DCIT 16(3), MUMBAI v. VISHINDAS HOLARAM, MUMBAI

ITA 1592/MUM/2009 | 2004-2005
Pronouncement Date: 13-04-2010 | Result: Dismissed

Appeal Details

RSA Number 159219914 RSA 2009
Assessee PAN AAAFV5230F
Bench Mumbai
Appeal Number ITA 1592/MUM/2009
Duration Of Justice 1 year(s) 1 month(s) 4 day(s)
Appellant DCIT 16(3), MUMBAI
Respondent VISHINDAS HOLARAM, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 13-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 13-04-2010
Date Of Final Hearing 12-04-2010
Next Hearing Date 12-04-2010
Assessment Year 2004-2005
Appeal Filed On 09-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI N.V.VASUDEVAN JM & PRAMOD KUMAR AM & I.T.A.NO.1592/MUM/2009 - A.Y 2004-05 DY. COMMISSIONER OF I.T. 16(3) MUMBAI VS. M/S VASHINDAS HOLARAM 102/115/116 PRASAD CHAMBERS OPERA HOUSE MUMBAI 400 004 PAN NO . AAAFV 5230 F (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ARVIND OJHA. ASSESSEE BY : SHRI ARVIND SONDE. O R D E R PER PRAMOD KUMAR AM: BY WAY OF THIS APPEAL THE AO HAS CALLED INTO QUES TION THE CORRECTNESS OF CIT[A] S ORDER DATED 28 TH DECEMBER 2008 FOR THE A.Y 2004-05 BY RAISING THE FOLLOWING QUESTION: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE HON'BLE ITAT IS JUSTIFIED IN LAW IN HOLDING THAT TH E INCOME ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACT OF RS.1 27 24 4 L77/- SHOULD BE TREATED AS BUSINESS INCOME INSTEAD OF SPECULATIVE I NCOME FOR WORKING OUT THE ELIGIBLE DEDUCTION U/S.80HHC OF THE ACT OV ERLOOKING THE PROVISIONS OF SECTION 45(3) OF THE I.T.ACT? 2. BRIEFLY STATED FACTS OF THE CASE ARE THE ASSES SEE IS ENGAGED INTER ALIA IN THE BUSINESS OF TRADING/EXPORTS OF D IAMONDS. IN THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT THE ASSE SSEE HAS RECEIVED A SUM OF RS.1 27 25 477/- ON ACCOUNT OF FORWARD CO NTRACT CANCELLATION DIFFERENCE INCLUDED IN THE PROFITS WHILE CALCULATI NG DEDUCTION U/S.80HHC OF THE ACT. IN RESPONSE TO THE AOS QUERI ES IN CONNECTION 2 WITH THE SAME IT WAS EXPLAINED BY THE ASSESSEE THA T THE FORWARD CONTRACTS ARE BOOKED TO THE MAXIMUM EXTENT OF EACH EXPORT REALIZATION WHICH ARE DUE DURING THE RELEVANT PERIOD IN ORDER T O MINIMIZE FOREIGN EXCHANGE FLUCTUATION RATE AND ALSO TO MINIMIZE THE RISKS DUE TO FLUCTUATION IN FOREIGN EXCHANGE RATE. IN OTHER WORD S THUS IT WAS CONTENDED THAT THESE FORWARD CONTRACTS ARE TO HEDGE AGAINST THE FLUCTUATIONS IN FOREIGN EXCHANGE IN RESPECT OF BONA FIDE TRANSACTIONS OF THE BUSINESS AND THERE IS NO SCOPE OF ANY SPECULATI VE ACTIVITY IN CONNECTION WITH THE SAME. IN SUPPORT OF THIS PROPOS ITION THAT SUCH FOREIGN EXCHANGE CONTRACTS ARE INTEGRAL PART OF THE BUSINESS AND PROFITS THEREON ARE TO BE TAKEN INTO ACCOUNT AS BUSINESS PR OFITS THE ASSESSEE RELIED UPON THE HON'BLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF CIT VS. BADRIDAS GURDU (P) LTD. [261 ITR 256] AND MUMBAI TRIBUNAL DECISION IN THE CASE OF M/S D.KISHOREL & CO. I.T.A .NO.3883/MUM/97 A.Y 1993-94. THE AO HOWEVER WAS NOT IMPRESSED WIT H THESE SUBMISSIONS. HE WAS OF THE VIEW THAT THE FORWARD CO NTRACTS ARE ENTERED INTO TO EARN EXTRA GAIN OUT OF TRANSACTIONS AND ALS O HELD THAT THE PROFIT EARNED ON CALCULATION OF SUCH CONTRACTS CANNOT BE T REATED AS BUSINESS PROFIT AS THE ASSESSEE IS NOT DEALING IN FOREIGN CU RRENCY. ON THE BASIS OF THIS REASONING AO EXCLUDED THE AMOUNT OF RS.1 2 7 25 477/- AS EXPORT INCOME ELIGIBLE FOR DEDUCTION U/S.80HHC. AG GRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT[A] . TH E LEARNED CIT[A] REVERSED THE ACTION OF THE AO AND OBSERVED AS FOLLO WS- 3 4.6 IT WOULD BE PROPER TO EXAMINE BRIEFLY THE VERY INTENT AND PURPOSE OF ALLOWABILITY OF DEDUCTION ON EXPORT PROF ITS U/S.80HHC OF THE INCOME TAX ACT. THE HON'BLE PARLIAMENT WANTED TO GI VE A BOOST TO EXPORTS AND THEREFORE KEPT THE EXPORT EARNINGS TAX FREE SO THAT FOREIGN EXCHANGE RESERVES OF THE COUNTRY WOULD INCREASE. IN THIS BEGINNING DEDUCTION WAS ALLOWABLE U/S.80HHC TO EXPORTERS IF T HEY HAD EXPORTS DURING THE YEAR. LATER IT WAS FELT THAT PEOPLE STAR TED MISUSING THE PROVISIONS EXPORTERS EXPORTED CLAIMED DEDUCTION U /S.80HHC AND KEPT THE EXPORT SALE PROCEEDS OUTSIDE THE COUNTRY. THE VERY PURPOSE FOR WHICH THE TAX BENEFIT WAS GIVEN GOT DELETED. HE NCE THE SAID SECTION WAS AMENDED AND ANOTHER CONDITION FOR ALLOW ABILITY OF DEDUCTION U/S.80HHC WAS BROUGHT INTO FORCES. AS PER THIS CONDITIONS NOT ONLY EXPORTS HAD TO BE MADE THE SALE PROCEEDS OF SUCH EXPORTS ALSO HAD TO BE BROUGHT INTO THE COUNTRY WITHIN REAS ONABLE TIME I.E. UPTO 30 TH SEPTEMBER OF THE SUBSEQUENT YEAR. NOT ONLY THIS I F THE EXPORTER FOR SOME REASON BEYOND HIS CONTROL COULD NOT BRING THE ENTIRE SALE PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE PERIOD OF SIX MONTHS FROM THE END OF THE RELEVANT PREVIOUS YEAR THE COMMISSIONER OF INCOME-TAX[NOW THE RBI] COULD EXTENT THE TIME FU RTHER TO ENABLE THE EXPORTER TO STILL GET THE BENEFIT OF DEDUCTION U/S. 80HHC. AGGRIEVED BY THE STAND SO TAKEN BY THE LD. CIT[A] THE AO IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF TH E CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. THE LEARNED REPRESENTATIVES FAIRLY AGREE THAT TH E ISSUE IN APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO- ORDINATE BENCHES AS WELL AS BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF BADRIDAS GURDU (P) LTD. [SUPRA] EVEN AS THE LD. DR RATHER DUTIFULLY RELIED UPON THE STAND TAKEN BY THE AO. RESPECTFULLY FOLLOWING THE VIEW OF THE CO-ORDINATE BENCH WE HOLD AND AS WAS ALSO H ELD IN THE CASE OF DCIT VS. SHRI DILIPKUMAR V. LAKHI I.T.A.NO.624/MUM /2007 A.Y 2003- 04 ORDER DATED 11 TH MARCH 2008 WE ARE OF THE CONSIDERED VIEW THAT THE PROFIT ON ACCOUNT OF CANCELLATION OF FOREIGN CO NTRACTS AS LONG AS THE 4 SAME IS ON ACCOUNT OF BONA FIDE EXPORT TRANSACTIONS OF THE ASSESSEE IS IN THE NATURE OF BUSINESS PROFIT AND IS ACCORDINGL Y ELIGIBLE FOR DEDUCTION U/S.80HHC OF THE ACT. IN OUR CONSIDERED V IEW THE PROFITS ON ACCOUNT OF THESE FORWARD CONTRACTS CANNOT BE VIEWED AS A SEPARATE SOURCE OF PROFITS IN ISOLATION WITH THE TRANSACTION S IN RESPECT OF WHICH FORWARD CONTRACTS WERE ENTERED TO HEDGE FOR LOSS ON ACCOUNT OF EXCHANGE FLUCTUATION. VIEWED THUS THESE PROFITS AR E INTEGRAL PART OF THE EXPORT BUSINESS IN RESPECT OF WHICH CONTRACTS WERE ENTERED INTO. WE THEREFORE SEE NO REASON TO INTERFERE WITH THE CONC LUSION ARRIVED AT BY THE LD. CIT[A] . WE APPROVE AND UPHOLD THE ACTION O F THE LD. CIT[A] . 5. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 13 TH DAY OF MARCH 2010. SD/- SD/- (N.V.VASUDEVAN) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI:13 TH MARCH 2010. P/-*