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TMI Blog2018 (10) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 [2010 (8) TMI 578 - ITAT, MUMBAI]concluded that a liability is said to have crystallized when a pending obligation on the balance sheet date is determinable with reasonable certainty. - Decided in favour of assessee - ITA No583/Ind/2012 - - - Dated:- 28-9-2018 - Shri Kul Bharat, Judicial Member And Shri Manish Borad, Accountant Member For the Revenue : Shri Lal Chand, CIT For the Assessee : Mr. Sumit Neema, Sr.Adv Shri Ayush Gupta, Adv ORDER PER MANISH BORAD, AM. This appeal filed at the instance of assessee pertaining to A.Y. 2009-2010 is directed against the order of Ld. Commissioner of Income Tax(Appeals)-I, Bhopal (in short CIT(A) ), vide appeal No. CIT(A)-I/BPL/IT-256/11-12 order dated 11.10.2012 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(hereinafter called as the Act ) framed on 28.12.2011 by ACIT- 1(1), Bhopal. 2. Briefly stated facts as culled out from the records are that the assessee is a public limited company engaged in the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer. 7. We have heard rival contentions and perused the records placed before us and carefully gone through the judgments placed and relied by the Ld. Counsel for the assessee. 8. The issue raised before us is that the assessee incurred loss of ₹ 53,26,361/- in its 100% Export Oriented Unit of Technology Centre which was eligible for exemption u/s 10B of the Act. The alleged loss was claimed as set off against the profit of other Division of the assessee. This claim was rejected by the both lower authorities. 9. From perusal of the CBDT Circular No.7/DV/2013 dated 16.7.2013 as well as the judgments referred and relied by the Ld. Counsel for the assessee, we find force in the contention of the assessee. Hon'ble Bombay High Court in the case of DCIT V Hindustan Unilever (2012) 343 ITR 108 (Bom) (supra) dealing with the same issue has allowed the claim of set off of loss incurred in one of the EOU units eligible for exemption u/s 10B of the Act against the profits of other units run by the same assessee. Hon'ble Court decided in favour of the assessee observing as follows; (iv') The loss incurred by the eligible unit under section 10B:.' 23. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree units had returned a profit during the course of the assessment year, while the Crab Stick Unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of section10B. 25. For all the aforesaid reasons, we are of the view that the Assessing Officer could not possibly have formed a belief that income chargeable to tax had cap assessment within the meaning of section 147. The petition would have to be allowed and is accordingly allowed by setting aside the impugned notice dated 31-3-2008 issued under section 148 of the Incometax Act, 1961. 26. Rule is made absolute in the aforesaid terms. There shall be no order as to costs . 10. We therefore respectfully following the judgment of Hon'ble Bombay High Court are of the considered view that both the lower authorities erred in denying the benefit of set off of loss incurred by the assessee in the 100% EOU unit at ₹ 53,26,361/. against the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steel, activated carbon cloth, power generation and a 100% export oriented unit of technology centre. Major part of the turnover is from export of graphite which are transported through ships and take long time to reach to the destination and therefore the assessee used to carry out hedging transaction of the foreign currency. A sum of ₹ 118.32 crores is claimed as foreign exchange fluctuation expenditure which also includes marked to market loss of notional nature at ₹ 2,82,42,778/-. Both the lower authorities have allowed the claim of foreign exchange fluctuation expenditure except for the notional loss of ₹ 2,82,42,778/- for the reason that those contracts has not squared up at the close of year and the impugned amount is merely notional loss. Ld. Counsel for the assessee has contended that the impugned notional loss has been shown in the financial statement in order to comply to the Accounting Standard-11 issued by the Chartered Accountants of India for the effect of changes in Foreign Exchange Rates which provides that the assessee should show the loss/profit in the profit and loss account arising out of the difference in rate of foreign currency rate at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 I was submitted that similarly the mal-ked to market gain or loss in respect of outstanding forward exchange contract by revaluing these contract as per AS-II was being claimed by the assessee. It was contended that this method was consistently being followed by the assessee and the marked to market loss claimed by it in respect of outstanding forward exchange contract was allowable as held by the Mumbai Special Bench of the ITAT in the case of DCIT vs. Bank of Bahrain and Kuwait (41 SOT 29(Mum). 3. The submissions made by the assessee on this issue were not found acceptable by the A.O. According to him, the relevant foreign exchange contract were still outstanding on the closing day of the previous ear and therefore the marked to market loss claimed by the assessee by revaluing The said contract was not the loss actually incurred by the assessee. He held that the actual toss or gain would be ascertained/determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.I08S.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 ₹ 877.63 Cr, imports account for ₹ 476.68 Cr. and part of the local purchases are also in diamond dollar account. Appellant firm also utilize working capital loans from banks, some of which are also denominated in foreign currency. Out of total outstanding loan of ₹ 260.17 Cr, loan denominated in foreign currency is ₹ 256.40 Cr. Similarly bur of total creditors for goods of ₹ 122 Cr, imports payable account for ₹ 102 Cr. Thus, it is evident that appellant is exposed to risk arising out of fluctuation in Exchange rate and as a prudent businessmen likely to hedge its risk. 5.2 From para 6 of schedule-F to Balance Sheet under the heading Report on Notified Accounting Standards , it is evident that appellant is reporting all monetary items i.e. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 his 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 issue involved in the present appeal while the Id. counsel for the assessee strongly supported the impugned order of the Id. CIT(A) giving relief to the assessee on the said issue submitting that the case laws relied upon by the ld. CITT(A) in support of his decision are squarely applicable to the issue involved in the present appeal. He also relied on the decision of Mumbai Bench of the ITAT in the case of DCIT vs. Banque Indosuez (Known as Credit Agricole Indosuez) reported in (2013) 55 SOT 38 (Mumbai) and in the case of Societe Generale vs. DDIT (International Taxation) reported in (2013) 21 ITR (Trib) 606 (Mumbai) in support of the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing 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 material on record we find that the assessee entered, into forward foreign exchange contract during the year In respect of the ma contracts as at the year end, the assessee valued such unmatured forward foreign exchange contracts at the rate of exchange prevailing a at the end of the year which resulted into loss of ₹ 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 ₹ 42. Further suppose that the contract is to mature on 30th April at the price of ₹ 46 per dollar. Suppose at the end of the year 31st March, the rate of dollar has gone up to ₹ 43, the assessee's claim is that the difference of ₹ 1 (Rs. 43 -42) as on 31 st March, 1998 should be taken as loss and allowed deduction accordingly. The Special Bench of the Tribunal in the case of Dv. CIT (Intern ..... X X X X Extracts X X X X X X X X Extracts X X X X
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