ACIT CIR 4(2), MUMBAI V. VISARIA SECURITIES P LTD, MUMBAI

ITA 1060/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75753 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 10-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Keywords: Depreciation; Assessment record
• Section: 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F B ENCH, MUMBAI . , !'# , $% &'() , $* +, $ # BEFORE SHRI D.MANMOHAN, VP AND SHRI N.K. BILLAIY A, AM ./ I.T.A. NO.1060/MUM/2011 ( - - - - / ASSESSMENT YEAR :2007-08 THE ACIT, CIR.4(2), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S, VISARIA SECURITIES PVT. LTD., 301-A, COMMERCE HOUSE, 140, NAGINDAS MASTER ROAD, FORT, MUMBAI-400 023 ./ I.T.A. NO.9086/MUM/2010 ( - - - - / ASSESSMENT YEAR :2007-08 M/S, VISARIA SECURITIES PVT. LTD., 301-A, COMMERCE HOUSE, 140, NAGINDAS MASTER ROAD, FORT, MUMBAI-400 023 / VS. THE ACIT, CIR.4(2), AAYAKAR BHAVAN, MUMBAI-400 020 ,. $* ./ /0 ./ PAN/GIR NO. : AAACV 7721L ( .1 / APPELLANT ) .. ( 23.1 / RESPONDENT ) .1 4 $ / REVENUE BY: SHRI R.K. SAHU 23.1 5 4 $ / ASSESSEE BY: SHRI ANUJ KISNADWALA MS. LATA PARULEKAR 5 6* / DATE OF HEARING :26.02.2014 7- 5 6* / DATE OF PRONOUNCEMENT: 28.02.2014 M/S. VISARIA SECURITIES PVT. LTD. 2 +$8 / O R D E R PER N.K. BILLAIYA, AM: THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE ARE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-8 MUMBAI DT.16 .11.2010 PERTAINING TO A.Y. 2007-08. AS BOTH THESE APPEALS WERE HEARD T OGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE AND BREVITY. ITA NO. 1060/MUM/2011 REVENUES APPEAL 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD . CIT(A) ERRED IN LAW IN ALLOWING DEPRECIATION ON BSE CARD. 3. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASS ESSEES OWN CASE FOR A.Y. 2006-07 AGAINST THE ASSESSEE IN ITA NO. 4228/ M/09. 4. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE L OWER AUTHORITIES AND THE DECISION OF THE TRIBUNAL IN ITA NO. 4228/M/ 09. WE FIND THAT IN THAT YEAR THE LD. COUNSEL FOR THE ASSESSEE CONCEDED THE ISSUE IN FAVOUR OF THE REVENUE RELYING UPON THE DECISION OF THE TRIBUN AL IN THE CASE OF SINO SECURITIES PVT. LTD. 134 ITD 321 (MUM) AND SUINIDH I CONSULTANCY SERVICES LTD. VS DY. CIT 50 SOT 223. FACTS BEING I DENTICAL, FOLLOWING THE DECISIONS OF THE TRIBUNAL (SUPRA), ISSUES IS DE CIDED AGAINST THE ASSESSEE. ACCORDINGLY, GROUND RAISED BY THE REVENU E IS ALLOWED. ITA NO. 9086/M/2010 ASSESSEES APPEAL M/S. VISARIA SECURITIES PVT. LTD. 3 5. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO TH E AFFIRMATION OF THE DISALLOWANCES MADE BY THE AO ON ACCOUNT OF THE LOS S OF RS. 6,23,421/- IN RESPECT OF OPEN POSITIONS IN THE FUTURE AND OPTI ONS SEGMENT. 6. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE AO NOTICED THAT THE ASSESSEE WHILE PREPARING ITS BOOKS OF ACCOUNT HAS TAKEN THE STOCK POSITION AT COST OR MARKET PRICE WHICHEV ER IS LOWER THEREBY MAKING LOSS OF RS. 8,29,536/-. THE AO WAS OF THE O PINION THAT IN RESPECT OF FORWARD CONTRACTS, THE LOSS ACTUALLY MATERIALIZE S ON THE DATE WHEN THE CONTRACT IS SQUARED OFF. IN BETWEEN, IT ONLY REMAI NS A NOTIONAL PROFIT OR A NOTIONAL LOSS WHICH VARIES ON A DAY TODAY BASIS. D RAWING SUPPORT FROM THE DECISION OF THE MADRAS HIGH COURT IN THE CASE O F CIT VS INDIAN OVERSEAS BANK 151 ITR 446 AND BOMBAY HIGH COURT IN THE CASE OF CIT VS KAMANI METAL PRODUCTS 208 ITR 1017, THE AO DISAL LOWED LOSS PERTAINING TO THE YEAR UNDER CONSIDERATION AT RS. 6 ,23,421/-. 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A). THE ASSESSEE STRONGLY RELIED UPON THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA PVT. LTD. 312 ITGR 254 AND ALSO ON THE DECISION OF THE TRIBUNAL MUMBAI BE NCH IN THE CASE OF EDELWEISSE CAPITAL LTD. ITA NO. 5324/M/07. HOWEVER , THE LD. CIT(A) SIMPLY FOLLOWED THE FINDINGS IN A.Y. 2006-07 WHEREI N A SIMILAR DISALLOWANCE WAS CONFIRMED BY THE LD. CIT(A) AND DI SMISSED THE APPEAL OF THE ASSESSEE. 8. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT THE ISSUE IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD (SUPR A). THE LD. COUNSEL M/S. VISARIA SECURITIES PVT. LTD. 4 FOR THE ASSESSEE ALSO RELIED UPON THE DECISIONS OF THE MUMBAI BENCH IN THE CASE OF ECL FINANCE LTD. IN ITA NOS. 6612, 7656 , 6607 AND 6609/M/2011 AND EDELWEISSE CAPITAL LTD IN ITA NO. 5324/M/07. 9. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY CON TENDED THAT THE ISSUE IS NOT COVERED IN FAVOUR OF THE ASSESSEE. ON THE CONTRARY, THERE ARE DECISIONS OF THE TRIBUNAL IN HIGH COURT AGAINST TH E ASSESSEE ON THE VERY SAME ISSUE. THE DR STRONGLY RELIED UPON THE DECIS ION OF THE TRIBUNAL IN MUMBAI BENCH IN THE CASE OF S. VINODKUMAR DIAMONDS (P) LTD. VS ACIT 59 SOT 124, MADRAS HIGH COURT IN THE CASE OF I NDIAN OVERSEAS BANK LTD. VS CIT 246 ITR 206, ITAT MUMBAI BENCH IN THE CASE OF ENAM FINANCIAL CONSULTANTS (P) LTD 6 SOT 312. THE LD. DR ALSO RELIED UPON THE CLARIFICATION ISSUED BY THE CBDT VIDE INST RUCTION NO. 03/2010 DT. 23.3.2010. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. A PERUSAL OF THE ASSESSMENT RECORD SHOWS THAT THE ASSESSEE HAD OPEN POSITION IN RESPECT OF T HE FOLLOWING SCRIPS: PURCHASE POSITION: SCRIPT PURCHASE QTY. PURCHASE RATE PURCHASE VALUE C LOSING VALUE AS ON 31/3/2005 EFMTNL 16000 151.85 2429600 2367200 EF GUJAM 123720 109.97 13605282 13071018 EF ESSAR 367250 52.87 19415377 19188813 EF BALRA 2400 64.20 154080 154080 EF ORCHI 73500 252.87 18585630 18585630 EF ULTRA 10200 773.11 7885770 7885770 EF INDIA 2900 158.60 459940 459940 EF GMRIN 3000 354.50 1063500 1063500 EF IPCL 2200 269.00 591800 591800 EF LITL 2500 166.30 424065 419093 EF RELIA 1500 1368.99 2053485 2052150 EFLUPIN 5250 578.17 3035375 3035375 69703904 68874368 LOSS BOOKED 8, 29,536 SELL POSITIONS: M/S. VISARIA SECURITIES PVT. LTD. 5 SCRIPT SELLING QTY. SELLING RATE PURCHASE VALUE CLOSING VALUE AS ON 31.3.2005 EF PFC 7200 106.02 763320 763320 763320 763320 0 11. THE ASSESSEE HAS TAKEN THE STOCK POSITION AS ON 31.3.2005 AT COST OR MARKET PRICE WHICHEVER IS LOWER AND ACCORDINGLY THE LOSS WAS BOOKED. THE LOSS FOR THE YEAR UNDER CONSIDERATION WAS COMPU TED AT RS. 6,23,421/-. THE CLAIM OF SUCH LOSS HAS TO BE CONSIDERED IN THE LIGHT OF SEC.37(1) OF THE ACT. THE WORD EXPENDITURE AS USED IN SEC. 37 , MAY IN CIRCUMSTANCES OF A PARTICULAR CASE , COVERED AN AMO UNT WHICH IS REALLY A LOSS EVEN THOUGH THE SAID AMOUNT HAS NOT GONE OUT FROM POCKET OF THE ASSESSEE. FOR THIS PROPOSITION, WE DRAW SUPPORT FR OM THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS WOODWA RD GOVERNOR INDIA PVT. LTD (SUPRA) . TO FIND OUT WHETHER SUCH E XPENDITURE IS DEDUCTIBLE , THE HONBLE SUPREME COURT LAID DOWN T HE FOLLOWING TESTS: IN CONCLUSION, IT MAY BE STATED THAT IN ORDER TO F IND OUT IF AN EXPENDITURE IS DEDUCTIBLE, THE FOLLOWING FACTORS HA VE TO BE TAKEN INTO ACCOUNT (I) WHETHER THE SYSTEM OF ACCOUNTING F OLLOWED BY THE ASSESSEE IS MERCANTILE SYSTEM, WHICH BRINGS INTO DE BIT THE EXPENDITURE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED ANA BRINGS INTO CR EDIT WHAT IS DUE, IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS ACTUALL Y RECEIVED; (II) WHETHER THE SAME SYSTEM IS FOLLOWED BY THE ASSESSEE FROM THE VERY BEGINNING AND IF THERE WAS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS BONA FIDE, (III) WHETHER THE ASSESSEE H AS GIVEN THE SAME TREATMENT TO LOSSES CLAIMED TO HAVE ACCRUED AN D TO THE GAINS THAT MAY ACCRUE TO IT; (IV) WHETHER THE ASSESSEE HA S BEEN CONSISTENT AND DEFINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES AND GAINS, (V) WHETHER THE METHOD ADOPTED B Y THE ASSESSEE FOR MAKING ENTRIES IN THE BOOKS BOTH IN RESPECT OF LOSSES AND GAINS AS PER NATIONALLY ACCEPTED ACCOUNTING STANDARDS; (V I) WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS FAIR AND REASONAB LE OR IS ADOPTED ONLY WITH A VIEW TO REDUCE THE INCIDENCE OF TAXATIO N. \ M/S. VISARIA SECURITIES PVT. LTD. 6 12. A PERUSAL OF THE ASSESSMENT RECORD SHOWS THAT N O ADVERSE FINDINGS HAVE BEEN GIVEN BY THE AO SO FAR AS THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE IS CONCERNED. THERE IS ALSO NO FIN DING OF THE AO THAT THE ASSESSEE IS NOT FOLLOWING THE METHOD OF ACCOUNTING EMPLOYED DURING THE YEAR UNDER CONSIDERATION CONSISTENTLY. IT IS ALSO NOT THE CASE OF THE REVENUE THAT WHILE BOOKING THE LOSS, THE ASSESSEE H AS NOT FOLLOWED ACCEPTED ACCOUNTING STANDARDS. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE CONDUCT OF THE ASSESSEE IS ONLY IN A VIEW TO RE DUCE THE INCIDENCE OF THE TAXATION. ON THE CONTRARY, WE FIND THAT THE FA CTS OF THE ASSESSEES CASE ARE WELL SUPPORTED BY THE DECISIONS OF THE TRIBUNAL MUMBAI BENCH IN THE CASE OF M/S. ECL FINANCE LTD. (SUPRA) AND M/S. EDEL WEISSE CAPITAL LTD (SUPRA). RESPECTFULLY FOLLOWING THE RATIO LAID DOW N BY THE HONBLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDI A PVT. LTD (SUPRA) AND FOLLOWING THE DECISIONS OF THE TRIBUNAL CITED H EREINABOVE, WE DIRECT THE AO TO ALLOW THE LOSS OF RS. 6,23,421/-. THE AP PEAL FILED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS APPEAL FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.02.2014 . +$8 5 - * $ 9 :+ ; 28.2.2014 5 < SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !'# / VICE PRESIDENT $* +, / ACCOUNTANT MEMBER MUMBAI; :+ DATED 28.2.2014 . . ./ RJ , SR. PS M/S. VISARIA SECURITIES PVT. LTD. 7 +$8 +$8 +$8 +$8 5 55 5 26& 26& 26& 26& =$&-6 =$&-6 =$&-6 =$&-6 / COPY OF THE ORDER FORWARDED TO : 1. .1 / THE APPELLANT 2. 23.1 / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. &?< 26 , , / DR, ITAT, MUMBAI 6. < / GUARD FILE. +$8 +$8 +$8 +$8 / BY ORDER, 3&6 26 //TRUE COPY// ! !! ! / / / / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI