TaxTMI 
TaxTMI 
2018 (10) TMI 59
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....ected for scrutiny and notice u/s 143(2) dated 23.8.2010 was duly served upon the assessee. Assessment was completed u/s 143(3) of the Act at total income of Rs. 168,51,36,442/-. by making various additions. Aggrieved assessee preferred appeal before Ld.CIT(A) and partly succeeded. 3. Now the assessee is in appeal before the Tribunal raising following grounds of appeal; "1. That there is no justification either in law or on facts for the AO and CIT(A) in rejecting the claim of set off of loss of Rs. 53,26,361/- incurred by the appellant in 100% EOU Technology Division. 2. That the learned CIT(A) failed to appreciate the provisions of section 10B of Income Tax Act 1961 as amended by Finance Act 2000 whereby section 10B was amended and consequently the said section provide for deduction of profits/losses and the said section is not an exemption section. 3. That the learned AO was not justified in law or on facts by holding that the aforesaid claim of loss of Rs. 53,26,361/- is not allowable in the course of assessment proceedings as claimed by the appellant. 4. That there is no justification either in law or on facts for the AO and CIT(A) in mak....
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....11 crores in the order. While reopening the assessment, the Assessing Officer has proceeded on the basis that section 1OB provides an exemption and that in respect of the Crab Stick Unit the assessee had suffered a loss of Rs. 1.33 crores. The Assessing Officer has observed that since the income of the unit was exempt from taxation, the loss of the unit could not have been set off against the normal business income. However, this was allowed by the assessment order and it is opined that the assessee's income to the extent of Rs. 1.33 crores has escaped assessment. 24. There is merit in the submission which has been urged on behalf of the assessee that the Assessing Officer has while re-opening the assessment exfacie proceeded on the erroneous premise that section 1OB is a provision in the nature of an exemption. Plainly, sect ion lOB as it stands is not a provision in the nature of an exemption but provides for a deduction. Section 1OB was substituted by the Finance Act of2000 with effect from 1- 4-2001. Prior to the substitution of the provision, the earlier provision stipulated that any profits and gains derived by an assessee from a hundred per cent Export Oriented ....
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....the claim of foreign currency fluctuation loss of Rs. 2,82,42,778/- which was suffered by the assessee on account of forward market contract of forex derivatives outstanding at the year end. The Ld Counsel for the assessee submitted that the issue raised in the appeal is squarely covered in favour of the assessee by various judgments including the Special Bench decision in the case of DCIT V Bank of Bahrain & Kuwait 132 TTJ 505 (Mum) (SB). He also submitted that the actual loss incurred in the forward market contracts for foreign exchange for the transactions squared up during the year have already been allowed by the revenue authorities but both the lower authorities has denied the claim of loss with regard to pending forward contracts which were due to mature in the subsequent financial year for which notional loss was booked by the assessee in the profit and loss account on the basis of accounting standard (AS) 11 issued by the Chartered Accountants of India. Ld. Counsel for the assessee referred and relied on the following decisions ; (a) I.T.A.T. Mumbai Bench in the case of ACIT V M/s. D. Dipak & Co I.T.A No.7629/Mum (2011) (b) Supreme Court in the case of CI....
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....all resultant profit and loss has been booked in the books of accounts after duly adding/reducing the alleged notional loss of Rs. 2,82,42,778/-. This plea of the assessee has not been rebutted by the revenue authorities. 14. We find that the Co-ordinate Bench, Mumbai I.T.A No.7629/Mum (2011) in the case of ACIT V M/s. D. Dipak & Co date4d 30.04.2013 dealing with the same issue of "marked to market" loss of notional nature, allowed the issue in favour of the assessee by relying on the Special Bench decision in the case of DCIT V Bank of Bahrain & Kuwait 132 TTJ 505 (Mum SB) (2010) observing as follows (for sake of convenience we have also mentioned the facts of the case) ; "This appeal is preferred by the Revenue against the order of ld. CIT(A) - 27, Mumbai dtd. 28-8-2011 whereby he deleted the addition made by the A.O. on account of "marked to market" loss of Rs. 5,53,02,172/-claimed by the assessee on revaluation of the pending forward contract on the closing day. 2. The assessee in the present case is a partnership firm which is engaged in the business of manufacturing, trading as well as import and export of diamonds. The return of income for the year under....
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....med by the assessee thus was only the notional loss which was not allowable, As regards the decision of the Special Bench of the Tribunal in the case of Bank of Bahrain & Kuwait (supra) relied upon by the assessee, the A.O. held that the same was distinguishable on facts inasmuch as the foreign currency in that case was held by the assessee as stock-in-trade and he had entered into foreign exchange contract in order to protect its interest against the wide fluctuation in the foreign currency itself He held that in the case of the assessee, foreign currency was not its stock-in-trade and therefore the decision of the Special Bench of the Tribunal in the ease of Bank of' Bahrain and Kuwait (supra) was not applicable in the case of the assessee being distinguishable on facts. As regards the reliance placed by the assessee on Accounting Standard - 11, the A.O. held that the reporting of notional losses to adhere to the accounting guidelines would not by itself make it deductible for Income Tax purposes especially when there is no provision in the Income 'I'ax Act to allow the deduction on account of notional loss for which the liability has not crystallized. He therefore di....
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....ng Account as expenses or income, as the case may be. Similarly outstanding forward contract are marked to market and resulting loss or gain is being recognized as expenses or income in trading account. It may be mentioned that this method of recording transaction denominated in foreign currency is as per AS-1 I & being consistently followed and there is no change as compared to earlier year. In the light of the relevant facts as noted by him, the ld. CIT(A) decided this issue by applying the ratio of the decisions laid down in the various judicial pronouncements. In this regard, he referred to the decision of the Hon'ble Delhi High Court in the case of Woodward Governor 294 ITR 451 as affirmed by the Hon'ble Supreme Court (312 ITR 254) wherein it was held that the liability arising out of already concluded contracts stands accrued the minute the contract is entered into and mere postponement of the payment to different date cannot extinguish the liability and render it notional or contingent. He then referred to the decision of Hon'ble Supreme Court in the case of ONGC vs. CIT (322 ITR 180) wherein it was held that when the assessee maintained its accounts on ....
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....imilar claim for marked to market loss claimed by the assessee in respect of forward foreign exchange contract debited to the P&L account has been allowed by the Special Bench of this Tribunal in the case of Bank of Bahrain & Kuwait (supra) after discussing and considering all the relevant aspects of the matter and the relevant observations of the tribunal recorded in this context are summarized as under:- "[i] A binding obligation accrued against the Appellant the minutes it entered into forward foreign exchange contracts, (ii] A consistent method of accounting followed by the Appellant cannot be disregarded, The Appellant has consistently followed the same method of accounting in regard to recognition of profit or loss both) in respect of forward foreign exchange contract as per the rate prevailing on March, 31, (iii) A liability is said to have crystallized when a pending obligation on the balance sheet date is determinable with reasonable certainty, (iv) As per AS-II when the transaction is not settled in the same accounting period as that in which it occurred, the exchange difference arises over more than one accounting period, (v) ....