OF THE CIT(APPEALS)-27, MUMBAI DT. 18/09/2013 FOR ASST. Y EAR 2009-10 IN RESPECT OF THE ORDER OF ASSESSMENT PASSED U/S 143( 3) OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT) DT. 30/12/2011. 2. THE GROUNDS RAISED BY REVENUE IN THIS APPEAL A RE AS UNDER:- 2 ITA NO. 7330/MUM/2013 (ASSESSMENT YEAR : 2009-10) 1. WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT MARK TO MARKET LOSS OF RS. 1,62,98,847/- AR ISING ON VALUATION OF FORWARD EXCHANGE CONTRACTS ON THE CLOSING DATE OF ACCOUNTING YEAR IS NOT A NOTIONAL LOSS AND, THEREFORE, ALLOWABLE? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN L AW, THE LD. CIT(A) WAS RIGHT IN NOT TAKING COGNIZANCE OF THE DECISION OF THE ITAT,E BENCH, MUMBAI IN ITA NO. 506/MUM/2013 DATED 03.05.2013 IN THE CASE OF M/S. S. VINODKUMAR DIAMONDS PVT. LTD.? 3. THE LD. CIT(APPEALS) GROSSLY ERRED ON FACTS IN NOT- CONFIRMING DISALLOWANCE OF MARK TO MARKET LOSS OF RS.1,62,98,847/- ON ACCOUNT OF OUTST ANDING FORWARD CONTRACTS. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. AT THE OUTSET, THE LD. REPRESENTATIVE FOR THE AS SESSEE POINTED OUT THAT THE ISSUE IN THIS APPEAL IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS DECISIONS OF THE CO-ORDINAT E BENCHES OF THIS TRIBUNAL AND ALSO BY THE ORDER OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD., 294 ITR 451(SC). IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) HAD ALLOWED T HE APPEAL OF THE ASSESSEE FOLLOWING THE SAID RATIO LAID DOWN BY THE HONBLE APEX COURT. IN THIS REGARD, THE LD. REPRESENTATIVE FOR THE ASSE SSEE ALSO PLACED RELIANCE, INTER ALIA, ON THE FOLLOWING DECISIONS OF CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL:- (I) ACIT V. VENUS JEWEL (MUM), ITA NOS.7328& 7329 /MUM/2013 DATED 31/07/2016. (II) ACIT VS. ANKIT GEMS (MUM), ITA NO.2610/MUM/201 3. (III) ACIT VS. MONARCH GEMS (MUM) ITA NO.2613/MUM/2 013. (IV) ACIT VS. VIMAL EXPORT (MUM), ITA NO.6610/MUM/2 012. (V) ACIT VS. M/S. RUPAM IMPEX (MUM) ITA NO.4008/MUM /2012 (VI)ACIT VS. H DEEPAK & CO.(MUM) ITA NO.7629/MUM/20 11 4. LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE STRONGLY SUPPORTED THE GROUNDS RAISED AND RELIED ON THE ORDE R OF THE ASSESSING 3 ITA NO. 7330/MUM/2013 (ASSESSMENT YEAR : 2009-10) OFFICER . THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE SUBMITTED THAT CONTRARY VIEW HAS BEEN TAKEN BY THE CO-ORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF VINOD DIAMONDS P VT. LTD. IN ITA NO.506/MUM/2013 DATED 3/5/2013. IN VIEW OF THE ABO VE, IT WAS PRAYED BY THE LD. DEPARTMENTAL REPRESENTATIVE FOR T HE REVENUE THAT THE REVENUES APPEAL BE ALLOWED. 5.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON. TH E FACTS OF THE CASE ON HAND AS EMERGE FROM THE RECORD ARE THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE, SELLING, DISTRIBUTION AND EXPORTING AND IMPORTING OF CUT AND POLISHED DIAMONDS, GEMS AND JE WELLERY. IN THE RETURN OF INCOME FOR ASSESSMENT YEAR 2009-10, FILED ON 22/9/2009, THE ASSESSEE HAD DECLARED INCOME OF RS.19,85,43,671/-. 5.2 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE R E-VALUATION OF DEBTORS AS ON 31/03/2009 SHOULD NOT BE REJECTED ON THE FOLLOWING GROUNDS:- (I) NON-UNIFORMITY OF RATES OF RE-VALUATION ADOPTED FOR VARIOUS DEBTORS; (II) NOT FOLLOWING THE AS-IIS CATEGORICAL GUIDANCE ON ADOPTING CLOSING RATE OF CURRENCY. (III) INTRODUCING THE CONTINGENT LOSSES OF THE FO RWARD CONTRACTS OF FOREIGN EXCHANGE BY MARKED TO MARKET (MTM) METHOD INDIRECTLY BY NETTING IT WITH VALUATION OF DEBTORS ON 31/3/2009 AND WHY A UNIFORM 4 ITA NO. 7330/MUM/2013 (ASSESSMENT YEAR : 2009-10) RATE OF DEBTORS @ RS.50.95 NOT BE ADOPTED OR WHY T HE INDIRECT MTM REVALUATION OF FORWARD CONTRACT NOT BE DISALLOWED. 5.3 AFTER CONSIDERING THE EXPLANATIONS PUT FORTH, T HE ASSESSING OFFICER CAME TO THE VIEW THAT THE ASSESSEE HAD NOT FOLLOWED THE AS-II GUIDELINES AND ALSO REJECTED THE VALUATION ADOPTED BY THE ASSESSEE TREATING THE SAME AS INCORRECT AND CONSEQUENTLY AD DED AN AMOUNT OF RS.1,62,98,847/- VALUING THE SAME @ RS.50.95, I.E. THE CLOSING RATE OF US $ AS ON 31/3/2009. 5.4 ON APPEAL, THE LD. CIT(A), INTER ALIA, FOLLOWI NG THE RATIO OF THE DECISION OF THE HOBLE APEX COURT IN THE CASE OF WO ODWARD GOVERNOR INDIA P.LTD. (SUPRA) AND OTHER DECISIONS OF THE CO- ORDINATE BENCHES OF THE ITAT, MUMBAI ALLOWED THE ASSESSEES APPEAL. 6.1 ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENT IONS, THE MATERIAL ON RECORD AND THE JUDICIAL PRONOUNCEMENTS REFERRED TO, WE FIND THAT THE IDENTICAL ISSUE OF MARK TO MARKET LOSS ARISING ON V ALUATION OF THE FORWARD EXCHANGE CONTRACTS ON THE CLOSING DATE OF T HE ACCOUNTING YEAR NOT BEING A NOTIONAL LOSS HAS BEEN CONSIDERED BY A CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITS ORDER IN THE CASE OF VENUS JEWEL (MUM), ITA NOS.7328& 7329/MUM/2013 DATED 31/07/2016 AND HAS D ECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, HOLDING AS UNDER A T PARAS 8 TO 10 THEREOF:- 8.WE FIND THAT THE ISSUE ARISING IN THE PRESENT AP PEAL, I.E. LOSS ON ACCOUNT OF FORWARD CONTRACT ENTERED INTO BY THE ASSESSEE TO HE DGE AGAINST THE LOSS ARISING ON ACCOUNT OF FLUCTUATIONS IN FOREIGN EXCHANGE AROSE B EFORE THE TRIBUNAL IN A SERIES OF 5 ITA NO. 7330/MUM/2013 (ASSESSMENT YEAR : 2009-10) CASES. THE LEARNED A.R. FOR THE ASSESSEE PLACED REL IANCE UPON THE FOLLOWING DECISIONS OF DIFFERENT BENCHES: I) ACIT VS. M/S. MONARCH GEMS - ITA NO. 2613/MUM/2 013 DATED 09.07.2014 II) ACIT VS. M/S. VIMAL EXPORT - ITA NO. 6610/MUM/ 2012 DATED 08.01.2014 III) ACIT VS. M/S. RUPAM IMPEX - ITA NO. 4008/MUM /2012 IV) ACIT VS. M/S. H. DIPAK & CO. - ITA NO. 7629/MU M/2011 DATED 30.04.2013 V) THE PAPER PRODUCTS LTD. VS. ADDL. CIT - ITA NO. 7761/MUM/2012 DATED 28.03.2014 VI) ECL FINANCE LTD. VS. THE DCIT - ITA NO. 6612/MU M/2011 DATED 30.01.2013 VII) RELIANCE COMMUNICATIONS LTD. VS. CIT - ITA NO. 671/ MUM/2013 DATED 12.02.2014 VIII) DCIT VS. M/S. LAGUNA CLOTHING PVT. LTD. - ITA NO. 6129/MUM/2012 DATED 04.12.2013 9. THE TRIBUNAL, IN M/S. H. DIPAK & CO. - ITA NO. 7 629/MUM/2011 RELATING TO ASSESSMENT YEAR 2008-09, VIDE ORDER DATED 30.04.201 3 OBSERVED AS UNDER: - 8. IN THE CASE OF BANQUE INDOSUEZ (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, THE CO-ORDINATE BENCH OF THIS TRIBUNAL HA D AN OCCASION TO CONSIDER A SIMILAR ISSUE AND THE SAME WAS DECIDED BY THE TRI BUNAL IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF BANK OF BAHRAIN & KUWAIT (SUPRA) AS IS EVIDENT FROM PARA 15 OF THE ORDER OF THE TRIBUNAL PASSED IN THE SAID CASE WHICH IS REPRODUCE D HEREUNDER:- AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSI NG THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ASSESSEE ENTERE D INTO FORWARD FOREIGN EXCHANGE CONTRACT DURING THE YEAR. IN RESPE CT OF THE UNMATURED CONTRACTS AS AT THE YEAR END, THE ASSESSE E VALUED SUCH UNMATURED FORWARD FOREIGN EXCHANGE CONTRACTS AT THE RATE OF EXCHANGE PREVAILING AS AT THE END OF THE YEAR WHICH RESULTED INTO LOSS OF RS. 7.14 CRORE. IT CAN BE CONSIDERED BY WAY OF SIMPLE EXAMPLE. IF THE ASSESSEE UNDERTAKES A FORWARD FOREI GN EXCHANGE CONTRACT AS ON 18TH JANUARY, 1998, ON WHICH THE RAT E OF DOLLAR IS RS. 42. FURTHER SUPPOSE THAT THE CONTRACT IS TO MATURE ON 30TH APRIL AT THE PRICE OF RS. 46 PER DOLLAR. SUPPOSE AT THE END OF THE YEAR 31ST MARCH, THE RATE OF DOLLAR HAS GONE UP TO RS. 43, TH E ASSESSEES CLAIM IS THAT THE DIFFERENCE OF RS. 1 (RS. 43 -42) AS ON 31ST MARCH, 1998 SHOULD BE TAKEN AS LOSS AND ALLOWED DEDUCTION ACCOR DINGLY. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DV. CI T (INTERNATIONAL 6 ITA NO. 7330/MUM/2013 (ASSESSMENT YEAR : 2009-10) TAXATION) V. BANK OF BAH RAIN & KUWAIT [2010] 41 SO T 290 (MUM.) HAS HELD THAT THE LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF EVALUATION OF THE CONTRACT ON THE LAST DAY OF THE A CCOUNTING YEAR I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT , IS ALLOWABLE AS DEDUCTION. IN THAT VIEW OF THE MATTER THIS LOSS OF RS. 7.14 CRORE REPRESENTING DIFFERENCE OF RE. 1 (RS. 43 - 42) IS L IABLE TO BE ALLOWED AS DEDUCTION. 9. IN THE LATEST DECISION RENDERED ON 9TH JANUARY, 2013 IN THE CASE OF SOCIETE GENERALE (SUPRA) CITED BY THE LD. COUNSEL F OR THE ASSESSEE, THE COORDINATE BENCH OF THIS TRIBUNAL HAS AGAIN ALL OWED A SIMILAR CLAIM OF THE ASSESSEE FOR THE LOSS OF RS. 9.16 CROR ES ON FOREIGN EXCHANGE CONTRACTS OUTSTANDING AS ON 31-3-1998 HOLD ING THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF BANK OF BA HRAIN & KUWAIT (SUPRA). IN OUR OPINION, THE ISSUE INVOLVED IN THE PRESENT CASE THUS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY VARIO US JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE AND RESPECTFULLY FOL LOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A ) ALLOWING THE CLAIM OF THE ASSESSEE ON ACCOUNT OF MARKED TO MARK ET LOSS ON REVALUATION OF THE PENDING FORWARD CONTRACT FOR FOR EIGN EXCHANGE. 10. THE ISSUE ARISING IN THE PRESENT APPEAL BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL AND ALSO IN VIEW OF THE RATIO L AID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVER NOR INDIA PVT. LTD. (SUPRA) WHICH SQUARELY COVERS THE ISSUE IN FAVOUR O F THE ASSESSEE, WE UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE ADDITION MA DE ON ACCOUNT OF DISALLOWANCE OF THE LOSS INCURRED ON FORWARD CONTRA CT IN FOREIGN EXCHANGE. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THU S DISMISSED. 11. THE LEARNED D.R. FOR THE REVENUE HAD PLACED REL IANCE ON M/S. VINOD KUMAR DIAMONDS PVT. LTD. (SUPRA). THE SAID DECISION IS CONTRARY TO THE VIEW TAKEN IN BADRIDAS GAURIDU P. LTD. 261 ITR 256 (BOM) . WE FIND NO MERIT IN THE SAID RELIANCE. ALLOWING THE CLAIM OF THE ASSESSEE, WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 12. THE ISSUE IN ITA NO. 7329/MUM/2013 IS IDENTICAL TO THE ISSUE IN ITA NO. 7328/MUM/2013 AND OUR DECISION IN ITA NO. 7328/MUM/ 2013 APPLIES MUTATIS MUTANTS TO THE ISSUE IN ITA NO. 7329/MUM/20 13. 7.2 FOLLOWING THE AFORESAID DECISION OF THE CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S.VENUS JEWEL IN ITA NO. 7328 & 7329/MUM/2013 DATED 31/7/2015, WHICH SQUARELY COVER S THE DISPUTE 7 ITA NO. 7330/MUM/2013 (ASSESSMENT YEAR : 2009-10) IN FAVOUR OF THE ASSESSEE, WE DISMISS THE GROUNDS RAISED AT SL.NO.1 TO 5 BY THE REVENUE IN THIS APPEAL. 8. IN THE RESULT, REVENUES APPEAL FOR ASSESSMENT Y EAR 2009-10 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/01/2016 SD/- SD/- (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 29/01/2016 VM , 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. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI