APL INTERNATIONAL P. LTD, MUMBAI V. ITO WD 3(1)(1), MUMBAI

ITA 795/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83543 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 19-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 02-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Keywords: Business income; Speculation loss
• Section: 27

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE S/SHRI H.L. KARWA, HONBLE PRESIDENT AND N.K . BILLAIYA, AM .. , . . , ./ I.T.A. NO.795 /MUM/2010 ( / ASSESSMENT YEAR : 2005-2006 APL INTERNATIONAL PVT. LTD., 408, TULSIANI CHAMBERS, NARIMAN POINT, MUMBAI. / VS. THE INCOME TAX OFFICER - WARD 3(1)(1), MUMBAI. ' ./ PAN : AAACA1039Q ( '# / APPELLANT ) .. ( $%'# / RESPONDENT ) ./ I.T.A. NO.3664 /MUM/2012 ( / ASSESSMENT YEAR : 2005-2006 APL INTERNATIONAL PVT. LTD., 408, TULSIANI CHAMBERS, NARIMAN POINT, MUMBAI. / VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 3(1), MUMBAI. ' ./ PAN : AAACA1039Q ( '# / APPELLANT ) .. ( $%'# / RESPONDENT ) A PPELLANT BY SHRI BHUPENDRA SHAH R E SPONDENT BY : SHRI A.K. NAYAK & ' ( )* / DATE OF HEARING : 19-08-2014 +,-. ( )* / DATE OF PRONOUNCEMENT :19-08-2014 [ ITA 795/M/10 & 2664/M/12 2 / / O R D E R PER N.K. BILLAIYA, A.M . : . . , THESE TWO APPEALS BY THE ASSESSEE ARE PREFERRED AG AINST TWO SEPARATE ORDERS OF LD. CIT(A) DATED 7-12-2009 & 9-2-2012 FOR ASSESSMENT YEAR 2005- 06. AS BOTH THESE APPEALS ARE INTER-LINKED, THESE W ERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE AND BREVITY. 3. FIRST, WE SHALL TAKE UP THE APPEAL OF THE ASSESS EE IN ITA NO. 795/MUM/2010. 4. IN THIS APPEAL, THE SOLE GRIEVANCE OF THE ASSESS EE IS THAT THE LD. CIT(A) ERRED IN CONSIDERING THE FOREIGN EXCHANGE FLUCTUATI ON LOSS OF RS. 26,78,163/- AS A SPECULATION LOSS. THE ASSESSEE IS ENGAGED IN T HE BUSINESS OF IMPORT OF EDIBLE OIL AND EXPORT OF SOYA ETC. THE RETURN OF I NCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 25-10-2005 DECLARI NG INCOME OF RS. 9,82,577/-. THE RETURN WAS SELECTED FOR SCRUTINY AS SESSMENT. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS ENTERED INTO FORWARD CONTRACT. THE ASSESSEE WAS ASKED TO EXPLAIN THE DIFFERENCE BETWEEN FORWARD BOOKING INCOME AND EXPEN SES WHICH HAS RESULTED IN LOSS OF RS. 26,78,163/-. THE ASSESSEE EXPLAINED THAT IT IS ENGAGED IN THE BUSINESS OF IMPORT OF EDIBLE OIL AND EXPORT OF SOYA D.O.C. AND OTHER COMMODITIES. AS PER THE NORMAL COMMERCIAL PRACTICE, THE OVERSEAS SUPPLIERS HAVE AGREED TO ACCEPT THE LETTER OF CREDIT FOR A PE RIOD NOT EXCEEDING 180 DAYS. ON THE MATURITY OF THE DATE OF THE RELEVANT DOCUMEN TS, THE OVERSEAS COMPANY MAKES THE PAYMENT OF BOTH THE PRINCIPAL AND THE INT EREST AND THE PAYMENT IS MADE IN US DOLLAR ONLY FOR WHICH THE ASSESSEE IS PU RCHASING US DOLLAR FOR A PARTICULAR MATURITY DATE IN FORWARDS. IT WAS EXPLA INED THAT THE FLUCTUATION IS ON THE ACCOUNT OF DIFFERENCE IN THE VALUE OF FOREIG N CURRENCY AND ALSO ON ACCOUNT OF FORWARD PREMIUM PAID FOR BOOKING OF THE US DOLLAR FOR LIQUIDATION ITA 795/M/10 & 2664/M/12 3 OF LOANS. IT WAS FURTHER EXPLAINED THAT UP TO A.Y. 2004-05, THE US DOLLAR WAS STRONG AND INDIAN RUPEES IN COMPARISON TO US DOLLAR WAS WEAK AND HENCE THE ASSESSEE COMPANY GAIN FOREIGN EXCHANGE FLUCTUATION. IN A.Y. 2005-06 THE US DOLLAR WAS WEAK AND INDIAN RUPEES WAS STRONG AND HE NCE THE EXPORT REALIZATION RECEIVED BECOME LESS ON ACCOUNT OF FORE IGN EXCHANGE. THE ASSESSEE FILED A DETAILED CHART EXPLAINING THE TRANSACTIONS. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, THE A.O. WAS OF THE OPINION THAT T HE LOSS ARISING OUT OF THIS IS NOTHING BUT A SPECULATION LOSS AND THEREFORE THE SAME CANNOT BE ALLOWED AGAINST THE BUSINESS INCOME OF THE ASSESSEE. THE A .O. ALSO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 19 61. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. BEFORE US, THE LD. COUNSEL FOR THE ASSESS EE REITERATED THE SAME SUBMISSIONS THAT HAS BEEN SUBMITTED BEFORE THE LOWE R AUTHORITIES. 6. THE LD. D.R., ON THE OTHER HAND, STRONGLY SUPPOR TED THE FINDINGS OF THE REVENUE AUTHORITIES. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT MATERIAL EVIDENCE BROUGHT BEFORE US. IT IS AN UNDISPUTED FACT THAT WHEN A BUSINESSMAN IS ENGAGED IN THE BUSINESS OF IM PORT AND EXPORT, AS A PRECAUTIONARY MEASURE, THE LOSSES DUE TO FOREIGN EX CHANGE FLUCTUATIONS ON THE EXPORT PROCEEDS ARE TO BE CONSIDERED AS INCIDEN TAL/INTEGRAL TO THE EXPORTS ACTIVITY, THEREFORE, THE LOSSES OR GAINS CONSTITUTE THE BUSINESS LOSS OR GAINS AND NOT THE SPECULATION ACTIVITY. THEREFORE, THE L OSS ARISING FROM CANCELLATION OF THE MATURED CONTRACTS ARE NOT PRE-MATURE CANCELL ATION BY THE ASSESSEE AND THEREFORE, THE SAID LOSS, BEING RELATED TO THE FORE IGN CURRENCIES WHICH ARE INTEGRAL/INCIDENTAL TO THE EXPORT/IMPORT BUSINESS S HOULD BE ALLOWED AS A BUSINESS LOSS. A SIMILAR VIEW WAS TAKEN BY THE MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) P. L TD. VS. DCIT, 38 TAXMANN.COM 338 (MUMBAI (TRIB) WHEREIN THE TRIBUNAL HAS HELD :- ITA 795/M/10 & 2664/M/12 4 FORWARD CONTRACT TRANSACTIONS, WHEN ENTERED INTO W ITH THE BANKS FOR HEDGING THE LOSSES DUE TO FOREIGN EXCHANGE FLUCTUAT IONS ON THE EXPORT PROCEEDS, ARE TO BE CONSIDERED INTEGRAL OR INCIDENT AL TO THE EXPORT ACTIVITY OF THE ASSESSEE AND ACCORDINGLY, THE LOSSES OR GAIN S ARISING FROM SUCH CONTRACTS CONSTITUTE THE BUSINESS LOSS OR GAINS AND NOT THE SPECULATION ACTIVITIES. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL (SUPRA), WE SET ASIDE THE FI NDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO ALLOW THE LOSS OF RS. 26,78,163/ - AS BUSINESS LOSS. THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 795/MUM/201 0 IS ACCORDINGLY ALLOWED. ITA NO. 3664/MUM/2012. 8 THIS APPEAL BY THE ASSESSEE IS AGAINST THE LEVY O F PENALTY IMPOSED BY THE A.O. U/S 271(1)(C) OF THE INCOME TAX ACT, 1961. 9. IN ITA NO. 795/MUM/2010, WE HAVE DELETED THE DIS ALLOWANCE MADE BY THE A.O. SINCE THE BASIS FOR THE LEVY OF PENALTY N O MORE EXISTS, WE ACCORDINGLY DIRECT THE A.O. TO DELETE THE PENALTY LEVIED U/S 27 1(1)(C) OF THE ACT. ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IN IT A NO. 3664/MUM/12 IS ALLOWED. 10. IN THE RESULT, APPEALS FILED BY THE ASSESSEE AR E ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH AUGUST, 2014. / ( +,-. & 0 1 2 3 19-8-2014 , ( 4' SD/- SD/- (H.L. KARWA) (N.K. BILLAIYA ) /PRESIDENT ACCOUNTANT MEMBER & ' MUMBAI ; 2 DATED 19-8-2014. [ ITA 795/M/10 & 2664/M/12 5 .D../ R.K. , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '# / THE APPELLANT 2. $%'# / THE RESPONDENT. 3. & E) ( ) / THE CIT(A) - 7, MUMBAI 4. & E) / CIT- 3, MUMBAI 5. HI4 $D)DJK , * JK. , & ' / DR, ITAT, MUMBAI G BENCH 6. 4L M' / GUARD FILE. ! ( / BY ORDER, %H) $D) //TRUE COPY// )/(* + ( DY./ASSTT. REGISTRAR) , & ' / ITAT, MUMBAI