DCIT, Central Circle - 2(2), Kolkata, Kolkata V. M/s. RAJGARIA TIMBERS PRIVTATE LIMITED, Kolkata

ITSSA 38/KOL/2017

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 3761 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 19-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.(SS).A NOS. 37 TO 39/KOL/2017 ASSESSMENT YEARS : 2009- 10, 2011-12 & 2012-13 DCIT, CC-2(2), KOLKATA -VS- M/ S RAJGARIA TIMBERS PVT. LTD. [PAN: AABCR 8486 M] (APPELLANT) (RESPON DENT) FOR THE APPELLANT : SHRI GOULEAN HANGS HING, CIT, DR FOR THE RESPONDENT : NONE DATE OF HEARING : 14.05.2018 DATE OF PRONOUNCEMENT : 25.05.2018 ORDER PER M.BALAGANESH, AM 1. THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAI NST THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -20, KOLKATA [ IN SHORT THE LD CITA] VIDE APPEAL NOS. 387 TO 389/CIT(A)-20/CC-2(2)/15-16 DATE D 08.03.2017 FOR ASST YEARS 2009-10, 2011-12 & 2012-13 RESPECTIVELY. ASSESSMENT S WERE FRAMED BY THE LEARNED DCIT, CC-2(2), KOLKATA [ IN SHORT THE LD AO] U/S 15 3A READ WITH SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) FOR ASST YEARS 2009-10, 2011-12 & 2012-13 RESPECTIVELY. SINCE IDENTICAL FA CTS ARE INVOLVED IN ALL THE APPEALS, THEY ARE TAKEN UP TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. AT THE OUTSET, THERE IS A DELAY OF 8 DAYS IN FIL ING OF THESE APPEALS BY THE REVENUE BEFORE US. WE HAVE GONE THROUGH THE REASON ADDUCED FOR THE DELAY IN THE PETITION OF THE 2 IT(SS)A NOS.37 TO 39/KOL/2017 M/S RAJGARIA TIMBERS PVT. LTD. A.YRS.2009-10,2011-12&2012-13 2 REVENUE AND ARE INCLINED TO ACCEPT THE SAME AND ACC ORDINGLY WE CONDONE THE DELAY OF THE REVENUE IN FILING OF THESE APPEALS AND ADMIT TH E SAME FOR ADJUDICATION. 3. THE ONLY COMMON ISSUE INVOLVED IN THESE APPEALS IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF FOREIGN E XCHANGE LOSS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE FACTS OF ASST YEAR 2009-10 ARE TAKEN UP FOR ADJUDICATION AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE FOR ASST YEARS 2011-12 AND 2012-13 ALSO EXCEPT WITH VARIANCE IN FIGURES. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF TIMBER TRADING. THE LD AO OBSERVED THAT ASSESSEE HAD TRAN SLATED THE RECEIVABLES AND PAYABLES IN FOREIGN CURRENCY AT YEAR END RATES. WHEN QUESTIO NED ABOUT THE SAME, THE ASSESSEE SUBMITTED THAT IT HAD TRANSLATED THE RECEIVABLES AN D PAYABLES IN FOREIGN CURRENCY AT YEAR END RATES IN ACCORDANCE WITH ACCOUNTING STANDARD (A S) 11 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). THE ASSESSE E ALSO PLACED RELIANCE ON THE CIRCULAR NO. 1/2003 DATED 13.1.2003 ISSUED BY THE D EPARTMENT OF COMPANY AFFAIRS TO SUPPORT ITS ACTION. THE LD AO OBSERVED THAT AS PER INSTRUCTION NO. 3/2010 DATED 23.3.2010, MARK TO MARKET IS IN SUBSTANCE A METHO DOLOGY OF ASSIGNING VALUE TO A POSITION HELD IN A FINANCIAL INSTRUMENT BASED ON IT S MARKET PRICE ON THE CLOSING DAY OF THE ACCOUNTING OR REPORTING PERIOD. ESSENTIALLY, MARK TO MARKET IS A CONCEPT UNDER WHICH FINANCIAL INSTRUMENTS ARE VALUED AT MARKET RA TE SO AS TO REPORT THEIR ACTUAL VALUE ON THE REPORTING DATE. THIS IS REQUIRED FROM THE P OINT OF VIEW OF TRANSPARENT ACCOUNTING PRACTICES FOR THE BENEFIT OF THE SHAREHOLDERS OF TH E COMPANY AND ITS OTHER STAKEHOLDERS. WHERE COMPANIES MAKE SUCH AN ADJUSTMENT THROUGH THE IR TRADING OR PROFIT & LOSS ACCOUNT, THEY BOOK A CORRESPONDING LOSS (I.E THE DI FFERENCE BETWEEN THE PURCHASE PRICE AND THE VALUE AS ON THE VALUATION DATE) IN THEIR AC COUNTS. THIS LOSS IS A NOTIONAL LOSS AS NO SALE / CONCLUSION / SETTLEMENT OF CONTRACT HAS T AKEN PLACE AND THE ASSET CONTINUES TO BE OWNED BY THE COMPANY. HE OBSERVED THAT SUCH LOSS WOULD BE CONTINGENT IN NATURE AND 3 IT(SS)A NOS.37 TO 39/KOL/2017 M/S RAJGARIA TIMBERS PVT. LTD. A.YRS.2009-10,2011-12&2012-13 3 CANNOT BE ALLOWED TO BE SET OFF AGAINST THE TAXABLE INCOME. ACCORDINGLY, HE HELD THAT THE LOSS ON ACCOUNT OF REVALUATION OF SUNDRY CREDIT ORS IS A NOTIONAL LOSS WHICH THE ASSESSEE HAS ACTUALLY NOT SUFFERED. CONSEQUENTLY, ON CONVERSION OF CLOSING LIABILITY AT YEAR END RATE, AN AMOUNT OF RS 1,36,20,352/- HAS BE EN DEBITED IN THE PROFIT AND LOSS ACCOUNT WAS DISALLOWED BY THE LD AO IN THE ASSESSME NT. 4. BEFORE THE LD CITA, IT WAS PLEADED THAT THE INST RUCTION NO. 3/2010 DATED 23.3.2010 APPLIES TO FOREIGN EXCHANGE DERIVATIVE TRANSACTIONS ONLY. IN THE INSTANT CASE, THE ASSESSEE HAS REINSTATED ITS ACTUAL PAYABLES IN FORE IGN CURRENCY AT YEAR END EXCHANGE RATE AND RECOGNIZED THE GAIN OR LOSS AS THE CASE MAY BE, THEREFORE, THE SAME CANNOT BE CATEGORIZED AS DERIVATIVE TRANSACTION. THEREFORE T HE GAIN OR LOSS AS THE CASE MAY BE, IS NEITHER NOTIONAL NOR CONTINGENT IN NATURE AS STATED IN CBDT INSTRUCTION. IT IS PURELY EXCHANGE GAIN OR LOSS DUE TO CONVERSION OF ACTUAL P AYABLES IN FOREIGN CURRENCY AT YEAR END EXCHANGE RATE. WITHOUT SUCH CONVERSION, THE TR UE AND FAIR VIEW OF THE ACCOUNTS AT THE YEAR END IS NOT AT ALL POSSIBLE. THE LD CITA A PPRECIATED THE FACTS OF THE ASSESSEES CASE THAT THE ASSESSEE HAD MERELY RESTATED ITS ACTU AL PAYABLES IN FOREIGN CURRENCY AT THE YEAR END EXCHANGE RATE WHICH IS NOT NOTIONAL OR CON TINGENT IN NATURE. HE ALSO OBSERVED THAT THE LD AO HAD ERRONEOUSLY CONSIDERED THE SAME AS MARK TO MARKET LOSS WHICH WOULD AROSE ON FOREIGN EXCHANGE DERIVATIVE CONTRACT . HE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS WOODWARD GOVERNOR INDIA P LTD REPORTED IN 312 ITR 254 (SC) WHEREIN IT WAS H ELD THAT THE LOSS IN FOREIGN EXCHANGE, IF ANY, AT THE END OF THE YEAR, WOULD BE DEDUCTIBLE BY VALUING THE OUTSTANDING LIABILITY AT THE MARKET RATE AS ON THE DATE OF CLOS ING OF ACCOUNTS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US FOR ALL THE THREE YEARS. 5. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE HAV E HEARD THE LD DR. WE FIND THAT THE LD CITA HAD CATEGORICALLY GIVEN A FINDING THAT THE EXCHANGE LOSS DERIVED BY THE ASSESSEE WAS ONLY IN RESPECT OF RESTATEMENT OF ACTUAL PAYABL ES AT YEAR END EXCHANGE RATE AND NOT 4 IT(SS)A NOS.37 TO 39/KOL/2017 M/S RAJGARIA TIMBERS PVT. LTD. A.YRS.2009-10,2011-12&2012-13 4 INCURRED OUT OF FOREIGN EXCHANGE DERIVATIVE CONTRAC TS. THIS FACTUAL FINDING REMAIN UNCONTROVERTED BY THE LD DR BEFORE US. HENCE WE HO LD THAT THE LD CITA HAD RIGHTLY PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF WOODWARD GOVERNOR SUPRA AND GRANTED RELIEF TO THE ASSESSEE, WHICH DOES NOT REQUIRE ANY INTERFERENCE. ACCORDINGLY, THE GROUNDS RAISED BY TH E REVENUE ARE DISMISSED FOR ALL THE YEARS. 6. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED. ORDER PRONOUNCED IN THE COURT ON 25 .05.2018 SD/- SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25.05.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CC-2(2), KOLKATA, AAYAKAR BHAWAN POORVA, 1 10, SHANTIPALLY, KOLKATA- 700107. 2. M/S RAJGARIA TIMBERS PVT. LTD., 67/27, STRAND RO AD, KOLKATKA-700006 3. C.I.T(A)- 4. C.I.T.- KOLKAT A. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S