ASST CIT 19(1), MUMBAI vs. C.J. EXPORTERS, MUMBAI

O R D E R PER MAHAVIR SINGH, JM:

This appeal by the Revenue is arising out of the order of CIT(A)-30, Mumbai, in appeal No. CIT(A)-30/AC.19(1)/698/2014-15 dated 23-03-2015. The Assessment was framed by ACIT Circle-19(1), Mumbai for the A.Y. 2012- 13 vide order dated 04-03-2015 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

d M/s C.J. Exporters; AY: 12-13 3. Briefly stated facts are that the assessee is engaged in the business of export and import of diamonds and receive its proceeds in US dollars and payment on account of this import transactions were also remitted through US dollars. The AO, during the course of assessment proceedings, noticed that the assessee has debited a sum of Rs. 6,13,82,000/- loss on Foreign contract in foreign exchange and out of this sum of Rs. 3,36,20,000/- was shown as loss on account of outstanding / opening of foreign exchange forward contract which had not been completed as on 31-03-2012, but the assessee claimed before the AO that loss claimed by assessee on account of marked to market revaluation of the forward contracts as per rupee value of US dollar as on 31-03-2012 was claimed to mitigate the loss as normal business loss. The AO did not accept the claim of the assessee and added the sum of Rs. 3,36,20,000/- by treating the loss as notional loss. Aggrieved, assessee preferred the appeal before CIT(A).

4. Before CIT(A) assessee filed complete details of loss claimed on foreign exchange forward contracts which are reproduced in the order of CIT(A). The CIT(A) following Tribunal decisions in assessee’s own case in dated 16-07-2014 and also following the decision of Hon’ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. 294 ITR 451 (SC) allowed the claim of the assessee by observing in Para 2.4.3 to 2.4.4: - “2.4.3. At the outset, Id. A.R. stated that apart from the flaws in the arguments of the Id. A.O. in making the disallowance, the issue at hand is squarely covered by the decision of Hon'ble ITAT in appellant's own case for AY 2009-10 in ITA No.2612/Mum/2013 where vide order dated 16.07.2014, the issue was decided by, interalia. holding as under:

During the proceedings before us, nobody has appeared to represent on behalf of the assessee However, Ld. DR assisted us and mentioned that the only issued raised in the ground relates to the allow ability of Mark-to-Market loss on re- Page 2 of 7 d M/s C.J. Exporters; AY: 12-13 valuation of outstanding forward contracts on the closure date of the accounting year on notional basis. Further, Ld DR mentioned that the said issued was adjudicated by the C!T(A) and granted relief in favour of the assessee relying on the decision of the ITAT, Mumbai in the case of M/s. Bhavani Gems vs. AC1T CC-35, in dated 30.03.2011 for the assessment year 2006-2007, wherein the said loss was allowed as 'business loss and is held covered by the decision of Special Bench in the case of DCIT vs Bank of Baharain.

At present, it is not the AO's case that the impugned transaction is speculative in nature, Further, the aforesaid issue of allowing the loss on account of revaluation of pending forward contracts was considered by the Hon'ble ITAT Mumbai Bench in the case of M/s Bhavani Gems vs. ACIT CG-35, in dated 30.03.2011 for the A.Y. 2006-2007 and the said loss was allowed as business loss and the issue was held to be covered by Special Bench decision in the case of DOT' vs. Bank of Bahrain Therefore, in my considered opinion the facts of the appellants case are d M/s C.J. Exporters; AY: 12-13 fully covered by the above cited decisions of the Hon'ble Supreme Court and the ITAT Mumbai Bench. Accordingly, 1 hold that the loss incurred by the appellant on restatement of pending forward contract agreements at the year-end is an allowable business loss. Appellant succeeds on this ground

5. From the above, it is evident that the Mark to Market gain or loss is held as allowable gain or loss as the case may be. In the instant case, loss of Rs. 1, 06,90,750/- arising on revaluation of forward contract agreements on 31th March, 2009. Thus, the order of the CIT(A) is fair and reasonable and it does not call for any interference. Accordingly, ground raised by the Revenue is dismissed (Emphasis supplied)

2.4.4 As the conspectus of facts obtaining in the impugned appeal is identical to the facts in appellants own' case for A.Y.2009-10 based on which the then Id. CIT(A)-27 Mumbai had allowed the appellant's appeal which in turn came to be approved by the Hon'ble ITAT in the decision cited supra, I am of the considered view that the above decision on same set of facts has to be respectfully followed and the ground raised is to be allowed in favour of the appellant. Moreover, the above issue of liability arising out concluded contract is also covered by the decision of Hon’ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. 294 ITR 451 (SC) and ONGC vs. CIT 322 ITR 180 (SC)….”

Aggrieved, now Revenue is in appeal before us.

d M/s C.J. Exporters; AY: 12-13 decision of the Hon’ble Bombay High court in the case of CIT vs. D Chetan & Co. Income Tax Appeal No. 278 of 2004 dated 01-10-2016, wherein, Hon’ble Bombay High Court has considered the same issue and decide the issue in favour of the assessee by observing in Para 7 as under: - “The impugned order of the Tribunal has, while upholding the finding of the CIT (Appeals), independently come to the conclusion that the transaction entered into by the Respondent assessee is not in the nature of speculative activities. Further the hedging transactions were entered into so as to cover variation in foreign exchange rate which would impact its business of import and export of diamonds. These concurrent finding of facts are not shown to be perverse in any manner. In fact, the Assessing Officer also in the Assessment Order does not find that the transaction entered into by the Respondent assessee was speculative in nature. It further holds that at no point of time did Revenue challenge the assertion of the Respondent assessee that the activity of entering into forward contract was in the regular course of its business only to safeguard against the loss on account of foreign exchange variation. Even before the Tribunal, we find that there was no submission recorded on behalf of the Revenue that the Respondent assessee should be called upon to explain the nature of its transactions. Thus, the submission now being made is without any foundation as the stand of the assessee on facts was never disputed. So far as the reliance on Accounting Standard11 is concerned, it would not by itself determine whether the activity was a part of the Respondent assessee's regular business transaction or it was a speculative transaction. On present facts, it was never the Revenue's contention that the transaction was speculative but only disallowed on the ground that it was notional. Lastly, the reliance placed on the decision in S. Vinodkumar (supra) in the Revenue's favour would not by itself govern the issues Page 5 of 7 d M/s C.J. Exporters; AY: 12-13 arising herein. This is so as every decision is rendered in the context of the facts which arise before the authority for adjudication. Mere conclusion in favour of the Revenue in another case by itself would not entitle a party to have an identical relief in this case. In fact, if the Revenue was of the view that the facts in S. Vinodkumar (supra) are identical / similar to the present facts, then reliance would have been placed by the Revenue upon it at the hearing before the Tribunal. The impugned order does not indicate any such reliance. It appears that in S. Vinodkumar (supra), the Tribunal held the forward contract on facts before it to be speculative in nature in view of Section 43(5) of the Act. However, it appears that the decision of this court in CIT vs. Badridas Gauridas (P) Ltd.4 was not brought to the notice of the Tribunal when it rendered its decision in S. Vinodkumar (supra). In the above case, this court has held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be”