ASST CIT 16(3), MUMBAI v. VENUS JEWEL, MUMBAI

ITA 7329/MUM/2013 | 2010-2011
Pronouncement Date: 31-07-2015 | Result: Dismissed

Appeal Details

RSA Number 732919914 RSA 2013
Assessee PAN AAAFV0888R
Bench Mumbai
Appeal Number ITA 7329/MUM/2013
Duration Of Justice 1 year(s) 7 month(s) 18 day(s)
Appellant ASST CIT 16(3), MUMBAI
Respondent VENUS JEWEL, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 31-07-2015
Assessment Year 2010-2011
Appeal Filed On 13-12-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH MUMBAI . . BEFORE MS. SUSHMA CHOWLA JM AND SHRI N.K. BILLAIYA AM ./ ITA NO S . 7328 & 7329 /MUM/2013 ( / ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 ) A C I T - 16(3) ROOM NO. 206 2ND FLOOR MATRU MANDIR TARDEO ROAD MUMBAI 400007 / VS. M/S. VENUS JEWEL EC - 5021/22 BHARAT DIAMOND BOURSE BANDRA - KURLA COMPLEX BANDRA MUMBAI 400051 ./ PAN : AAAFV0888R ( / APPELLANT ) .. ( / RESPONDENT ) ./ CO NO. 37/MUM/2015 (IN ITA NO. 7329/MUM/2013) ( / ASSESSMENT YEAR : 2010 - 11 ) M/S. VENUS JEWEL EC - 5021/22 BHARAT DIAMOND BOURSE BANDRA - KURLA COMPLEX BANDRA MUMBAI 400051 / VS. A C I T - 16(3) ROOM NO. 206 2ND FLOOR MATRU MANDIR TARDEO ROAD MUMBAI 400007 ./ PAN : AAAFV0888R ( CROSS OBJECTOR ) .. ( APPELLANT IN APPEAL ) / REVENUE BY : SHRI G.M. DOSS / ASSESSEE BY : SHRI K. SHIVARAM & SHRI RAHUL R. SARDA / DATE OF HEARING : 30.07.2015 / DATE OF PRONOUNCEMENT : 31 .07.2015 / ORDER PER SUSHMA CHOWLA J.M. THESE TWO APP E ALS FILED BY THE REVENUE ARE AGAINST THE CONSOLIDATED ORDER OF THE CIT(A) DATED 16.09.2013 RELATING TO ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT. THE ITA 7328 &7329/M /2013 &CO 3 7/M/2015 M/S. VENUS JEWEL 2 ASSESSEE HAS FIELD CROSS OBJECTIONS AGAINST THE APPEAL FILED BY THE REVENUE RELATING TO ASSESSMENT YEAR 2010 - 11 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT. BOTH THE APPEALS FILED BY THE REVENUE RELATING TO THE SAME ASSESSEE AND THE CROSS OBJE CTIONS FILED BY THE ASSESSEE ON SIMILAR ISSUES WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ISSUE RAISED BY THE REVENUE IN BOTH THE APPEALS RELATING TO ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 ARE IDENTI CAL AND THE GROUNDS OF APPEAL IN ITA 7328/MUM/2013 READ AS UNDER: - 1. WHETHER N THE FACTS AND CIRCUMSTANCES AND IN LAW THE LD. CIT(A) HAS ERRED IN HOLDING THAT MARK TO MARKET LOSS OF RS.66 51 21 162/ - ARISING ON VALUATION OF FORWARD EXCHANGE CONTRACTS ON THE CLOSING DATE OF ACCOUNTING YEAR IS NOT A NOTIONAL LOSS AND THEREFORE ALLOWABLE? 2. WHETHER N THE FACTS AND CIRCUMSTANCES AND IN LAW THE LD. CIT(A) WAS RIGHT IN NOT TAKING COGNIZANCE OF THE DECISION OF THE ITAT E BENCH MUMBAI IN ITA N O. 506/MUM/2013 DATED 03.05.2013 IN THE CASE OF M/S. S. VINDOKUMAR DIAMONDS PVT. LTD.? 3. THE LD CIT (APPEAL) GROSSLY ERRED ON FACTS IN NOT - C0NFIRMING DISALLOWANCE OF MARK TO MARKET LOSS OF RS.66 51 21 162/ - ON ACCOUNT OF OUTSTANDING FORWARD CONTRACTS. 3. TH E LEARNED A.R. FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE IN THE PRESENT APPEAL IS SQUARELY COVERED BY VARIOUS ORDERS OF THE MUMBAI TRIBUNAL IN FAVOUR OF THE ASSESSEE AND ALSO BY THE ORDER OF THE APEX COURT IN THE CASE OF CIT VS. WOODWARD GO VERNOR INDIA PVT. LTD. 294 ITR 451 (SC). IT IS FURTHER POINTED OUT BY THE LEARNED A.R. FOR THE ASSESSEE THAT THE CIT(A) HAD ALLOWED THE APPEAL OF THE ASSESSEE FOLLOWING THE SAID RATIO LAID DOWN BY THE APEX COURT. 4. THE LEARNED D.R. FOR THE REVENUE POINTED OU T THAT THE FACTS OF THE PRESENT CASE ARE AT VARIANCE I.E. THE AO HAD NOTED THAT THERE WERE PENDING CONTRACTS WHICH HAD NOT CONCLUDED AND AS SUCH THE RATIO OF THE EARLIER DECISION WERE NOT APPLICABLE. ANOTHER OBJECTION RAISED BY THE LEARNED D.R. WAS THAT CONTRARY VIEW HAS BEEN TAKEN BY THE MUMBAI BENCHES OF THE ITA 7328 &7329/M /2013 &CO 3 7/M/2015 M/S. VENUS JEWEL 3 TRIBUNAL IN THE CASE OF M/S. VINOD KUMAR DIAMONDS PVT. LTD. IN ITA NO. 506/MUM/2013 DATED 03.05.2013. 5. THE LEARNED A.R. FOR THE ASSESSEE IN REJOINDER POINTED OUT THAT THE ASSESSEE HAS CONSISTENTLY OFFERED PROFIT FROM FOREIGN EXCHANGE DIFFERENCES IN THE EARLIER AND LATER YEARS TO TAX. OUR ATTENTION WAS DRAWN TO THE ORDER OF THE CIT(A) AT PAGE 26 AND IT WAS POINTED OUT THAT ONLY IN THE YEAR UNDER CONSIDERATION THERE WAS LOSS ON ACCOUNT OF FOREIGN EXCH ANGE FLUCTUATIONS WHEREAS IN EACH OF THE YEAR THERE WAS FOREIGN EXCHANGE GAINS. ANOTHER DISTINCTION DRAWN WAS THAT THE TRIBUNAL IN M/S. S. VINOD KUMAR DIAMONDS PVT. LTD. (SURA) HAD ADDRESSED THE ISSUE WHETHER THE LOSS ON FOREIGN EXCHANGE FLUCTUATIONS WAS S PECULATION LOSS OR BUSINESS LOSS AND THE ISSUE WAS NOT REGARDING ALLOWABILITY OF MARK TO MARKET LOSS. IT WAS FURTHER POINTED OUT THAT THE TRIBUNAL HAD ALSO NOT CONSIDERED THE DECISION OF THE APEX COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. (SUPR A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RECORD. BRIEFLY IN THE FACTS OF THE PRESENT CASE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF IMPORT AND EXPORT OF DIAMONDS. THE ASSESSEE HAD ENTERED INTO FORWARD EXCHANGE CONTRACTS WHICH W ERE REVALUED BY IT ON THE CLOSING DAY OF THE ACCOUNTING YEAR. ON SUCH REVALUATION THE ASSES SEE HAD CLAIMED MARK TO MARKET LOSS ON THE SAID FORWARD EXCHANGE CONTRACTS AMOUNTING TO ` 66 51 21 162/ - . THE AO WAS OF THE VIEW THAT THE CONTRACT HAD NOT BEEN SETTLE D AND THE LOSS BEING NOTIONAL THE SAME WAS NOT ALLOWABLE IN THE HANDS OF THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE WAS THAT IT WAS ENGAGED IN THE BUSINESS OF IMPORT OF ROUGH DIAMONDS AND THEREAFTER CUTTING AND POLISHING THE SAME AND EXPORTING THE POLI SHED DIAMONDS. SINCE THE ASSESSEE HAD A VERY SUBSTANTIAL BANK FINANCE IN FOREIGN CURRENCY WHICH IN TURN WAS REQUIRED TO SETTLE ONLY IN FOREIGN CURRENCY. IN ORDER TO SAVE IT FROM EXPOSURE ON ACCOUNT OF FOREIGN EXCHANGE RATES IT HAD ENTERED INTO FORWARD CON TRACT TO HEDGE AGAINST THE RISK OF FLUCTUATIONS IN FOREIGN CURRENCY RATES. THE SAID TRANSACTION OF ENTERING INTO FORWARD CONTRACTS WAS CLAIMED BY THE ASSESSEE TO BE AN INTEGRAL PART AND INCIDENTAL TO EXPORT BUSINESS UNDERTAKEN BY THE ASSESSEE. THE SAID CON TRACTS FOR PURCHASE AND SALE OF FOREIGN CURRENCY WERE ITA 7328 &7329/M /2013 &CO 3 7/M/2015 M/S. VENUS JEWEL 4 MONITORED UNDER VARIOUS REGULATIONS ISSUED BY THE RBI AND ASSESSEE WAS PERMITTED TO ENTER INTO FORWARD EXCHANGE CONTRACTS BECAUSE OF ITS EXPORT ACTIVITY. ASSESSEE WAS REVALUING ALL THE MONITORY ASSETS AND LIABILITIES OUTSTANDING AT THE END OF THE YEAR FOLLOWING AS - 11 AND RECOGNIZING THE PROFIT/LOSS DURING THE YEAR. IT MAY BE NOTED THAT FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD BOOKED LOSS ON ACCOUNT OF FORWARD CONTRACT IN FOREIGN EXCHANGE. HOWEV ER BOTH IN THE PRECEDING YEAR S AND IN THE SUCCEEDING YEAR S ASSESSEE HAD GAIN ON SUCH FORWARD CONTRACTS WHICH WAS ASSESSED AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. THE AO REJECTED THE CLAIM OF THE ASSESSEE BECAUSE IT HAS ENTERED INTO MARK TO MARKET LOSS ON FORWARD EXC HANGE CONTRACTS AND DISALLOWED A SUM OF ` 66 51 21 162/ - . THE AO DISALLOWED THE CLAIM OF THE ASSESSEE AS THE SAME HAD NOT BEEN SETTLED AT THE YEAR END AND HENCE THE LOSSES WERE NOT ACTUAL LOSSES. 7. THE CIT(A) EXAMINED THE MATERIAL ON RECOR D AND OBSERVED THAT THE ASSESSEE WAS EXPOSED TO THE RISK ARISING IN FLUCTUATION OUT OF EXCHANGE RATE AND AS A PRUDENT BUSINESS MAN IT WOULD LIKE TO HEDGE ITS RISK. ACCORDINGLY THE ASSESSEE HAD BOOKED THE FORWARD CONTRACT S AND UTILISED THE SAME DURING THE YEAR OR IN THE SUCCEEDING YEARS. THE CIT(A) NOTED THAT THE PATTERN OF THE ASSESSEE REFLECTED THAT IT ENTERED INTO FORWARD CONTRACTS DURING THE NORMAL COURSE OF BUSINESS AND UTILISED THE SAME FOR BUSINESS ALLOWING THEM TO RUN UPTO THE DATE OF CONTRACT. THE ASSESSEE WAS ENGAGED IN THE EXPORT OF DIAMONDS AND THE FORWARDS CONTRACT WAS ENTERED INTO IN RESPECT OF FOREIGN EXCHANGE TO BE RECEIVED AS A RESULT OF EXPORT AND THE SAME WAS DONE TO AVOID THE RISK OF LOSS DUE TO FOREIGN EXCHANGE FLUCTUATIONS. AFTER TAKIN G NOTE OF THE CLAIM OF FORWARD CONTRACTS AND THE ACCOUNTING POLICIES I.E. AS - 11 (REVISED) AND APPLYING THE RATIO LAID DOWN BY THE APEX COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. (SUPRA) THE CLAIM OF THE ASSESSEE WAS ALLOWED BY THE CIT(A) AGAI NST WHICH THE REVENUE IS IN APPEAL. 8. WE FIND THAT THE ISSUE ARISING IN THE PRESENT APPEAL I.E. LOSS ON ACCOUNT OF FORWARD CONTRACT ENTERED INTO BY THE ASSESSEE TO HEDGE AGAINST THE LOSS ARISING ON ACCOUNT OF FLUCTUATIONS IN FOREIGN EXCHANGE AROSE BEFORE ITA 7328 &7329/M /2013 &CO 3 7/M/2015 M/S. VENUS JEWEL 5 TH E TRIBUNAL IN A SERIES OF CASES . THE LEARNED A.R. FOR THE ASSESSEE PLACED RELIANCE UPON THE FOLLOWING DECISIONS OF DIFFERENT BENCHES: I) ACIT VS. M/S. MONARCH GEMS - ITA NO. 2613/MUM/2013 DATED 09.07.2014 II) ACIT VS. M/S. VIMAL EXPORT - ITA NO. 6610/MUM/2012 DA TED 08.01.2014 III) ACIT VS. M/S. RUPAM IMPEX - ITA NO. 4008/MUM/2012 IV) ACIT VS. M/S. H. DIPAK & CO. - ITA NO. 7629/MUM/2011 DATED 30.04.2013 V) THE PAPER PRODUCTS LTD. VS. ADDL. CIT - ITA NO. 7761/MUM/2012 DATED 28.03.2014 VI) ECL FINANCE LTD. VS. THE DCIT - ITA NO. 66 12/MUM/2011 DATED 30.01.2013 VII) RELIANCE COMMUNICATIONS LTD. VS. CIT - ITA NO. 671/MUM/2013 DATED 12.02.2014 VIII) DCIT VS. M/S. LAGUNA CLOTHING PVT. LTD. - ITA NO. 6129/MUM/2012 DATED 04.12.2013 9. THE TRIBUNAL IN M/S. H. DIPAK & CO. - ITA NO. 7629/MUM/2011 RELATING TO ASSESSMENT YEAR 2008 - 09 VIDE ORDER DATED 30.04.2013 OBSERVED AS UNDER: - 8. IN THE CASE OF BANQUE INDOSUEZ (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE THE CO - ORDINATE BENCH OF THIS TRIBUNAL HAD AN OCCASION TO CONSIDER A SIMILAR ISSUE AND THE SAME WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISI ON OF SPECIAL BENCH OF ITAT IN THE CASE OF BANK OF BAHRAIN & KUWAIT (SUPRA) AS IS EVIDENT FROM PARA 15 OF THE ORDER OF THE TRIBUNAL PASSED IN THE SAID CASE WHICH IS REPRODUCED HEREUNDER: - AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ASSESSEE ENTERED INTO FORWARD FOREIGN EXCHANGE CONTRACT DURING THE YEAR. IN RESPECT OF THE UNMATURED CONTRACTS AS AT THE YEAR END THE ASSESSEE VALUED SUCH UNMATURED FORWARD FOREIGN EXCHANGE CONTRACTS AT THE RATE OF EXCH ANGE PREVAILING AS AT THE END OF THE YEAR WHICH RESULTED INTO LOSS OF RS. 7.14 CRORE. IT CAN BE CONSIDERED BY WAY OF SIMPLE EXAMPLE. IF THE ASSESSEE UNDERTAKES A FORWARD FOREIGN EXCHANGE CONTRACT AS ON 18TH JANUARY 1998 ON WHICH THE RATE OF DOLLAR IS RS. 42. FURTHER SUPPOSE THAT THE CONTRACT IS TO MATURE ON 30TH APRIL AT THE PRICE OF RS. 46 PER DOLLAR. SUPPOSE AT THE END OF THE ITA 7328 &7329/M /2013 &CO 3 7/M/2015 M/S. VENUS JEWEL 6 YEAR 31ST MARCH THE RATE OF DOLLAR HAS GONE UP TO RS. 43 THE ASSESSEES CLAIM IS THAT THE DIFFERENCE OF RS. 1 (RS. 43 - 42) AS O N 31ST MARCH 1998 SHOULD BE TAKEN AS LOSS AND ALLOWED DEDUCTION ACCORDINGLY. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DV. CIT (INTERNATIONAL TAXATION) V. BANK OF BAH RAIN & KUWAIT [2010] 41 SOT 290 (MUM.) HAS HELD THAT THE LOSS INCURRED BY THE ASS ESSEE ON ACCOUNT OF EVALUATION OF THE CONTRACT ON THE LAST DAY OF THE ACCOUNTING YEAR I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT IS ALLOWABLE AS DEDUCTION. IN THAT VIEW OF THE MATTER THIS LOSS OF RS. 7.14 CRORE REPRESENTING DIFFERENCE OF RE. 1 (RS. 43 - 42) IS LIABLE TO BE ALLOWED AS DEDUCTION. 9. IN THE LATEST DECISION RENDERED ON 9TH JANUARY 2013 IN THE CASE OF SOCIETE GENERALE (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE THE COORDINATE BENCH OF THIS TRIBUNAL HAS AGAIN ALLOWED A SI MILAR CLAIM OF THE ASSESSEE FOR THE LOSS OF RS. 9.16 CRORES ON FOREIGN EXCHANGE CONTRACTS OUTSTANDING AS ON 31 - 3 - 1998 HOLDING THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF BANK OF BAHRAIN & KUWAIT (SUPRA). IN OUR OPINION THE ISSUE INVOLVED IN THE PRESENT CASE THUS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE AND RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE ON ACCOUNT OF MARKED TO MARKET LOSS ON REVALUATION OF THE PENDING FORWARD CONTRACT FOR FOREIGN EXCHANGE. 10. THE ISSUE ARISING IN THE PRESENT APPEAL BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL AND AL SO IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. (SUPRA) WHICH SQUARELY COVERS THE ISSUE IN FAVOUR OF THE ASSESSEE WE UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE ADDITION MADE ON AC COUNT OF DISALLOWANCE OF THE LOSS INCURRED ON FORWARD CONTRACT IN FOREIGN EXCHANGE. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS DISMISSED. 11. THE LEARNED D.R. FOR THE REVENUE HAD PLACED RELIANCE ON M/S. VINOD KUMAR DIAMONDS PVT. LTD. (SUPRA). THE SAI D DECISION IS CONTRARY TO THE VIEW TAKEN IN BADRIDAS GAURIDU P. LTD. 261 ITR 256 (BOM). WE FIND NO MERIT IN THE SAID RELIANCE. ALLOWING THE CLAIM OF THE ASSESSEE WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 12. THE ISSUE IN ITA NO. 7329/MUM/2013 IS IDENTICAL TO THE ISSUE IN ITA NO. 7328/MUM/2013 AND OUR DECISION IN ITA NO. 7328/MUM/2013 APPLIES MUTATIS MUTANTS TO THE ISSUE IN ITA NO. 7329/MUM/2013. ITA 7328 &7329/M /2013 &CO 3 7/M/2015 M/S. VENUS JEWEL 7 13. NOW COMING TO THE CROSS OBJECTIONS FILED BY THE ASSESSEE THE LEARNED A.R. FOR THE ASSESSEE SUBMITTED THAT THE SAME MAY BE DISMISSED. IN VIEW OF OUR DISMISSING THE APPEALS OF THE REVENUE THE CROSS OBJECTIONS RAISED BY THE ASSESSEE DO NOT SURVIVE AND THE SAME ARE DISMISSED. 14. IN THE RESULT THE APPEALS OF THE REVENUE AS WELL AS THE CROSS OBJECTIONS OF THE ASS ESSEE ARE DISMISSED. / ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY 2015. 31.07.2015 SD/ - SD/ - ( N.K. BILLAIYA ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED: 31 ST JULY 2015 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 27 4. / CIT - 16 5. / DR F BENCH ITAT MUMBAI 6. / GUARD FILE . / BY ORDER //TRUE COPY// /ASSTT. REGISTRAR) /ITAT MUMBAI N.P.