ITO 16(3)(2), MUMBAI v. OSIA GEMS, MUMBAI

ITA 2163/MUM/2013 | 2009-2010
Pronouncement Date: 31-07-2015 | Result: Dismissed

Appeal Details

RSA Number 216319914 RSA 2013
Assessee PAN AAAFO4949C
Bench Mumbai
Appeal Number ITA 2163/MUM/2013
Duration Of Justice 2 year(s) 4 month(s) 12 day(s)
Appellant ITO 16(3)(2), MUMBAI
Respondent OSIA GEMS, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 31-07-2015
Date Of Final Hearing 23-03-2015
Next Hearing Date 23-03-2015
Assessment Year 2009-2010
Appeal Filed On 18-03-2013
Judgment Text
M/S OSIA DIAMONDS ITA 2163 /M/20 13 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI . . BEFORE SHRI G S PANNU ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA JUDICIA L MEMBERITA ITA NO. : 2163 /MUM/20 13 (ASSESSMENT YEAR S : 200 9 - 1 0 ) ITO - 16(3)(2) MATRU MANDIR MUMBAI - 400 007 VS M / S OSIA DIAMONDS 135 SHREEJI CHAMBERS TATA ROAD NO. 1 & 2 OPERA HOUSE MUMBAI - 400 004 .: PAN : AAA FO 4 949 C (APP ELLANT) (RESPONDENT) APPELLANT BY : SHRI PERMANAND J RESPONDENT BY : SHRI K A VAIDYALINGAM /DATE OF HEARING : 30 - 0 6 - 2015 / DATE OF PRONOUNCEMENT : 31 - 07 - 2015 ORDER PER AMIT SHUKLA J.M. : TH E AFORESAID APPEAL HA S BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 13.01.2013 PASSED BY CIT(A) - 27 MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143( 3 ) FOR THE ASSESSMENT YEAR 2009 - 10. THE SOLE GROUND RAIS ED BY THE REVENUE READS AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN HOLDING THAT MARK TO MARKET LOSS OF RS. 1 54 83 835/ - ARISING ON RE - VALUATION OF FORWARD CONTRACT AGREEMENTS ON THE CLOSING DAT E OF ACCOUNT YEAR IS NOT A NOTIONAL LOSS AND THEREFORE ALLOWABLE. 2. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SHRI K A VAIDYALINGAM SUBMITTED THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS OF THE TRIBUNAL . A COMPILATION OF SUCH DECISIONS WERE ALSO FILED. M/S OSIA DIAMONDS ITA 2163 /M/20 13 2 3. ON THE OTHER HAND LD. DR STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 4. THE BRIEF FACTS AS CULLED OUT FROM THE ORDER OF THE CIT(A) ARE AS UNDER: 4.1 APPELLANT IS ENGAGED IN THE BUSINESS OF IMPORT AND EXPORTS OF DIAMONDS. SUBSTANTIAL AMOUNT OF ITS TURNOVER IS DENOMINATED IN FOREIGN CURRENCY. IT ENJOYS WORKING CAPITAL FACILITY FROM BANKS SOME OF WHICH ARE ALSO DENOMINATED IN FOREIGN CURRENCY. IT ALSO CARRIED CURRENCY RISK IN RESPECT OF ITS STOCK AS I T IS MOST LIKELY TO BE SOLD BY WAY OF EXPORTS. SO FORWARD CONTRACTS IN THE INSTANT CASE ARE ENTERED INTO TO HEDGE THESE CURRENCY RISK ASSOCIATED WITH NORMAL BUSINESS TRANSACTION. THESE DERIVATIVE CONTRACTS ARE ENTERED WITHIN THE FRAMEWORK OF RELEVANT RBI GUIDELINES (INCLUDING QUANTUM LIMITS SET BY RBI). THE INTENT OF ENTERING INTO DERIVATIVE CONTRACTS WAS TO SAFEGUARD ITSELF AGAINST EXCHANGE FLUCTUATION RISK OF FOREIGN CURRENCY RECEIVABLES OR PAYABLES. THESE DERIVATIVE TRANSACTIONS HAVE BEEN EITHER IN RESP ECT OF SALE OF FOREIGN CURRENCY IN RESPECT OF ITS EXPOSURE TO FOREIGN CURRENCY RECEIVABLES OR PURCHASE OF FOREIGN CURRENCY IN RESPECT OF ITS EXPOSURE TO FOREIGN CURRENCY PAYABLES. THESE CONTRACTS GENERALLY HAVE A MATURITY PROFILE WHICH COINCIDES WITH EXPEC TED DATES OF FOREIGN CURRENCY RECEIVABLES OR PAYABLES AND THE QUANTUM INVOLVED IN DERIVATIVE CONTRACTS DOES NOT EXCEED THE QUANTUM OF EXPOSURE TO FOREIGN CURRENCY RECEIVABLES/PAYABLES. 4.2 APPELLANT HAS BEEN CONSISTENTLY FOLLOWING THE ACCOUNTING METHOD WH ERE IN YEAR END RESTATEMENT OF MARK TO MARKET GAIN OR LOSS IN RESPECT OF ALL ASSETS OR LIABILITIES DENOMINATED IN FOREIGN CURRENCY I.E. DEBTORS CREDITORS & FORWARD CONTRACTS IS BEING RECOGNIZED AS GAIN OR LOSS IN PROFIT & LOSS ACCOUNT. 4.3 APPELLANT HAS RECOGNIZED GAIN OF RS. 2 41 49 027/ - DURING THE YEAR UNDER CONSIDERATION BY RESTATING THE RECEIVABLES AT CLOSING RATE. THIS GAIN IS ALSO NOT ACTUALLY REALIZED. ACTUAL GAIN MAY BE DIFFERENT AMOUNT DEPENDING ON THE RATE PREVALENT WHEN IT IS ACTUALLY REALIZE D. IF LOSS IN RESPECT OF OUTSTANDING FORWARD CONTRACT IS BEING DISALLOWED ON THE GROUND THAT IT IS NOT ACTUALLY INCURRED OR SUFFERED HOW UNREALIZED GAIN IN RESPECT OF EXPORT RECEIVABLES TO GEDGE AGAINST WHICH SAID FORWARD CONTRACTS WERE ENTERED IN TO CA N BE TAXED? M/S OSIA DIAMONDS ITA 2163 /M/20 13 3 5. THE CIT(A) AFTER DETAILED DISCUSSION AND RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWORD GOVERNOR INDIA P LTD REPORTED IN 312 ITR 254 AND THE DECISION OF ITATS SPECIAL BENCH IN THE CASE OF DCIT VS B ANK OF BHARIN & KUWAIT IN ITA NOS. 4404 AND 1883/MUM/2004 HELD THAT LOSS INCURRED BY THE ASSESSEE ON MARK TO MARKET ARISING FROM THE REVALUATION OF FORWARD CONTRACT AGREEMENTS ON CLOSING DATE OF THE ACCOUNTING YEAR IS ALLOWABLE. 6. WE FIND THAT THIS IS SUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY SERIES OF TRIBUNAL DECISIONS WHEREIN THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF WOODWORD GOVERNOR INDIA P LTD ( SUPRA ) AND SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE BANK OF BHARIN & KUWAIT (SUPRA) HAVE BEEN FOLLOWED. LIST OF SOME OF SUCH DECISIONS ARE AS UNDER: SR. NO. DECISIONS 1 LONDON STAR DIAMOND LTD. VS ACIT IN ITA 6169/M/2012 VIDE ORD. DT. 11.12.2013 2 ACIT VS M/S B RAJIV & CO. IN ITA NO.7095/M/2012 ORD. DT. 12.02.2014 3 ITO V M/S D. CHETAN & CO. IN ITA 4456/M/2012 ORD. DT. 14.08.2013 7. THUS RESPECTFULLY FOLLOWING VARIOUS JUDICIAL PRECEDENCE WE UPHOLD THE ORDER OF THE CIT(A) AS IT IS IN ACCORDANCE WITH THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT ACCORDINGLY GROUND RAI SED BY THE REVENUE IS DISMISSED. 8. IN THE RESULT APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JU LY 2015. SD/ - SD/ - ( . . ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATE: 31 ST JU L Y 2015 / COPY TO: - 1 ) / THE APPELLANT. M/S OSIA DIAMONDS ITA 2163 /M/20 13 4 2 ) / THE RESPONDENT. 3) THE CIT (A) - 27 MUMBAI 4 ) THE CIT 16 MUMBAI . 5 ) / THE D.R. C BENCH MUMBAI. 6 ) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / DY. / ASSTT. REGISTRAR I.T.A.T. MUMBAI * . . *CHAVAN SR.PS