ASST CIT 16(3), MUMBAI V. POLAR STAR, MUMBAI

ITA 764/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100612 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 03-02-2014
• Court: TRIBUNAL
• Department Lawyers: S K MAHAPATRA
• Assessee Lawyers: MRS AARTI VISSANJI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO. 764/M/2014 (AY:2009 - 2010 ) I.T.A. NO. 765 /M/2014 (AY:2010 - 201 1 ) ACIT - 16(3), MATRU MANDIR, 2 ND FLOOR, R.NO.206, TARDEO ROAD, MUMBAI - 007. / VS. M/S. POLAR STAR, 247, PANCHRATNA, OPERA HOUSE, MUMBAI - 004. ./ PAN : AAAFP0525F ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : MRS. AARTI VISSANJI / REVENUE BY : SHRI S.K. MAHAPATRA, DR / DATE OF HEARING : 22.07.2015 / DATE OF PRONOUNCEMENT : 05 .08 .2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. BOTH THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE COMMON ORDER OF THE CIT (A) - 27, MUMBAI, DATED 6.11.2013 FOR THE ASSESSMENT YEARS 2009 - 2010 AND 2010 - 2011. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE IDENTICAL, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. 2. SINCE, THE REVENUE RAISED THE IDENTICAL GROUNDS IN BOTH THE APPEALS UNDER CONSIDERATION, FOR THE SAKE OF REFERENCE, THE GROUNDS RAISED IN THE APPEAL ITA NO.764/M/2014 (AY 2009 - 2010) WHICH READ AS UNDER: 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. 6,11,76,098/ - ARISING ON VALUATION OF FORWARD EX CHANGE CONTRACTS ON THE CLOSING DATE OF ACCOUNTING YEAR IS NOT A NOTIONAL LOSS AND, THEREFORE, ALLOWABLE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) WAS RIGHT IN NOT TAKING COGNIZANCE OF THE DECISION OF THE ITAT, E B ENCH, MUMBAI IN ITA NO. 506/MUM/2013 DATED 3.5.2013 IN THE CASE OF M/S S. VINODKUMAR DIAMONDS PVT LTD. 3. THE LD CIT (A) ERRED ON FACTS IN NON - CONFIRMING DISALLOWANCE OF MARK TO MARKET LOSS OF RS. 6,11,76,098/ - ON ACCOUNT OF OUTSTANDING FORWARD CONTRACTS. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DIAMONDS AND SALE OF ELECTRICITY. 2 ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL LOSS OF RS. 5,59,48,109/ - . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 54,24,710/ - . IN THE ASSESSMENT, AO DISALLOWED AN AMOUNT OF RS. 6,11,76,088/ - CLAIMED AS NOTIONAL LOSS ON ACCOUNT OF VALUATION OF FOREIGN EXCHANGE FORWARD CONTRACTS. AGGRIEV ED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) HELD THAT THE ASSESSEE IS ELIGIBLE FOR INCURRING OF LOSSES OF BUSINESS BY WAY OF THE MARK TO MARKET LOSSES ON FORWARD CONTRACT AND PARTLY ALLOWED THE APPEAL. AGGRIEVED WITH THE SAID DECISION OF THE CIT (A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 5. DURING THE PR OCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE GROUNDS AND MENTIONED THAT THE ONLY ISSUE INVOLVED IN THESE APPEALS RELATES TO THE ALLOWABILITY OF MARK - TO - MARKET LOSS ON REVALUATION OF OUTSTANDING FORWARD CONTRACTS ON TH E CLOSURE DATE OF ACCOUNTING YEAR ON NOTIONAL BASIS. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE ORDERS OF THE ITAT, MUMBAI IN THE CASES OF ACIT VS. C.J. EXPORTS IN ITA NO. 2612/M/2013 (AY 2009 - 2010) AND ALSO THE DECISION OF THE TRIBUNAL IN TH E CASE OF RATANDEEP IMPEX VS. ACIT IN ITA NO.4861/M/2011 (AY 2007 - 2008), COPIES OF WHICH ARE MADE AVAILABLE ON RECORD, AND MENTIONED THAT AN IDENTICAL ISSUE WAS ADJUDICATED BY THE TRIBUNAL IN FAVOUR FAVOUR OF THE ASSESSEE AND THE SAID LOSS WAS ALLOWED AS BUSINESS LOSS. HE ALSO RELIED ON THE VARIOUS DECISIONS, WHICH ARE DECIDED IN FAVOUR OF THE ASSESSEE ON IDENTICAL ISSUE. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE MAY BE DECIDED IN FAVOUR OF THE ASSESSEE CONSIDERING THE COMMONNESS OF ISSUE INV OLVED IN THE ABOVE CITED ORDERS OF THE ITAT AND OTHER PRECEDENTS. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE HEARD BOTH PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED DECISIONS OF TH E ITAT AS WELL AS OTHER PRECEDENTS. ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. C.J. EXPORTERS (SUPRA), WHEREIN ONE OF US (AM) IS A PARTY TO THE ORDER, WE FIND THE IDENTICAL ISSUE 3 WAS DECIDED IN FAVOUR OF THE ASSESSEE AND PARA S 4 AND 5 OF THE SAID TRIBUNAL S ORDER ARE RELEVANT IN THIS REGARD. CONSIDERING THE SIGNIFICANCE OF THE SAID DECISION OF THE ITAT AND FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAID PARA S 4 AND 5 ARE EXTRACTED AS UNDER: 4. WE HAVE HEARD THE LD DR AND PER USED THE ORDERS OF THE AO AS WELL AS THE CIT (A) AND FIND THAT THE CIT (A) HAS DISCUSSED THE ISSUE AT LENGTH VIDE PARA 6 OF THE IMPUGNED ORDER. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, RELEVANT PORTION FROM THE SAID PARA 6 OF THE CIT (A)S ORDER IS REP RODUCED HERE UNDER. 6.....AT PRESENT, IT IS NOT THE AOS CASE THAT THE IMPUGNED TRANSACTION IS SPECULATIVE IN NATURE. FURTHER, THE AFORESAID ISSUE OF ALLOWING THE LOSS ON ACCOUNT OF REVALUATION OF PENDING FORWARD CONTRACTS WAS CONSIDERED BY THE HONBL E 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 THE AY 2006 - 2007 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 DCIT VS. BANK OF BAHRAIN. THEREFORE, IN MY CONSIDERED OPINION THE FACTS OF THE APPELLANTS CASE ARE FULLY COVERED BY THE ABOVE CITED DECISIONS OF THE HONBLE SUPREME COURT AND THE ITAT MUMBAI BENCH. ACCORDINGLY, I HOLD THAT THE LOSS INCURRED BY THE APPEL LANT ON RESTATEMENT OF PENDING FORWARD CONTRACT AGREEMENTS AT THE YEAR - END IS AN ALLOWABLE BUSINESS LOSS. APPELLANT SUCCEEDS ON THIS GROUND. 5. FROM THE ABOVE, IT IS EVIDENT THAT THE MARK - TO - MARKET GAIN OR LOSS IS HELD AS ALLOWABLE GAIN OR LOSS AS THE C ASE MAY BE. IN THE INSTANT CASE, LOSS OF RS. 1,06,90,750/ - ARISING ON RE - VALUATION OF FORWARD CONTRACT AGREEMENTS ON 31 ST MARCH, 2009. THUS, THE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND RA ISED BY THE REVENUE IS DISMISSED. 8. FROM THE ABOVE, IT IS EVIDENT THAT THE MARK - TO - MARKET GAIN OR LOSS IS HELD AS ALLOWABLE BUSINESS GAIN OR LOSS AS THE CASE MAY BE. IN THE INSTANT CASE, LOSS OF RS. 6,11,76,088/ - A RISING ON RE - VALUATION OF FORWARD CONTR ACT AGREEMENTS ON 31 ST MARCH, 2009. THUS, THE CIT (A)S ORDER ON THIS ISSUE, FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION, IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE IN BOTH THE APPEALS ARE DISMISSED. 9. I N THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOU NCED IN THE OPEN COURT ON 05 TH AUGUST , 2015. SD/ - SD/ - (AMIT SHUKLA) (D. KARUNAKRA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 5 . 8 .2015 . . ./ OKK , SR. PS 4 / 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, MUMBAI