TaxTMI 
TaxTMI 
2013 (7) TMI 255
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.... previous year. On such revaluation, the resultant loss amounting to Rs. 5,53,02,172/- was claimed by the assessee as "marked to market" loss. Since the relevant foreign exchange contract had not been settled in the relevant previous year, the assessee was called upon by the A.O. to explain as to why the marked to market loss claimed by it should not be disallowed being a notional loss. In reply, it was submitted by the assessee that it is engaged in the business of export of diamonds and since such exports are made on credit, it is always exposed to foreign currency fluctuation risk. It was submitted that in order to hedge the said risks, the assessee had entered into forward exchange contract with banks. It was submitted that export receivables were being re-valued by the assessee on the closing day of the accounting year following the Accounting Standard - 11 issued by the Chartered Accountants of India and the resultant loss/profit on such revaluation was claimed in the relevant year. It was submitted that similarly the marked to market gain or loss in respect of outstanding forward exchange contract by revaluing these contract as per AS-11 was being claimed by the assessee. It....
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.... assessee in an appeal preferred before the ld. CIT(A) and the submissions made before the A.O. in support of its claim for "marked to market loss" as a result of revaluation of foreign exchange contract were reiterated on behalf of the assessee before the ld. CIT(A). The reliance was also placed on behalf of the assessee in support of its case on this issue on the decision of Special bench of ITAT in the case of Bank of Bahrain and Kuwait (supra). 5. After considering the submissions made on behalf of the assessee and the relevant material available on record, the ld. CIT(A) first took note of the facts involved in the assessee's case relevant to this issue in para 5.1 & 5.2 of his impugned order as under:- "5.1 At the outset, appellant is predominantly engaged in the business of import of rough diamonds, manufacturing i.e. cutting & polishing of same in to polished diamonds and exporting the said diamonds. The total sales are at Rs.1085.30 Cr, and the entire sales are by way of exports and local sales in diamond dollar account, which are also in foreign currency. Similarly, out of total purchase of Rs.877.63 Cr, imports account for Rs476.68 Cr. and part of the local purchas....
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....h the fluctuation in the rate of foreign exchange had occurred. The ld. CIT(A) noted that the business of ONGC was not that of foreign exchange dealer and the similar loss was still held to be allowable by the Hon'ble Supreme Court. He held that the A.O. therefore was not correct in distinguishing the case of Bank of Bahrain and Kuwait (supra) decided by the Special Bench of ITAT involving similar issue on the ground that foreign currency was held in the said case by the assessee as stock-in-trade. The ld. CIT(A) also took note of the fact that similar method of restatement of foreign exchange was followed by the assessee consistently in the earlier years and the same was accepted by the A.O. The ld. CIT(A) accordingly held that the loss incurred by the assessee on restatement of foreign exchange contract at the year end was allowable and deleted the disallowance made by the A.O. on account of restatement of pending forward contract agreement at the year end. Aggrieved by the order of the ld. CIT(A), the Revenue has preferred this appeal before the Tribunal. 6. At the time of hearing before us, the ld. D.R. relied on the order of the A.O. in support of the Revenue's case on the ....
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....id case was holding foreign currency as stock-in-trade, the distinction so made by the A.O. was irrelevant and immaterial as rightly pointed out by the ld. CIT(A) in his impugned order relying on the decision of Hon'ble Supreme Court in the case of ONGC (supra) wherein a similar issue was decided by the Hon'ble Apex Court in favour of the assessee despite the fact that ONGC was not a dealer in foreign exchange. 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 unmaturëd forward foreign exchange contracts at the rate of exchange pre....