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Income Tax Appellate Tribunal, “K”, BENCH MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “K”, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM (Assessment Year :2008-09) DCIT, Central Circle – 1(2) Vs. M/s. Uni Design Jewellery Pvt. Mumbai Ltd., Plot No.4,5,6, Uni Design SEEPZ, Andheri (E) Mumbai – 400 096 PAN/GIR No. AAACU0572G Appellant) .. Respondent) Assessee by Shri V. Jenardhanan Revenue by Shri Rakesh Mohan Date of Hearing 20/06/2018 Date of Pronouncement 02/07/2018 आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by Revenue against the order of CIT(A)-58, Mumbai DATED 29/03/2016 for A.Y.2008-09 in the matter of order passed u/s.143(3) r.w.s. 153A and Section 144 C(4) of the IT Act. 2. Following grounds have been taken by the Revenue:- 1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in granting relief to the assessee on the issue of loss on foreign exchange currency forward contracts entered into by it and not appreciating that assessee company failed to discharge the onus cast upon it by the statute to prove that the transactions in question were not of a speculative nature and thus the case of the assessee was not covered by proviso (a) of Section 43(5) of the Income Tax Act, 1961.
2. "Whether the Ld. CIT(A) was right in deciding on fresh facts not raised before the TPO without giving an opportunity to the TPO to examine the same.
M/s. Uni Design Jewellery Pvt. Ltd.,
"Whether the Ld. CIT(A) was right in accepting product dissimilarity claim to reject M/s.Gitanjali Export Corporation Ltd. even when TNMM requires only broad comparability and not product identity. 4. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in granting relief to the assessee without appreciating the fact that Assessing Officer, in view of CBDT Circular No.279/Misc./M-116/2011 opined that deduction u/s. 10A would be allowed, after giving effect to provisions of Section 70 & 71 of the Income Tax Act, 1961." 5. The Appellant craves leave to add, to amend and / or to alter any of the grounds of appeal
, if need be.
6. The Appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)-58, Mumbai may be set aside and that of the Assessing Officer restored.
3. Facts in brief are that the assessee M/s. Uni Design Jewellery Private Limited located at SEEPZ, Mumbai is engaged in the business of manufacturing and exporting of jewellery. The assessee is dominantly into export related manufacturing. The assessee has claimed deduction u/s 10A of the Act. During the year under consideration, the assessee had entered into various international transactions with its Associated Enterprises. uring the course of assessment, AO disallowed Rs.5,34,000/- on account of loss of foreign exchange currency forward contract entered into by the assessee. AO has treated the same as speculation loss not allowable as deduction from business receipts.
4. By the impugned order, CIT(A) deleted the disallowance.
5. We have considered rival contentions and found that this issue is revolving around loss on foreign exchange forward contacts cancelled M/s. Uni Design Jewellery Pvt. Ltd., during the year, whether it is speculative in nature. Identical issue came up before ITAT in assessee's own case for A.Y. 2003-04 (ITA No. 69/Mum/2007) vide order dated 30.10.2009. The issue has been decided in favour of assessee as under: "28. The facts of the case in brief are that miscellaneous income of Rs.9,18,088/-contained an amount of Ks.5,75,958/- which was received on account of cancellation of foreign exchange contract. The Assessing Officer treated the same as 'income from other sources' and did not allow benefit of deduction under section WA of the l.T. Act. In appeal, the CIT(A) upheld the action of the Assessing Officer. Aggrieved with such order of the CIT(A), the assessee is in appeal before us.
The learned counsel for the assessee submitted that the assessee in order to hedge against any losses entered into these transactions and therefore, it cannot be treated as speculation transaction. Rejerring to the decision of the Tribunal in the case ofACIT Vs. Mahendra Brothers in & 948/Mum/06 vide order dated 29.4.2009 for the assessment years 2001-02 & 2003-04 respectively, she submitted that the Tribunal in the said decision, following the decision of the Hon'ble High Court of Kolkata in the case of CIT Vs. Soorajmull Nagarmuli reported in 129 ITR 169 (Bom) and the decision of Hon'ble Bombay High Court in the case of CIT Vs. Badridas Gauridu (I) Ltd., 261 ITR 256 (Bom) had dismissed the appeals filed by the Revenue, where it was held by the CIT(A) that exchange loss on account of cancellation of forward contract amounts to business loss. She accordingly submitted that the issue stands covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal.
The learned D.R., on the other hand, supported the order of the CIT(A).
After hearing both the sides, we find that this issue stands covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal, where one of us was a party. In the said decision the loss on account of cancellation of foreign exchange contract was held as business loss by the CIT(A) as against speculation loss as treated by the Assessing Officer. When the matter came up before the Tribunal, the Tribunal following the decision of the Hon'ble Kolkata High Court and Hon'ble Bombay High Court, cited above, dismissed the ground raised by the Revenue. Following the same logic as held by the decision of the co-ordinate Bench of the Tribunal, we hold that Rs.5,75,958/- on account of cancellation of foreign exchange contract in the course of business has to be treated as 'income from business' and consequently, the assessee is entitled M/s. Uni Design Jewellery Pvt. Ltd., to deduction under section 10A of the Act. In this view of the matter, the order of the CIT(A) is set aside and tlie ground raised by the assessee is allowed
As the facts and circumstances during the year under consideration are same, respectfully following the decision of the Tribunal in assessee’s own case, wherein Tribunal have held that cancellation of foreign exchange contract is a business loss and not a speculation loss, we do not find any infirmity in the order of CIT(A) for allowing assessee’s claim of business loss.
Ground No. 2 & 3 are interconnected, wherein Department has raised a legal issue as to whether when TNMM requires only broad comparability and not product identity, CIT(A) was not justified in accepting product dissimilarity claim to reject M/s.Gitanjali Export Corporation Pvt. Ltd., as valid comparability. 8. It was contended by learned AR that this issue has been decided by order of Bangalore Bench, IT AT in the case of Citrix R & D India (P.) Ltd. reported in 68 taxmann.com 42 in IT (TP) Appeal No. 1289 of 2014, wherein it has ( QJ been observed as under: "IT/ILT: Though TNMM obviates necessity for complete product identity or services identity between tested party and comparables and broad functional similarities would suffice, but where functional profile shows that dissimilarity, even within very same segment, is so significant so as to erode comparability, then there is a good case for exclusion."
M/s. Uni Design Jewellery Pvt. Ltd., 9. Therefore, technically the ground of appeal is covered by decision of Bangalore IT AT in favour of the assessee and it is prayed that the same may kindly be decided accordingly.
10. We have gone through the orders of the authorities below. The facts are contained in the order of CIT(A) in Para No. 6.6 and the relevant portions are reproduced hereunder: "6.6.2 The appellant has submitted that there is a significant product dissimilarity between the appellant and GECL rendering it liable to rejection as a comparable. The assessee has submitted that while GECL is into polished diamond export and the content of gold in the jewellery exported by GECL is negligible, the assesses is into export of jewellery with significant god content." "Following product comparison has been given by the appellant based on information in annual report: Particulars The appellant GECL Gold 39.59% 110% Diamond 58.34% 98.90% "
11. As per the finding of CIT(A) it is apparent that assessee is manufacturing diamond studded jewellery having an average of gold content of 40% and the comparable adopted by the TPO and GECL has negligible gold content of about 1.10%. Accordingly, CIT(A) was justified in rejecting GECL which was not comparable with the assessee on account of product dissimilarity.
M/s. Uni Design Jewellery Pvt. Ltd., 12. In Ground No.3, it is contended by the Department that fresh facts have been contended before the learned CIT(A), without giving opportunity to the A.O./TPO. 14. We have considered rival contentions and gone through the orders of the authorities below and observed that ground of appeal does not point out to any particular facts, which are not there before the A.O/TPO. Further, we are into the analysis of segmented accounts of corporate entity as available in public domain. It was on this basis that the TPO set off comparables undertaken by the assessee and was analyzed by the A.O/TPO and was available before the CIT(A). Therefore, there is no possibility of fresh facts being considered by the First Appellate Authority. The ground of appeal is dismissed.
15. Ground No.4 taken by the Revenue reads as under:-
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting relief to the assessee without appreciating the fact that Assessing Officer, in view of CBDT Circular No. 279/Misc/M-ll6/2011 opined that deduction u/s. 10A would be allowed, after giving effect to provisions of Section 70 & 71 of the Income Tax Act, 1961."
16. We have considered rival contentions and found that issue under consideration revolves around whether deduction u/s.10A is allowable before giving effect to provisions of Section 70 & 71 of the IT Act. This issue has been decided by the Hon'ble Bombay High Court in the case of CIT v. Black and Veatch Consulting Pvt. Ltd. reported in 348 ITR 72 (2012) (Bom) where Hon'ble Jurisdictional High Court has observed as under:
M/s. Uni Design Jewellery Pvt. Ltd., ''The deduction under section 10A, in our view, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of section 72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in sections 80C to SOU. Section SOB(5) defines for the purposes of Chapter Vl-A "gross total income" to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable under section 10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. In the circumstances, the decision of the Tribunal would have to be affirmed since it is plain and evident that the deduction under section WA has to be given at the stage when the profits and gains of business are computed in the first instance. So construed, the appeal by the Revenue would not give rise to any substantial question of law and shall accordingly stand dismissed. There shall be no order as to costs."
It is clear that Hon'ble High Court has held that the deduction u/s. 10A has to be given effect to at the stage of computing the profits and gains of the business, which is anterior, that is prior to applicable sections for set off of business losses, Section 72 of the Act. Therefore, the deduction has to be computed before setting off of unabsorbed losses. In view of the above, we do not find any infirmity in the order of CIT(A) for allowing claim of deduction u/s.10A before giving effect to the provisions of Section 70 and 71 of the IT Act.