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2015 (9) TMI 1348 - ITAT MUMBAI

2015 (9) TMI 1348 - ITAT MUMBAI - TMI - Disallowance of the loss incurred on forward contract in foreign exchange - CIT(A) deleted the addition - Held that:- In view of the ratio laid down by the Hon’ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. (2007 (4) TMI 118 - HIGH COURT , DELHI) 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 con .....

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ing to assessment years 2009-10 and 2010-11 against the order passed under section 143(3) of the Act. The assessee has field cross objections against the appeal filed by the Revenue relating to assessment year 2010-11 against the order passed under section 143(3) of the Act. Both the appeals filed by the Revenue relating to the same assessee and the cross objections filed by the assessee on similar issues were heard together and are disposed of by this consolidated order for the sake of convenie .....

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ances and in law, the Ld. CIT(A) was right in not taking cognizance of the decision of the ITAT, E Bench, Mumbai in ITA No. 506/Mum/2013 dated 03.05.2013 in the case of M/s. S. Vindokumar Diamonds Pvt. Ltd.? 3. The Ld CIT (Appeal) grossly erred on facts in not-c0nfirming disallowance of mark to market loss of ₹ 66,51,21,162/- on account of outstanding forward contracts. 3. The learned A.R. for the assessee at the outset pointed out that the issue in the present appeal is squarely covered b .....

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ontracts which had not concluded and as such the ratio of the earlier decision were not applicable. Another objection raised by the learned D.R. was that contrary view has been taken by the Mumbai Benches of the Tribunal in the case of M/s. Vinod Kumar Diamonds Pvt. Ltd. in ITA No. 506/Mum/2013 dated 03.05.2013. 5. The learned A.R. for the assessee, in rejoinder, pointed out that the assessee has consistently offered profit from foreign exchange differences in the earlier and later years to tax. .....

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ty of mark to market loss. It was further pointed out that the Tribunal had also not considered the decision of the Apex Court in the case of Woodward Governor India Pvt. Ltd. (supra). 6. We have heard the rival submissions and carefully perused the record. Briefly, in the facts of the present case the assessee was engaged in the business of import and export of diamonds. The assessee had entered into forward exchange contracts, which were revalued by it on the closing day of the accounting year .....

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ery substantial bank finance in foreign currency, which in turn was required to settle only in foreign currency. In order to save it from exposure on account of foreign exchange rates it had entered into forward contract to hedge against the risk of fluctuations in foreign currency rates. The said transaction of entering into forward contracts was claimed by the assessee to be an integral part and incidental to export business undertaken by the assessee. The said contracts for purchase and sale .....

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eceding years and in the succeeding years assessee had gain on such forward contracts which was assessed as business income in the hands of the assessee. The AO rejected the claim of the assessee because it has entered into mark to market loss on forward exchange contracts and disallowed a sum of ₹ 66,51,21,162/-. The AO disallowed the claim of the assessee as the same had not been settled at the year end and hence the losses were not actual losses. 7. The CIT(A) examined the material on r .....

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f contract. The assessee was engaged in the export of diamonds and the forwards contract was entered into in respect of foreign exchange to be received as a result of export and the same was done to avoid the risk of loss due to foreign exchange fluctuations. After taking note of the claim of forward contracts and the accounting policies, i.e. AS-11 (revised) and applying the ratio laid down by the Apex Court in the case of Woodward Governor India Pvt. Ltd. (supra) the claim of the assessee was .....

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. M/s. Vimal Export ITA No. 6610/Mum/2012 dated 08.01.2014 iii) ACIT vs. M/s. Rupam Impex ITA No. 4008/Mum/2012 iv) ACIT vs. M/s. H. Dipak & Co. ITA No. 7629/Mum/2011 dated 30.04.2013 v) The Paper Products Ltd. vs. Addl. CIT ITA No. 7761/Mum/2012 dated 28.03.2014 vi) ECL Finance Ltd. vs. The DCIT ITA No. 6612/Mum/2011 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. ITA No. 6129/Mum/2012 dated 04.12 .....

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vident 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  .....

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s 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 ₹ 7.14 crore representing difference of Re. 1 (Rs. 43 42) is lia .....

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