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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI JASON P. BOAZ & SHRI SANDEEP GOSAIN
This appeal by Revenue is directed against the order of the CIT(Appeals)-27, Mumbai dt. 18/09/2013 for Asst. Year 2009-10 in respect of the order of assessment passed u/s 143(3) of the Income Tax Act, 1961( in short ‘the Act’) dt. 30/12/2011.
The grounds raised by revenue in this appeal are as under:-
“Whether on the facts and circumstances and in law, the Ld. CIT(A) has erred in holding that ‘Mark to Market’ loss of Rs. 1,62,98,847/- arising on valuation of forward exchange contracts on the closing date of accounting year is not a notional loss and, therefore, allowable?” 2. “Whether on 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 dated 03.05.2013 in the case of M/s. S. Vinodkumar Diamonds Pvt. Ltd.?” 3. The Ld. CIT(Appeals) grossly erred on facts in not- confirming disallowance of mark to market loss of Rs.1,62,98,847/- on account of outstanding forward contracts. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
At the outset, the Ld. Representative for the assessee pointed out that the issue in this appeal is squarely covered in favour of the assessee by the various decisions of the Co-ordinate Benches of this Tribunal and also by the order of the Hon’ble Apex Court in the case of CIT vs. Woodward Governor India Pvt. Ltd., 294 ITR 451(SC). It was further submitted that the Ld. CIT(A) had allowed the appeal of the assessee following the said ratio laid down by the Hon’ble Apex Court. In this regard, the Ld. Representative for the assessee also placed reliance, inter alia, on the following decisions of Co-ordinate Bench of the Mumbai Tribunal:-
(i) ACIT v. Venus Jewel (Mum), 7329/Mum/2013 Dated 31/07/2016. (ii) ACIT vs. Ankit Gems (Mum), ITA No.2610/Mum/2013. (iii) ACIT vs. Monarch Gems (Mum) ITA No.2613/Mum/2013. (iv) ACIT vs. Vimal Export (Mum), ITA No.6610/Mum/2012. (v) ACIT vs. M/s. Rupam Impex (Mum) ITA No.4008/Mum/2012 (vi)ACIT vs. H Deepak & Co.(Mum) ITA No.7629/Mum/2011 4. Ld. Departmental Representative for the Revenue strongly supported the Grounds raised and relied on the order of the Assessing Officer . The Ld. Departmental Representative for the Revenue submitted that contrary view has been taken by the Co-ordinate Bench of the ITAT, Mumbai in the case of Vinod Diamonds Pvt. Ltd. in ITA No.506/Mum/2013 dated 3/5/2013. In view of the above, it was prayed by the Ld. Departmental Representative for the Revenue that the Revenue’s appeal be allowed.
5.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. The facts of the case on hand as emerge from the record are that the assessee is engaged in the business of manufacture, selling, distribution and exporting and importing of cut and polished diamonds, gems and jewellery. In the return of income for assessment year 2009-10, filed on 22/9/2009, the assessee had declared income of Rs.19,85,43,671/-.
5.2 In the course of assessment proceedings, the Assessing Officer required the assessee to show cause as to why the re-valuation of debtors as on 31/03/2009 should not be rejected on the following grounds:-
(i) non-uniformity of rates of re-valuation adopted for various debtors; (ii) not following the AS-II’s categorical guidance on adopting closing rate of currency.
(iii) introducing the contingent losses of the forward contracts of foreign exchange by Marked to Market (‘MTM’) Method indirectly by netting it with valuation of debtors on 31/3/2009 and why a uniform rate of debtors @ Rs.50.95 not be adopted or why the indirect MTM revaluation of forward contract not be disallowed.
5.3 After considering the explanations put forth, the Assessing Officer came to the view that the assessee had not followed the AS-II guidelines and also rejected the valuation adopted by the assessee treating the same as incorrect and consequently added an amount of Rs.1,62,98,847/- valuing the same @ Rs.50.95, i.e. the closing rate of US $ as on 31/3/2009.
5.4 On appeal, the Ld. CIT(A), inter alia, following the ratio of the decision of the Ho’ble Apex Court in the case of Woodward Governor India P.Ltd. (supra) and other decisions of the Co-ordinate Benches of the ITAT, Mumbai allowed the assessee’s appeal.
6.1 On a careful consideration of the rival contentions, the material on record and the judicial pronouncements referred to, we find that the identical issue of Mark to Market loss arising on valuation of the forward exchange contracts on the closing date of the accounting year not being a notional loss has been considered by a Co-ordinate Bench of this Tribunal in its order in the case of Venus Jewel (Mum), 7329/Mum/2013 dated 31/07/2016 and has decided the issue in favour of the assessee, holding as under at paras 8 to 10 thereof:-
“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 the 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 - dated 09.07.2014 ii) ACIT vs. M/s. Vimal Export - dated 08.01.2014 iii) ACIT vs. M/s. Rupam Impex - ITA No. 4008/Mum/2012 iv) ACIT vs. M/s. H. Dipak & Co. - dated 30.04.2013 v) The Paper Products Ltd. vs. Addl. CIT - dated 28.03.2014 vi) ECL Finance Ltd. vs. The DCIT - 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. - dated 04.12.2013
The Tribunal, in M/s. H. Dipak & Co. - 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 decision 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 exchange 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.
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 year 31st March, the rate of dollar has gone up to Rs. 43, the assessee’s claim is that the difference of Rs. 1 (Rs. 43 -42) as on 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 assessee 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 similar 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.”
The issue arising in the present appeal before us is identical to the issue before the Tribunal and also 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 account 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 said 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 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.”
7.2 Following the aforesaid decision of the Co-ordinate Bench of this Tribunal in the case of M/s.Venus Jewel in & 7329/Mum/2013 dated 31/7/2015, which squarely covers the dispute in favour of the assessee, we dismiss the Grounds raised at Sl.No.1 to 5 by the Revenue in this appeal.
In the result, Revenue’s appeal for assessment year 2009-10 is dismissed.
Order pronounced in the open court on 29/01/2016