M/s. Dell International Services (India) Private Limited (earlier known as Perot Systems TSI), Bangalore V. Joint Commissioner Of Income Tax (LTU), Bangalore

MA 23/BANG/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4800 (ITAT-BANGALORE)
• Duration Of Justice: 30 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 07-04-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-03-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL

Judgement Text

MP Nos.22 & 23/Bang/2022 M/s. Dell International Services India Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER M.P. Nos.22 & 23/Bang/2022 (Arising out of IT(TP)A Nos.130 & 121/Bang/2014) Assessment Year: 2009-10 & 2009-10 respectively M/s. Dell International Services India Pvt. Ltd. No.12/A, 12/12-A, 13/1-A Divyashree Greens, Challaghatta Village, Varthur Hobli Bangalore 560 071 PAN NO : AAACH1925Q Vs. JCIT, LTU Bangalore APPELLANT RESPONDENT Appellant by : Shri A. Sharath Rao, A.R. Respondent by : Shri T.N. Prakash, D.R. Date of Hearing : 08.04.2022 Date of Pronouncement : 08.04.2022 O R D E R PER GEORGE GEORGE K., JUDICIAL MEMBER: The assessee has filed these miscellaneous applications submitting that there is a mistake apparent from record in the common order dated 22.12.2021 passed by the Tribunal against the appeals mentioned in the caption. 2. The mistake pointed out by the assessee relates to appeal No. IT(TP)A No.130/Bang/2014, being the appeal of the assessee. However, since a common order has been passed against the MP Nos.22 & 23/Bang/2022 M/s. Dell International Services India Pvt. Ltd., Bangalore Page 2 of 6 appeals filed by the assessee as well as revenue, it appears that the assessee has also filed miscellaneous application in respect of appeal of the revenue numbered as IT(TP)A No.121/Bng/2014 also on identical points, out of abandoned caution. Accordingly, the miscellaneous application filed in MP No.23/Bang/2022 does not require specific adjudication and hence we reject the same. 3. The mistake pointed out by the assessee in the order passed by the Tribunal in appeal of the assessee numbered as IT(TP)A No.130/Bang/2014 is that the Tribunal has not adjudicated the ground Nos.5.1 to 5.7 relating to Mark to Market losses. The contentions of the assessee in these grounds are that mark to market losses claimed by the assessee is allowable as deduction, since it relates to the revenue items only. It is pertinent to note that the assessee had raised an alternative contention by way of Additional Ground no.1 stating that if mark to market losses are disallowed, then the total income of the undertakings, which are eligible for deduction u/s 10A of the Income-tax Act,1961 ['the Act' for short] should be increased by the amount of said disallowance for the purpose of computing deduction u/s 10A of the Act. 4. We notice that the Tribunal has adjudicated the issue relating to mark to market losses in paragraph 7 to 7.8 of the order, wherein the Tribunal has accepted the alternative contention of the assessee and accordingly directed the A.O. to grant the benefit of deduction u/s 10A of the Act in respect of disallowance of MTM losses. 5. It is the submission of the assessee in this petition that the main grounds urged in 5.1 to 5.7, which have not been adjudicated by the Tribunal, requires to be adjudicated. It is further submitted that the assessee is operating 5 STP Units, out of which only one MP Nos.22 & 23/Bang/2022 M/s. Dell International Services India Pvt. Ltd., Bangalore Page 3 of 6 unit is eligible for deduction u/s 10A of the Act. Hence the decision given in respect of alternative contention cited above will resolve the problem only in respect of one unit only, while the disallowance made in respect of remaining four units shall remain. Accordingly, it is submitted that disposal of alternative ground of the assessee would not benefit other four STP units. Accordingly, it is submitted that the ground Nos.5.1 to 5.7 urged by the assessee are required to be adjudicated. 6. We heard Ld D.R and he also accepted that the Ground No.5.1 to 5.7 have not been adjudicated. 7. We find merit in the submissions made by the assessee in this miscellaneous petition. Accordingly, we are of the view that the main grounds 5.1 to 5.7 needs to be adjudicated and accordingly proceed to adjudicate the same below. Accordingly, the paragraph 7.7 and 7.8 of our order dated 22.12.2021 are substituted by the following paragraphs:- “7.7 The Ld. A.R. submitted that the mark to market losses claimed by the assessee are all related to the revenue account only, He submitted that the assessee is in export business and accordingly hedged the export receivable by taking forward contracts. As at the year end, i.e., on 31.03.2009 the assessee has revalued the balances of both outstanding export receivables and forward contracts, as per the requirement of accounting standards relating to mercantile system of accounting. The exchange difference on account of valuation of foreign currency transaction has actually resulted in net gain of Rs.5.64 crores as tabulated below:- MP Nos.22 & 23/Bang/2022 M/s. Dell International Services India Pvt. Ltd., Bangalore Page 4 of 6 Particulars Amount (in Rs.) Unrealized Foreign Gain Or loss 610,273,076.64 Unrealized Foreign gain/Loss-EURO (3,285,935.11) Unrealized Foreign Gain/Loss-GBP (150,322.32) Unrealized Foreign Gain/Loss – USD 133,899,168.79 Mark to Market Loss on Forward and Options Contracts (684,273,980.27) Total 56,462,007.73 However, the A.O. has disallowed the loss arising on account of revaluation of forward contracts amounting to Rs.68.42 crores and assessed the gains arising on revaluation of outstanding export receivables. The Ld. A.R. submitted that all the forward contracts are related to export receivables only and hence the loss arising on mark to market loss on forward contract is also related to revenue account. The Ld A.R submitted that the AO has taken the view that the said loss arising on revaluation is a notional or contingent loss. Accordingly he submitted that there is no dispute with regard to the fact that all the assets/liabilities, which have been revalued as at the year end, are revenue assets/liabilities only. The Ld. A.R. submitted that the said loss is allowable as deduction and in this regard, he took support of the decision rendered by coordinate bench in the case of Quality Engineering & Software Technologies Pvt. Ltd. (2014) 52 Taxmann.com 515. 7.8 We heard Ld D.R and perused the record. The Ld. A.R. submitted that the assessee is following mercantile system of accounting and it is required to follow accounting standards while preparing its financial statements. As per the accounting standards, the assessee is required to revalue the outstanding forward contracts also and account for the gain/loss arising on such revaluation as at the balance sheet MP Nos.22 & 23/Bang/2022 M/s. Dell International Services India Pvt. Ltd., Bangalore Page 5 of 6 date. It was further submitted the assessee is following this method of revaluation consistently over the years. The Ld. A.R. also placed reliance on the decision rendered by coordinate bench in the case of Quality Engineering & Software Technologies Pvt. Ltd. (ITA No.257/B/2014) 7.9 We notice that the Tribunal is consistently taking the view that the loss arising on revaluation of outstanding forward contracts entered to safe guard the underlying revenue assets cannot be considered as notional loss and accordingly the same is eligible for deduction while computing total income. The following observations made by the co-ordinate bench in the case of M/s Quality Engineering and software Technologies P Ltd (supra) are relevant:- “4.5.11 As discussed earlier, in the case on hand, there has been an existing contract with a binding obligation accrued against the assessee when it entered into forex forward contracts. The forward contracts are in respect of consideration for export proceeds, which are revenue items. There is an actual contract for sale of merchandise. In this factual matrix, it is clear in our view that the transaction in question will not qualify to be called as speculative transaction. In view of the facts and circumstances of the case on hand, as discussed above, we hold that the provision on derivative contracts is allowable as expenditure. We, accordingly allow the Grounds at S. Nos. 1 to 9 raised by the assessee.” The above said decision rendered by the co-ordinate bench states that the loss arising on reinstatement of a forward contract, whose underlying assets is a revenue item, then it cannot be considered as speculative loss and also not a notional loss. In that case, the loss arising on restatement of forward contract is fully allowable as deduction. Accordingly, the AO was not justified in holding that the loss claimed by the assessee is either notional/contingent loss or speculative MP Nos.22 & 23/Bang/2022 M/s. Dell International Services India Pvt. Ltd., Bangalore Page 6 of 6 loss. Since the loss is related to the revenue assets, the same is allowable as deduction. Accordingly, we direct the AO to delete the disallowance of loss of Rs.68.24 crores. 7.10 Since we have allowed the claim of the assessee while adjudicating ground nos. 5.1 to 5.7, the alternative contention of the assessee does not require adjudication.” 8. In the result, the miscellaneous application No.22/Bang/2022 is allowed and the other miscellaneous application is dismissed as infructuous. Order pronounced in the open court on 8 th Apr, 2022 Sd/- (B.R. Baskaran) Accountant Member Sd/- (George George K. ) Judicial Member Bangalore, Dated 8 th Apr, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.