Dy.CIT, Circle-3(3),, Hyderabad v. M/s VST Distribution, Storage & Leasing Company Pvt.Ltd.,, Hyderabad

ITA 1602/HYD/2013 | 2007-2008
Pronouncement Date: 23-04-2014 | Result: Dismissed

Appeal Details

RSA Number 160222514 RSA 2013
Assessee PAN AAACV6801H
Bench Hyderabad
Appeal Number ITA 1602/HYD/2013
Duration Of Justice 4 month(s) 26 day(s)
Appellant Dy.CIT, Circle-3(3),, Hyderabad
Respondent M/s VST Distribution, Storage & Leasing Company Pvt.Ltd.,, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 23-04-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 23-04-2014
Assessment Year 2007-2008
Appeal Filed On 27-11-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER ITA NOS. 1602 & 1604/HYD/2013 ASSESSMENT YEARS: 2007-08 AND 2009-10 DY. COMMISSIONER OF INCOME-TAX APPEL LANT CIRCLE 3(3) HYDERABAD. VS. M/S VST DISTRIBUTION STORAGE & LEASING CO. PVT. LTD. RESPONDENT HYDERABAD (PAN AAACV6801H) ITA NO. 1603/HYD/2013 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME-TAX APPEL LANT CIRCLE 3(3) HYDERABAD. VS. M/S VST INDUSTRIES LTD. RESPONDENT HYDERABAD (PAN AAACV6799) REVENUE BY : SHRI JEEVAN LAL LAVIDIYA ASSESSEE BY : SHRI T.S. AJAI DATE OF HEARING : 26/03/2014 DATE OF PRONOUNCEMENT : 23/04/ 2014 ORDER PER SAKTIJIT DEY J.M.: ITA NOS. 1602 & 1602/HYD/2013 PERTAINING TO ONE A SSESSEE I.E. M/S VST DISTRIBUTION STORAGE & LEASING CO. PV T. LTD. ARE FILED ITA NOS. 1602 TO 1604/HYD/13 M/S VST DISTRIBUTION STORAGE AND LEASING CO.PVT. LT D. & M/S VST INDUSTRIES LTD. 2 BY REVENUE AGAINST A COMMON ORDER DATED 20/09/2013 OF CIT(A)-IV HYDERABAD FOR AYS. 2007-08 AND 2009-10. APPEAL IN I TA NO. 1603/HYD/13 IS ALSO FILED BY THE REVENUE AGAINST TH E ORDER OF THE CIT(A)-IV HYDERABAD DATED 20/09/2013 FOR AY 2007-0 8 IN CASE OF M/S VST INDUSTRIES LTD. AS IDENTICAL ISSUES ARE INV OLVED IN THESE APPEALS THEY WERE CLUBBED AND HEARD TOGETHER THER EFORE A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. ITA NOS. 1602 & 1603/HYD/2013 2. BRIEFLY THE FACTS ARE THE ONLY ISSUE IN BOTH TH E APPEALS IS THE DISALLOWANCE OF DEPRECIATION ON TIME SHARE RIGHTS F OR A TOTAL OF 122 WEEKS IN A YEAR ON RESORTS AT KODAIKANAL OWNED AND RUN BY WOODLAND RESORTS PVT. LTD. (WRPL) RECEIVED AS PART OF LOAN SETTLEMENT WITH WRPL. THE AO HELD THAT THE ASSESSE E HAD FAILED TO JUSTIFY THE COMMERCIAL PURPOSE THAT THESE RIGHTS SE RVED AND THAT THESE RIGHTS MERELY PERMITTED THE ASSESSEE TO OCCUP Y THE RESORTS FOR A CERTAIN PERIOD EVERY YEAR AND DID NOT CONFER ANY OWNERSHIP RIGHTS ON THE ASSESSEE. THE AO THEREFORE DISALLOWED THE CLAIM OF DEPRECIATION ON THESE RIGHTS. 3. ON APPEAL BEFORE THE CIT(A) THE AR HAS SUBMITTE D THAT THIS ISSUE HAD BEEN THE SUBJECT MATTER OF APPEAL FOR THE AY 2005-06 AND THAT THE ITAT IN ITS ORDER IN ITA NO. 98/HYD/2010 DTD. 16/07/2012 HAD ALLOWED THE CLAIM OF DEPRECIATION ON THESE TIME SHARE RIGHTS. THE CIT(A) FOLLOWING THE SAID ORDER OF THE ITAT DI RECTED THE AO TO ALLOW DEPRECIATION ON THE TIME SHARE RIGHTS. ITA NOS. 1602 TO 1604/HYD/13 M/S VST DISTRIBUTION STORAGE AND LEASING CO.PVT. LT D. & M/S VST INDUSTRIES LTD. 3 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E IS IN APPEAL BEFORE US RAISING THE FOLLOWING EFFECTIVE GROUNDS WHICH ARE COMMON IN BOTH THE APPEALS: 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT TH AT THE ASSET TIME SHARE RIGHTS HAS NOT BEEN USED FOR THE BUSINESS AND NO INCOME WAS DECLARED FROM SUCH ASSET. 3. THE CIT(A) OUGHT TO HAVE SUSTAINED THE DISALLOWA NCE OF DEPRECIATION ON TIME SHARE RIGHTS. 4. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT TH AT THE TOTAL DEPRECIATION CLAIMED BY THE ASSESSEE AND ITS DEBTOR ON THE SINGLE ASSET TIME SHARE RIGHTS EXCEEDED THE ALLOW ABLE DEPRECIATION FOR EACH YEAR. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE RE VENUE AUTHORITIES. WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2 005-06 IN ITA NO. 98/HYD/2010 AND THE TRIBUNAL VIDE ITS ORDER DAT ED 16/07/2012 HELD AS FOLLOWS: 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. THE OBJECTION OF THE ASSESSING O FFICER SEEMS TO BE THAT RUNNING OF RESORTS IS NOT THE BUSINESS O F THE ASSESSEE. WE FIND THAT THE ASSESSEE COMPANY HAD TAK EN UP THE BUSINESS OF TIME SHARE RIGHTS IN ACCORDANCE WITH IT S MAIN OBJECTS CONTAINED IN CLAUSE 3 OF MEMORANDUM OF ASS OCIATION WHICH IS AS FOLLOWS: TO CARRY ON THE BUSINESS OF ARRANGING ON LEASE HI RE PURCHASES REC PAYMENT SYSTEM OF INSTALLMENTS AND CONTRACT SUPPLY AND DEAL IN LAND BUILDINGS IMMOVABLE REAL E STATES ETC. 8. IN OUR OPINION ACQUIRING OF TIME SHARE RIGHTS W AS WITH A VIEW TO CARRY ON THE BUSINESS AND THE ASSETS HAVE B EEN PUT TO USE FOR THE PURPOSE OF BUSINESS AND HENCE DEPRECIAT ION IS ALLOWABLE ON THE SAME. OUR OPINION IS FORTIFIED BY THE DECISION ITA NOS. 1602 TO 1604/HYD/13 M/S VST DISTRIBUTION STORAGE AND LEASING CO.PVT. LT D. & M/S VST INDUSTRIES LTD. 4 IN THE CASE OF JEYPORE SUGAR CO. LTD. VS. ACIT 44 SOT 625 (VIZAG) WHERE IN IT HAS BEEN HELD AS FOLLOWS:- COMMERCIAL RIGHTS CONFERS UPON THE PURCHASER A RIG HT TO CARRY ON ITS TRADE IN A PARTICULAR MANNER ARE AKIN TO THE KNOW-HOW PATENTS COPYRIGHTS TRADE MARKS LICENSE FRANCHISES ETC. . THAT IS WHY THEIR LORDSHIP OF THE APEX COURT IN THE CASE OF TECHNO SHARES & STOCKS LTD. (S UPRA) HAVE HELD THAT MEMBERSHIP OF A STOCK EXCHANGE WHICH CONFERS THE RIGHT UPON THE ASSESSEE TO TRADE IS ENT ITLED FOR DEPRECIATION BEING A COMMERCIAL RIGHT OF SIMILA R NATURE AS THAT KNOW-HOW PATENTS COPYRIGHTS TRADEMARKS LICENSE FRANCHISES. SIMILAR WAS THE CA SE OF B. RAVINDRAN PILLAI (SUPRA) IN WHICH THE ENTIRE HOS PITAL ALONG WITH ITS LOGO AND TRADEMARK STAFF EQUIPMENT S AS A GOING CONCERN WAS PURCHASED. EXCEPT THE PURCHASERS AND THE SELLER SALE WAS NOT KNOWN RATHER TO THE PATIENT S. THE ENTIRE MANAGEMENT OF THE HOSPITAL IS CHANGED IN HAN DS ON ACCOUNT OF ITS SALE. THEREFORE THEIR LORDSHIP HAVE HELD THAT THE GOODWILL COMPRISE OF NAME OF THE HOSPITAL LOGO TRADEMARK STAFF EQUIPMENTS ETC. IS ENTITLED FOR DEPRECIATION. SIMILAR WAS THE CASE OF KOTAK FOREX BROKERAGE LTD.(SUPRA) WHERE THE COMPANY WAS SOLD ALONG WITH I TS NAME TRADEMARK AND ALL ASSETS. BUT IN OTHER CASES IN WHICH THE TRIBUNAL HAS HELD T HAT GOODWILL IS NOT ENTITLED FOR DEPRECIATION UNDER SEC TION 32(1)(II) OF THE ACT THE ENTIRE COMPANY WAS NOT SO LD AS A GOING CONCERN ALONG WITH ITS NAME TRADEMARK LOGO ETC. IN THOSE CASES ASSESSEE HAS CLAIMED THE DEPRECIATIO N ON ONE OF THE COMPONENT OF THE GOODWILL WHICH WAS IN F ACT A COMMERCIAL BENEFIT AND NOT THE COMMERCIAL RIGHT. THEREFORE THE TRIBUNAL HAS RIGHTLY HELD THAT THE DEPRECIATION IS NOT ALLOWABLE ON THE GOODWILL. 9. RESPECTFULLY FOLLOWING THE DECISION IN THE CASE OF JEYPORE SUGAR CO. LTD. (SUPRA) WE SET ASIDE THE ORDER OF T HE CIT(A) AND ALLOW THE CLAIM OF DEPRECIATION OF RS. 24 25 00 0/- ON TIME SHARE RIGHTS. ACCORDINGLY THE GROUNDS OF APPEAL RA ISED ON THIS ISSUE ARE ALLOWED. ITA NOS. 1602 TO 1604/HYD/13 M/S VST DISTRIBUTION STORAGE AND LEASING CO.PVT. LT D. & M/S VST INDUSTRIES LTD. 5 6. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY I DENTICAL TO THAT OF THE CASE DECIDED BY THE TRIBUNAL IN ASSESSEES O WN CASE FOR AY 2005-06(SUPRA) RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL WE UPHOLD THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO ALLOW DEPRECIATION ON THE TIME SHARE RIGHTS AS THE CIT(A) FOLLOWED THE SAID DECISION OF THE TRIBUNAL. THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED IN BOTH THE APPEALS. 7. IN THE RESULT ITA NO. 1602 & 1604/HYD/2013 ARE DISMISSED. ITA NO. 1603/HYD/2013 8. THE ONLY ISSUE IN THIS APPEAL IS THE DISALLOWANC E OF THE MTM LOSS OF RS. 1 69 99 893 ON FORWARD COVERS. THE ASSE SSEE HAD OUTSTANDING FORWARD CONTRACTS OF $66 75 000 @ RS. 4 7.5739 AMOUNTING TO RS. 31 75 56 000 TAKEN DURING THE YEAR . THE MARKET VALUE AS ON 31/03/2009 WAS RS. 33 85 56 000. THE DI FFERENCE OF RS. 2 10 00 000 HAD BEEN RECOGNIZED IN THE P&L A/C AS A MARKED TO MARKET LOSS. THE ASSESSEE HAD ALSO ACCOUNTED A LOSS OF RS. 40 00 107 IN THE AY 2008-09 WHICH HAD NOT BEEN ACCE PTED BY THE AO AND WAS REVERSED IN THE AY 2009-10 AND THE ACTUA L GAIN/LOSS ACCOUNTED UPON UTILIZATION OF THE SAME AGAINST THE ACTUAL REALIZATION OF USD. THIS RESULTED IN A NET MTM LOSS OF RS. 1 69 99 893/-. 9. BEFORE THE AO THE ASSESSEE HAD SUBMITTED THAT T HE OBJECTIVE OF TAKING THE FORWARD CONTRACTS WAS TO PROTECT IT A GAINST ADVERSE CURRENCY MOVEMENT BETWEEN THE DATE OF EXPORTING GOO DS AND DATE OF REALIZATION OF EXPORT PROCEEDS AND THAT THE ACCO UNTING OF SUCH LOSSES WAS IN ACCORDANCE WITH THE ACCOUNTING STANDA RDS (AS-11). ITA NOS. 1602 TO 1604/HYD/13 M/S VST DISTRIBUTION STORAGE AND LEASING CO.PVT. LT D. & M/S VST INDUSTRIES LTD. 6 THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA P. LTD. [2009] 312 ITR 254(SC) WHICH WAS ALSO FOLLOWED IN THE CASE OF DCIT VS. BANK OF BAHRAIN AN D KUWAIT (ITA NOS. 4404 & 1883/MUM/2004(SB). THE AO HOWEVER DI D NOT ACCEPT THE ASSESSEES PLEA AND RELIED ON THE INSTRUCTION N O. 3 OF 2010 DATED 23/03/2010 AND DISALLOWED THE CLAIM. 10. ON APPEAL BEFORE THE CIT(A) THE ASSESSEE SUBMI TTED THAT THIS ISSUE WAS THE SUBJECT MATTER OF APPEAL BEFORE THE I TAT FOR AY 2008- 09 IN ITA NO. 647/H/2012 IN ASSESSEES OWN CASE AN D THE ITAT IN ITS ORDER DATED HELD THE LOSS TO BE AN ALLOWABLE LO SS. THE CIT(A) FOLLOWING THE SAID DECISION OF THE ITAT DIRECTED TH E AO TO DELETE THE DISALLOWANCE OF RS. 1 69 99 893/-. 11. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING EFFECTIVE GROUNDS: 2. THE CIT(A) OUGHT NOT TO HAVE FOLLOWED THE DECISI ON OF THE ITAT HYDERABAD WHICH WAS BASED ON THE DECISION OF THE COURTS PRONOUNCED BEFORE THE ISSUE OF INSTRUCTION NO. 3 OF 2010 DATED 23/03/2010. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT TH AT CIRCULARS ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES U/S 119 OF THE ACT ARE BINDING. 12. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MAT ERIALS ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REVE NUE AUTHORITIES. WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATIO N BEFORE THE COORDINATE BENCH OF ITAT HYDERABAD IN ASSESSEES O WN CASE FOR AY 2008-09 (SUPRA) AND THE ITAT HELD AS FOLLOWS: 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF THE PAR TIES AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THE ASSESSEE IS NO T A DEALER IN FOREIGN EXCHANGE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URING AND SALE OF CIGARETTES ITA NOS. 1602 TO 1604/HYD/13 M/S VST DISTRIBUTION STORAGE AND LEASING CO.PVT. LT D. & M/S VST INDUSTRIES LTD. 7 AND IN THE PROCESS OF ITS BUSINESS ACTIVITY IT EXPO RTS CIGARETTES TO FOREIGN COUNTRIES. IT IS ALSO A FACT THAT FOR THE PURPOSE OF ITS EXPORT/I MPORT ACTIVITIES THE ASSESSEE HAS ENTERED INTO FORWARD CONTRACTS WITH BANKS RELATING TO ITS EXPORT/IMPORT BUSINESS TRANSACTIONS. THE CIT (A) HAS ALSO ACCEPTED THIS PO SITION BY OBSERVING THAT THE FORWARD CONTRACT IN CASE OF THE ASSESSEE WAS ENTERE D INTO IN THE ORDINARY COURSE OF BUSINESS IN RESPECT OF UNDERLYING IMPORT/EXPORT BUS INESS TRANSACTIONS OF THE ASSESSEE. HAVING COME TO SUCH A CONCLUSION THE CIT (A) WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF LOSS BY TREATING IT AS NOT IONAL AND IN THE NATURE OF DERIVATIVES BY SIMPLY FOLLOWING THE BOARDS INSTRUCTION NO.3 OF 2010 DATED 23-3-2010 ISSUED BY THE CBDT WHICH IN OUR VIEW IS NOT APPLICABLE TO THE ASSESSEE AS IT RELATES TO ONLY DERIVATIVE TRANSACTION WHEREAS THE FORWARD CONTRACT S IN THE CASE OF THE ASSESSEE IS CLEARLY LINKED TO THE EXPORT/IMPORT BUSINESS TRANSA CTIONS OF THE ASSESSEE. IN THE CIRCUMSTANCES IT CANNOT BE SAID THAT THE LOSS IS N OTIONAL. THE CO-ORDINATE BENCH OF THIS TRIBUNAL WHILE CONSIDERING IDENTICAL ISSUE IN CASE OF LEO EDIBLES & FATS LTD. VS. DCIT (ITA NO.396/HYD/2012 DATED 31-5-2013 HELD AS U NDER:-. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY IN THIS CASE THE ASSESSEE IS NOT A DEA LER IN FOREIGN EXCHANGE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EDIBLE O ILS. IN THE COURSE OF IMPORT OF VEGETABLE OIL FROM FOREIGN SUPPLIER THE COMPANY ENTERED INTO A CONTRACT. IF THE ASSESSEE IN ACCORDANCE WITH THE PR OPOSED PURCHASE BOOKED A FOREIGN CURRENCY FORWARD CONTRACT WITH ITS BANKER I N ORDER TO SAFEGUARD THE COMPANYS INTEREST FROM LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION THAT CONTRACT CANNOT FALL UNDER THE PURVIEW OF SECTION 4 3(5) OF THE INCOME TAX ACT. AS PER SECTION 43(5) SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF COMMODITY SETT LED OTHERWISE THEREBY ACTUAL DELIVERY OR TRANSFER OF SUCH COMMODITY. IF A N ASSESSEE IN ORDER TO HEDGE AGAINST THE EXCHANGE FLUCTUATION LOSSES HAD B OOKED FOREIGN EXCHANGE TRANSACTION IN THE FORWARD MARKET WITH THE BANK AND INCURRED ANY LOSS THAT LOSS CANNOT BE CONSIDERED AS SPECULATIVE LOSS AND I T IS A BUSINESS LOSS. IT WAS HELD IN THE CASE OF CIT VS. BADRIDAS GAURIDU PVT. L TD. (2003) 261 ITR 256 (BOM.) (H.C.) BY THE HONBLE BOMBAY HIGH COURT THAT ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE. THE ASSESSEE WAS AN EXP ORTER OF COTTON. IN ORDER TO HEDGE AGAINST THE LOSSES THE ASSESSEE HAD BOOKE D FOREIGN EXCHANGE IN THE FORWARD MARKET WITH THE BANK. HOWEVER THE EXPO RT CONTRACTS ENTERED INTO BY THE ASSESSEE FOR EXPORT OF COTTON IN SOME CASES FAILED. IN THE CIRCUMSTANCES THE ASSESSEE WAS ENTITLED TO CLAIM D EDUCTION IN RESPECT OF PAYMENT MADE ON ACCOUNT OF CANCELLATION OF FORWARD BOOKING OF FOREIGN EXCHANGE WITH BANKS AS A BUSINESS LOSS. 14. FURTHER IN THE CASE OF CIT VS. SOORAJMULL NAGUR MULL (1981) 129 ITR 169 IT HAS BEEN HELD AS FOLLOWS : HERE THERE IS NO FINDING THAT ENTERING INTO FOREIG N EXCHANGE CONTRACT WAS THE NATURE OF THE BUSINESS OF THE ASSESSEE. THIS WAS ON LY AN INCIDENTAL PART OF THE BUSINESS OPERATION FOR THE EXPORT AND IMPORT OF THE GOODS BY THE ASSESSEE. THE ASSESSEE WAS NOT A DEALER IN FOREIGN EXCHANGE C ONTRACTS AS SUCH. FOREIGN EXCHANGE CONTRACTS WERE ONLY INCIDENTAL TO THE ASSESSEE'S REGULAR COURSE OF BUSINESS. THEREFORE ALL THE ARGUMENTS RE GARDING WHETHER IT CONIES WITHIN THE EXPLN. 2 IN OUR OPINION IS NOT QUITE R ELEVANT BECAUSE THE LOSS WAS ITA NOS. 1602 TO 1604/HYD/13 M/S VST DISTRIBUTION STORAGE AND LEASING CO.PVT. LT D. & M/S VST INDUSTRIES LTD. 8 NOT SUSTAINED IN SPECULATIVE TRANSACTIONS WHICH ARE IN THE NATURE OF THE BUSINESS OF THE ASSESSEE. THE AAC HAD MADE A CATEGO RICAL FINDING TO THIS EFFECT IN HIS ORDER WHICH HAS BEEN UPHELD BY THE AP PELLATE TRIBUNAL AND THAT FINDING OF FACT HAS NOT BEEN IN ANY WAY CHALLENGED IN THE QUESTION REFERRED BEFORE US. LEARNED ADVOCATE FOR THE REVENUE DREW OU R ATTENTION TO SECTION 56 OF THE CONTRACT ACT AND SUBMITTED IN AID OF HIS SUB MISSION THAT THERE WAS AN IMPLIED TERM THAT THE ASSESSEE MIGHT NOT BE ABLE TO PERFORM THE FULL EXTENT OF THE AMOUNT COVERED BY THE FOREIGN EXCHANGE CONTRACT . HERE IN THIS CASE THE CONTRACT WAS FOR 1 00 000 AND WHAT THE ASSESSEE PAI D IN FULFILMENT OF THAT OBLIGATION WHICH WAS AN IMPLIED TERM AT THE TIME OF ENTERING INTO THE CONTRACT' DID NOT AMOUNT TO A BREACH OF THE CONTRACT. HE REFE RRED US TO SECTION 56 OF THE CONTRACT ACT AND THE DECISION OF THE SUPREME COURT IN THE CASE OF NAIHATI JUTE MILLS LTD. V. KHYALIRAM JAGANNATH . HE SPECIALLY DREW OUR ATTENTION TO THE OBSERVATIONS APPEARING AT P. 825 (OF SCR) ONWARDS W HERE UNDOUBTEDLY THE QUESTION OF LIQUIDATED DAMAGES AROSE IN THE CASE OF NON PERFORMANCE OF A BREACH OF CONTRACT. SECTION 56 OF THE CONTRACT ACT ITSELF PROVIDES THAT FOR BARGAIN AND IN CERTAIN CONTINGENCIES OF NON-PERFORM ANCE LIQUIDATED DAMAGES MIGHT BE PROVIDED FOR IN THE CONTRACT BUT THE LIQU IDATED DAMAGES PROCEED ON THE BASIS THAT THE CONTRACT HAS BEEN BREACHED BY TH E CONDUCT OF THE PARTIES I.E. THE RIGHTS OF THE PARTIES ARE ADJUSTED IN THE MANNER CONTEMPLATED BY THE PARTIES AT THE TIME OF BARGAIN. AFTER CONSIDERING S EVERAL OTHER DECISIONS THIS VIEW WAS EXPRESSED BY THIS COURT IN THE CASE OF CIT V. PIONEER TRADING CO. P. LTD. [1968] 70 ITR 347 WHERE THIS COURT HELD THAT A CLAIM BASED ON BREACH OF CONTRACT DID NOT COME WITHIN THE MEANING OF ' CONTR ACT SETTLED ' AS USED IN EXPLN. 2 OF S 24(1) OF THE INDIAN I.T. ACT 1922. 'CONTRACT SETTLED' MEANT CONTRACT SETTLED BEFORE BREACH. AFTER BREACH OF CON TRACT THE CAUSE OF ACTION WAS NO LONGER BASED ON THE CONTRACT ITSELF BUT ON I TS BREACH. WHERE THE MONEY WHICH THE ASSESSEE RECEIVED WAS IN SETTLEMENT OF THE AMOUNT OF DAMAGES SUFFERED BY THE ASSESSEE BY REASON OF BREAC H OF THE CONTRACT TO DELIVER IT WAS HELD THAT THE RECEIPT WAS NOT A RE CEIPT FROM A SPECULATIVE TRANSACTION AS DEFINED IN EXPLN. 2 AND THE MONEY RE CEIVED WAS NOT LIABLE TO BE SET OFF AGAINST SPECULATION LOSS OF EARLIER YEAR S. THIS VIEW HAS BEEN CONSISTENTLY FOLLOWED BY THIS COURT. REFERENCE MAY BE MADE TO THE DECISION IN THE CASE OF C1T V. RAMJEEVAN SARAWGEE & SONS [1977] 107 ITR 845 WHERE THIS COURT ALSO CONSIDERED THE DECISION OF THE SUPR EME COURT IN THE CASE OF DAVENPORT & CO. P. LTD. V. CIT [1975] 100 ITR 715 ON WHICH RELIANCE WAS PLACED ON BEHALF OF THE REVENUE AND IT WAS DISTINGU ISHED. WE ARE IN RESPECTFUL AGREEMENT WITH THE OBSERVATIONS OF MR. JUSTICE SEN IN THAT CASE AT P. 849 OF THE REPORT IN SO FAR AS IT DISTINGUISHED THE DECISI ON OF THE SUPREME COURT IN THE CASE OF DAVENPORT & CO. P. LTD. [1975] 100 ITR 715. WE MAY ALSO REFER TO THE DECISION OF THIS COURT IN THE CASE OF CIT V. AR UN GENERAL INDUSTRIES LTD. [1977] 110 ITR 286 WHERE ALL THESE PREVIOUS DECISI ONS OF THIS COURT HAVE BEEN NOTED. EXCEPT THE MADRAS HIGH COURT IN THE CAS E OF R. CHINNASWAMI CHETTIAR V. CIT [1974] 96 ITR 353 ALL OTHER HIGH C OURTS HAVE TAKEN A SIMILAR VIEW. THE DECISION OF THE SUPREME COURT IN THE CASE OF DAVENPORT & CO. P. LTD. [1975] 100 ITR 715 UPON WHICH RELIANCE WAS PLA CED BY LEARNED ADVOCATE FOR THE REVENUE IS IN OUR OPINION NOT RELEVANT IN V IEW OF THE NATURE OF THE TRANSACTION WITH WHICH WE ARE DEALING. FURTHERMORE IN VIEW OF THE CLEAR ITA NOS. 1602 TO 1604/HYD/13 M/S VST DISTRIBUTION STORAGE AND LEASING CO.PVT. LT D. & M/S VST INDUSTRIES LTD. 9 FINDING OF THE AAC AND THE TRIBUNAL WE ARE OF THE OPINION THAT QUESTION NO. 1 MUST BE ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR O F THE ASSESSEE. 15. IN VIEW OF THE ABOVE DISCUSSION IN OUR OPINION THE ASSESSING OFFICER HAS TO SEE THE FORWARD CONTRACT ENTERED BY THE ASSESSE E FOR COVERING RISK OF UNDERLYING TRANSACTION AND SUCH UNDERLYING TRANSACT ION TO BE SEGREGATED AND LOSS ON THESE TRANSACTIONS TO BE CONSIDERED AS BUSI NESS LOSSES. LOSS ON OTHER TRANSACTION WHICH ARE NOT UNDERLYING TRANSACT ION HAS TO BE CONSIDERED AS SPECULATIVE TRANSACTIONS. THE ASSESSEE BEFORE US FILED A CHART SHOWING THE DETAILS OF SPECULATIVE TRANSACTION AT RS.19 63 702/ -. THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE THESE CONTRACTS AND DECIDE ACCO RDINGLY. FOR THIS LIMITED PURPOSE WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND TO DECIDE ACCORDINGLY. 10. THE HONBLE GUJARAT HIGH COURT IN CASE OF FRIEN DS AND FRIENDS SHIPPING PVT. LTD. (TAX APPEAL; NO.251 OF 2010 DATED 23- 8-2011)(SUPRA ) AFTER FOLLOWING THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. BADRIDAS GAURIDA (P) LTD (261 ITR 256) AND THE DECISION OF HONBLE CALCUTTA HIGH COURT IN CASE OF CIT VS. SOORAJMULL NAGARMULL (129 ITR 169) HELD THAT WHEN T HE ASSESSEE IS NOT A DEALER IN FOREIGN EXCHANGE AND FOR THE PURPOSE OF LEDGING THE LOSS DUE TO FLUCTUATION IN FOREIGN EXCHANGE WHILE IMPLEMENTING EXPORT CONTRACT THE AS SESSEE HAD ENTERED INTO THE FORWARD CONTRACT WITH THE BANK THEN THE LOSS ARISI NG AS A RESULT OF SUCH FORWARD CONTRACT CANNOT BE SAID TO BE SPECULATIVE AS PER SE CTION 43(5)(D) OF THE ACT. CONSIDERED IN THE LIGHT OF RATIO IN THE JUDICIAL PR ECEDENTS MENTIONED HEREINABOVE IT IS ADMITTED FACT THAT THE ASSESSEE IS NOT A DEALER IN FOREIGN EXCHANGE BUT ENGAGED IN THE BUSINESS OF EXPORT/IMPORT OF CIGARETTES AND TOB ACCO. IN FACT THE CIT (A) HIMSELF HAS ACCEPTED THE FACT THAT THE FORWARD CONTRACT HAS BEEN ENTERED INTO IN THE ORDINARY COURSE OF ITS BUSINESS IN RESPECT OF UNDERLYING IMP ORT/EXPORT BUSINESS TRANSACTIONS OF THE ASSESSEE. IN THE CIRCUMSTANCES THE LOSS/EXPEND ITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EX CHANGE CANNOT BE CONSIDERED TO BE NOTIONAL BY FOLLOWING THE INSTRUCTION NO.3 OF 2010 OF CBDT. THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT DELHI VS. WOODWARD GO VERNOR INDIA PVT. LTD. (SUPRA) AND INCOME-TAX APPELLATE TRIBUNAL SPECIAL BENCH IN BANK OF BAHRAIN AND KUWAIT (SUPRA) ALSO SUPPORT SUCH A VIEW. THEREFORE CONSID ERING THE CASE OF THE ASSESSEE IN THE LIGHT OF THE LAW PROPOUNDED IN THE JUDICIAL PRE CEDENTS DISCUSSED HEREINABOVE WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO CL AIM THE LOSS OF RS.40 00 107. SO FAR AS THE DECISIONS RELIED UPON BY THE LEARNED DEPARTM ENTAL REPRESENTATIVE ARE CONCERNED THEY DO NOT APPLY TO THE FACTS OF THE PR ESENT CASE. IN AFORESAID VIEW OF THE MATTER WE SET ASIDE THE ORDER OF THE CIT (A) A ND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.40 00 107/-. ITA NOS. 1602 TO 1604/HYD/13 M/S VST DISTRIBUTION STORAGE AND LEASING CO.PVT. LT D. & M/S VST INDUSTRIES LTD. 10 13. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICA L TO THAT OF THE CASE DECIDED BY THE COORDINATE BENCH IN CASE OF ASS ESSEE FOR AY 2008-09(SUPRA) RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO DELETE THE DISALLOWANCE MADE ON THIS COUNT AND DISMISS THE GROUNDS RAISED B Y THE REVENUE. 14. IN THE RESULT APPEAL IN ITA NO. 1603/HYD/2013 IS DISMISSED. 15. TO SUM UP ALL THE THREE APPEALS UNDER CONSIDER ATION ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 23/04/2014. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL M EMBER HYDERABAD DATED: 23 RD APRIL 2014. KV COPY TO:- 1) M/S VST DISTRIBUTION STORAGE AND LEASING CO. PVT. L TD. & M/S VST INDUSTRIES LTD. 1-7-1063/1065 AZAMABAD HYDERABAD 500 020. 2) DCIT CIRCLE 3(3) HYDERABAD 3) THE CIT (A)-IV HYDERABAD 4) THE CIT-III HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE I.T.A.T. HYDERABA D.