Stenly Securities Limited , Kolkata V. DCIT, Circle - 5, Kolkata , Kolkata

ITA 1718/KOL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1631 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 24-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C J SINGH
• Assessee Lawyers: MANISH TIWARI
• Keywords: Futures and options; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM ./ITA NO.1718/KOL/2017 ( / ASSESSMENT YEAR:2008-09) STENLY SECURITIES LTD. 15B, CLIVE ROW, KOLKATA-700001 VS. DCIT, CIRCLE-5, KOLKATA ./ ./PAN/GIR NO.: AADCS 6016 J (ASSESSEE) .. (REVENUE) ASSESSEEBY :SHRI MANISH TIWARI, FCA RESPONDENT BY :SHRI C.J. SINGH, ADDL. CIT (DR) / DATE OF HEARING : 25/06/2019 /DATE OF PRONOUNCEMENT : 06/09/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERT AINING TO ASSESSMENT YEAR 2008-09, IS DIRECTED AGAINST THE ORDER PASSED BY TH E COMMISSIONER OF INCOME TAX (APPEAL)-2, KOLKATA, WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 16/12/2010. 2.THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT Y EAR 2008-09, IS BARRED BY LIMITATION BY 16 DAYS. THE ASSESSEE HAS MOVED A PET ITION REQUESTING THE BENCH TO CONDONE THE DELAY.WE HEARD THE PARTY ON THIS PRELIM INARY ISSUE. HAVING REGARD TO THE REASONS GIVEN IN THE PETITION, WE CONDONE THE D ELAY AND ADMIT THE APPEAL FOR HEARING. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AR E AS FOLLOWS: STENLY SECURITIES LTD. ITA NO.1718/KOL/2017 ASSESSMENT YEAR:2008-09 P PP PA AA AG GG GE EE E | || | 2 22 2 1. A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DISMISSING GROUND NO. 1 WITHOUT SPEAKI NG ORDER ON ARGUMENTS MADE ON BEHALF OF THE APPELLANT. B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) IS UNJUSTIFIED IN CONFIRMING THE ACTION OF ASSESSING O FFICER WHO DISALLOWED RS. 1,45,034/- U/S 14A READ WITH RULE 8D OF INCOME TAX RULES, 1962. 2. A ) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) HAS ERRED IN DISMISSING GROUND NO 2 WITHOUT A SPEAKING ORDER ON ARGUMENTS MADE ON BEHALF OF THE APPELLANT. B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) IS WRONG AND UNJUSTIFIED IN CONFIRMING THE ACTION OF A SSESSING OFFICER WHO DISALLOWED LOSS OF RS.19,39,257/- TOWARDS F & O DER IVATIVES AS NOTIONAL LOSS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) IS WRONG IN REJECTING ADDITIONAL GROUND RAISED IN COUR SE OF APPEAL TO CONTEST THE DISALLOWANCE OF STT OF RS. 4,50,677/-. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, MODIFY O R AMEND ANY GROUND OR GROUNDS ON OR BEFORE THE DATE OF HEARING. 3. GROUND NO. 1 RAISED BY THE ASSESSEE RELATES TO D ISALLOWANCE U/S 14A READ WITH RULE 8D TO THE TUNE OF RS. 1,45,034/-. 4. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO THE SUBMISSION OF THE PARTIES AND PERUSING THE JUDICIAL DECISIONS RELIED UPON BY THE LD. AR, WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL IS NO LONGER RES INT EGRA.WE NOTE THAT WHERE THE ASSESSEE WAS HAVING A COMMON FUND CONSISTING OF BOT H OWN FUNDS AND BORROWED FUNDS AND IN CASE THE OWN FUNDS ARE SUFFICIENT TO I NVEST IN NON-BUSINESS ACTIVITIES, A PRESUMPTION IS DRAWN THAT THE SAID INVESTMENT IS MADE OUT OF OWN FUNDS. WE NOTE THAT ASSESSEE HAS ITS OWN FUNDS WHICH ARE SUFF ICIENT TO MEET THE INVESTMENT THEREFORE THE DISALLOWANCE UNDER RULE 8D(2)(II) DOE S NOT ATTRACT. TO BUTTRESS THIS PLEA, WE RELY ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. (313 ITR 340), WH EREIN IT WAS HELD AS FOLLOWS: THE ASSESSEE CLAIMED DEDUCTION OF INTEREST ON BORR OWED CAPITAL. THE ASSESSING OFFICER RECORDED A FINDING THAT THE SUM OF RS.213 CRORES WAS INVESTED OUT OF ITS STENLY SECURITIES LTD. ITA NO.1718/KOL/2017 ASSESSMENT YEAR:2008-09 P PP PA AA AG GG GE EE E | || | 3 33 3 OWN FUNDS AND RS. 147 CRORES WAS INVESTED OUT OF BO RROWED FUNDS. ACCORDINGLY, HE DISALLOWED INTEREST AMOUNTING TO RS.4.40 CRORES CA LCULATED AT 12 PER CENT PER ANNUM FOR THREE MONTHS FROM JANUARY, 2000 TO MARCH, 2000. THE COMMISSIONER (APPEALS) FOUND THAT THE ASSESSEE HAD ENOUGH INTERE ST-FREE FUNDS AT ITS DISPOSAL FOR INVESTMENT AND ACCORDINGLY DELETED THE ADDITION OF RS.4.40 CORES MADE BY THE ASSESSING OFFICER AND DIRECTED HIM TO ALLOW THE DED UCTION UNDER SECTION 36(1)(III). THE ORDER OF THE COMMISSIONER (APPEALS) WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT : ' HELD, DISMISSING THE APPEAL, THAT IF THERE WERE F UNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THE N A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TEREST- FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE TH IS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCT IBLE. ' WE NOTE THAT COORDINATE BENCH OF ITAT KOLKATA IN TH E CASE OF REI AGRO LTD. VS. DCIT 144 ITD 141 (KOL-TRIB) HAS HELD THAT IT IS ONL Y THE INVESTMENTS WHICH YIELDS DIVIDEND DURING THE PREVIOUS YEAR THAT HAS TO BE CO NSIDERED WHILE ADOPTING THE AVERAGE VALUE OF INVESTMENTS FOR THE PURPOSE OF RUL E 8D(2)(II) & (III) OF THE RULES. THE AFORESAID VIEW OF THE TRIBUNAL HAS SINCE BEEN A FFIRMED AS CORRECT BY THE HONBLE CALCUTTA HIGH COURT IN G.A.NO.3581 OF 2013 IN THE APPEAL AGAINST THE ORDER OF THE TRIBUNAL IN THE CASE OF REI AGRO LTD. (SUPRA). IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNCEME NTS, WE NOTE THAT ASSESSEE HAS SUOMOTO DISALLOWED DIRECT EXPENSES OF RS.3,940/- UNDER RU LE 8D(2)(I), THE SAIDDISALLOWANCE IS HEREBY CONFIRMED. SO FAR RULE 8D(2) (III) IS CONCERNED, WE DIRECT THE AO TO COMPUTE THE DISALLOWANCE TAKING IN TO ACCOUNT DIVIDEND BEARING SECURITIES AS HELD BY THE COORDINATE BENCH IN THE C ASE OF REI AGRO(SUPRA). HENCE, WE ALLOW THE GROUND NO. 1 RAISED BY THE ASSESSEE F OR STATISTICAL PURPOSES. 5. GROUND NO. 2 RAISED BY THE ASSESSEE RELATES TO A DDITION ON ACCOUNT OF LOSS OF RS. 19,39,257/- INCURRED BY THE ASSESSEE ON ACCOUNT OF FORWARD AND OPTION DERIVATIVE CONTRACT. STENLY SECURITIES LTD. ITA NO.1718/KOL/2017 ASSESSMENT YEAR:2008-09 P PP PA AA AG GG GE EE E | || | 4 44 4 6. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE AS SESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAS CLAIMED LOSS IN DERIVATIVE TRADING . THE ASSESSING OFFICER OBSERVED THATIN THE DERIVATIVE TRADING THE GENERAL PRACTICE IS THAT PROFIT OR LOSS BOOKED ON MARKED TO MARKET BASIS, WHICH IS PROFIT OR LOSS BOO KS ON THE BASIS OF MARKET RATE OF A PARTICULAR SAUDA. HOWEVER, THE ASSESSEE ALSO B OOKED PROFIT OR LOSS ON MARKED TO MARKET BASIS FOR THE SAUDA WHICH HAS REMAINED UN EXPIRED/OUTSTANDING AT THE END OF THE FINANCIAL YEAR, AS ON 31.03.2008. SO EVEN TH OUGH ACTUAL LOSS/PROFIT HAS NOT BEEN REALIZED BY THE ASSESSEE, ENTRY IN THE BOOKS H AS BEEN MADE. THE AO NOTED THAT 'MARKED TO MARKET' IS IN SUBSTANCE A METHODOLO GY OF ASSIGNING VALUE TO A POSITION HELD IN A FINANCIAL INSTRUMENT BASED ON IT S MARKET PRICE ON THE CLOSING DAY OF THE ACCOUNTING OR REPORTING RECORD. ESSENTIALLY, 'MARKED TO MARKET' IS A CONCEPT UNDER WHICH FINANCIAL INSTRUMENTS ARE VALUED AT MAR KET RATE SO AS TO REPORT THEIR ACTUAL VALUE ON THE REPORTING DATE. THIS IS REQUIRE D FROM THE POINT OF VIEW OF TRANSPARENT ACCOUNTING PRACTICES FOR THE BENEFIT OF THE SHAREHOLDERS OF THE COMPANY AND ITS OTHER STAKEHOLDERS. THE AO FURTHER NOTED TH AT WHERE COMPANIES MAKE SUCH AN ADJUSTMENT THROUGH THEIR TRADING OR PROFIT/LOSS ACCOUNT, THEY BOOK A CORRESPONDING LOSS (I.E. THE DIFFERENCE BETWEEN THE PURCHASE PRICE AND THE VALUE AS ON THE VALUATION DATE) IN THEIR ACCOUNTS. THEREFORE , AO NOTED THAT THIS LOSS IS A NOTIONAL LOSS AS NO SALE/CONCLUSION/SETTLEMENT OF C ONTRACT HAS TAKEN PLACE AND THE ASSET CONTINUES TO BE OWNED BY THE COMPANY. THE LOS S BOOKED IS A NOTIONAL LOSS AND IS CONTINGENT IN NATURE AND CANNOT BE ALLOWED T O BE SET OFF AGAINST THE TAXABLE INCOME. IN THE CASE OF THIS ASSESSEE, IT HAS DEBITE D LOSS OF RS.19,39,257/- IN RELATION TO THE OUTSTANDING SAUDA ON FUTURES/OPTION S CONTRACTS ON MARKED TO MARKET BASIS, THEREFORE THE LOSS BOOKED IS NOTIONA L AND NOT ACTUAL. EVEN IN THE CASE OF SHARE TRADING, PROFIT OR LOSS IS BOOKED ON ACTUAL BASIS AND NOT ON NOTIONAL BASIS. CONSIDERING THE ABOVE FACTS, THE LOSS OF RS. 19,39,257/- DEBITED ON ACCOUNT OF OUTSTANDING FUTURES/OPTIONS CONTRACTS HAD BEEN D ISALLOWED BY AO. 7. AGGRIEVED BY THE STAND SO TAKEN BY THE AO, THE A SSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A), WHO HAS CONFIRMED THE DISALLOWANCE MADE BY AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. STENLY SECURITIES LTD. ITA NO.1718/KOL/2017 ASSESSMENT YEAR:2008-09 P PP PA AA AG GG GE EE E | || | 5 55 5 8. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THR OUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS BROUGHT ON RECORD. WE NO TE THAT ASSESSEE, BEING A SHARE TRADING COMPANY, HAD ENTERED INTO FUTURES CON TRACTS FOR PURCHASE/SALE OF SHARES AND THE CONTRACTS REMAINED UNEXPIRED AS ON 3 1ST MARCH,2008. AS PER THE ACCOUNTING STANDARD 30 ISSUED BY THE INSTITUTE OF C HARTERED ACCOUNTANTS OF INDIA, THE ASSESSEE COMPANY ACCOUNTED FOR THE DIFFERENCE B ETWEEN THE CONTRACT PRICE OF THESE SHARES AND THE PREVAILING MARKET RATES AS ON 31.03.08 IN ITS BOOKS OF ACCOUNTS. THESE CONTRACTS WERE TO MATURE BEYOND THE END OF THE FINANCIAL YEAR AND THEREFORE THE LD. AO TREATED SUCH LOSS AS NOTIONAL IN NATURE AND DISALLOWED THE SAME. THE TERM 'MARKED TO MARKET' LOSSES' (MTM) REF ERS TO LOSSES COMPUTED AS ON A PARTICULAR DATE WITH REFERENCE TO PREVAILING MARK ET RATE IN RESPECT OF CONTRACTS THAT HAVE NOT YET MATURED. WE NOTE THATTHE ASSESSEE COMPANY HAD ENTERED INTO A BINDING OBLIGATION BY CONTRACTING TO PURCHASE/SELL SHARES AT A FUTURE DAT E AT A PREDETERMINED PRICE. MOREOVER, A LIABILITY IS SAID TO HAVE ACCRUED WHEN A PENDING OBLIGATION ON THE BALANCE SHEET DATE WAS DETERMINABLE WITH REASONABLE CERTAINTY. HENCE, THE LOSS OF RS. 19,39,257/- ON ACCOUNT OF UNEXPIRED FUTURE CONT RACTS SHOULD BE ALLOWED BY THE LD. A.O. WE NOTE THAT THE ASSESSEE COMPANY FOLLOWS METHOD OF VALUATION OF STOCK IN TRADE AS 'LOWER OF COST OR MARKET PRICE'. THIS M ETHOD IS CONSISTENTLY FOLLOWED BY THE COMPANY. FUTURES AND OPTIONS IN THE SHARE TRADI NG BUSINESS ARE DERIVATIVES IN THE NATURE OF STOCK-IN-TRADE WHICH ARE REQUIRED TO BE VALUED AT THE METHOD OF VALUATION ADOPTED BY THE COMPANY BY USING ACCOUNTIN G STANDARDS AND THEREFORE ACCORDINGLY LOSS ARISING FROM 'MARKED TO MARKET' VA LUATION IS ALLOWABLE AS DEDUCTION. SUCH LOSS IS NOT CONSIDERED AS NOTIONAL AS PER ACCOUNTING STANDARD-30 (NOW, AS PER IND AS 109 WHICH IS APPLICABLE TO BIG COMPANIES IN INDIA). 9. HOWEVER, WE NOTE THAT LD. DR HAS PRIMARILY REITE RATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OU R EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. STENLY SECURITIES LTD. ITA NO.1718/KOL/2017 ASSESSMENT YEAR:2008-09 P PP PA AA AG GG GE EE E | || | 6 66 6 WE NOTE THAT THIS ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE CO-ORDINATE BENCH OF ITAT KOLKATA IN THE CASE OF NAGREEKA EXPOR TS LTD. IN ITA NOS. 455 & 578/KOL/2013, FOR A.Y 2008-09, ORDER DATED 03/08/20 16, WHEREIN IT WAS HELD AS FOLLOWS: 4. GROUND NO.1.FOREX DERIVATIVES AMOUNTING TO RS.1 ,58,94,821/- TREATING THE SAME AS UNASCERTAINED LIABILITY AND NOTIONAL LOSS. AS PER NOTES TO ACCOUNTS NO. 14(B) (SCHEDULE O), THE COMPANY HAS CHARGED AN AM OUNT OF RS.1,58,94,821/- TO THE PROFIT & LOSS A/C. IN RESPECT OF DERIVATIVE CON TRACTS OUTSTANDING AS ON 31ST MARCH, 2008. THE LD. AO DID THE ADDITION OF RS. 1,5 8,94,821/- HOLDING THAT MARK TO MARKET LOSS ON ACCOUNT OF FOREX DERIVATIVE IS A NOT IONAL LOSS, THE DATE OF SETTLEMENT OF THE FOREX DERIVATIVE FALLS BEYOND 31/03/2008 AND THE CONTRACT WAS NOT MATURED AS ON 31/03/2008. THE LEARNED ASSESSING OFFICER COMPLE TELY IGNORED THE SUBMISSIONS MADE BEFORE HIM BY THE ASSESSEE AND DISALLOWED THE LOSS ALLEGING IT TO BE NOTIONAL LOSS ON UNEXPIRED CONTRACT. AGGRIEVED FROM THE ORDE R OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A) VI , KOLKATA, WHO HAS CONFIRMED THE ACTION OF THE LD. ASSESSING OFFICER. NOT BEING SATISFIED WITH THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US . 5. THE LD. A.R. FOR THE ASSESSEE HAS SUBMITTED THA T AS PER ACCOUNTING STANDARD-11 THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES THE COMPANY IS UNDER MANDATE TO ACCOUNT GAIN OR LOSS OF FORWARD CONTRACT . ACCOUNTING STANDARD - 30 FINANCIAL INSTRUMENTS DEALS WITH VARIOUS DERIVATI VE PRODUCTS. NORMALLY, A COMPANY WHICH IS ENGAGED IN THE IMPORT AND EXPORT O F GOODS TAKES A FORWARD CONTRACT TO LOCK THE PRICES AGAINST FLUCTUATION OF FOREIGN EXCHANGE RATES. THE COMPANY MAY ALSO ENTER INTO AN OPTION OR CROSS CURR ENCY SWAP TO PROTECT THE RISK OF FLUCTUATIONS IN THE INTEREST RATE AND FOREIGN EXCHA NGE RATES IN RESPECT OF AN UNDERLYING ASSET, AND LIABILITY. IN THE INSTANT CAS E THE COMPANY HAS ENTERED INTO THESE FOREX DERIVATIVE CONTRACTS TO HEDGE THE RISK OF INTEREST IN RESPECT OF RUPEE LOAN, THEREFORE THE UNDERLYING LIABILITY IN THE INS TANT CASE IS RUPEE LOAN. THE LD. AR FOR THE REVENUE HAS RELIED ON THE DECISION OF HO N`BLE ITAT KOLKATA BENCH `B` IN ITA NO. 1241/KOL/2013 WHEREIN THE SIMILAR IDENTICAL ISSUES WERE ADJUDICATED, VIDE PARA 25 AND 26 OF THE SAID DECISION WHICH ARE REPRO DUCED BELOW: 25. APPLYING THE ABOVE OBSERVATIONS TO THE FACTS A ND CIRCUMSTANCES OF PRESENT CASE, WE FIND THAT THE CLAIMED LOSS UNDER CONSIDERA TION OCCURRED TO THE ASSESSEE ON ACCOUNT OF FIVE UNEXPIRED FOREX FORWARD CONTRACT S I.E A LOSS INCURRED ON ACCOUNT OF REVALUATION ON CONTRACT ON LAST DAY OF A CCOUNTING PERIOD BEFORE DATE OF MATURITY OF FORWARD CONTRACT. THE LD. CIT-A OBSERVE D THAT THE ASSESSEE HAS BEEN FOLLOWING A CONSISTENT ACCOUNTING POLICY FOR DETERM INING LOSS UNDER AS-11 AND AS-30 AS REQUIRED UNDER COMPANIES ACT AND IT IS TO BE NOTED THAT THE ACCOUNTING STANDARDS WERE ISSUED BY THE ICAI WHICH HAS RECEIVE D JUDICIAL RECOGNITION. ACCORDINGLY, THE ASSESSEE, THE GAIN OR LOSS ON REVA LUATION OF THE OUTSTANDING CONTRACTS WAS BOOKED IN THE P.& L, A/C AS PER THE M ANDATORY REQUIREMENTS OF RBI GUIDELINES. THE HON`BLE SUPREME COURT IN THE CASE O F WOODWARD GOVERNOR INDIA (P) LTD. (SUPRA) HAS OBSERVED AT P.265 PARA 17 THAT THE CENTRAL GOVERNMENT HAS MADE AS-11 MANDATORY. DURING THE COURSE OF FIRST AP PELLATE PROCEEDINGS THAT THE CIT-A NOTICED THAT THE AO ALLOWED THE LOSS OF RS. 8 5,70,425/- FOR 2010-11 WHICH SUPPORTS TO SHOW THAT THE ASSESSEE HAS BEEN FOLLOWI NG CONSISTENTLY ACCOUNTING STANDARDS AND THE LIABILITY HAS BEEN ACCRUED FOR A PENDING OBLIGATION FOR EVERY YEAR I.E. THE DIFFERENCE WAS ARISING FOR MORE THAN ONE ACCOUNTING PERIOD. STENLY SECURITIES LTD. ITA NO.1718/KOL/2017 ASSESSMENT YEAR:2008-09 P PP PA AA AG GG GE EE E | || | 7 77 7 26. WE, ACCORDINGLY, HOLD THAT DISALLOWANCE MADE BY AO TREATING THE IMPUGNED AMOUNT OF RS. 54,23,955/- FOR A.Y. 2009-10 AS CONTI NGENT AND NOTIONAL LOSS IS NOT JUSTIFIED AND THAT THE LOSS INCURRED TO THE ASSESSE E ON ACCOUNT OF FIVE UNEXPIRED FOREX FORWARD CONTRACTS ON THE LAST DATE OF ACCOUNT ING PERIOD I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT ISNOT CONTINGEN T AND IT IS A ACTUAL LOSS, IS ALLOWABLE. THUS, RESPECTFULLY, FOLLOWING THE OBSERV ATIONS MADE BY THE SPECIAL BENCH SUPRA, THE GROUND NO2 RAISED BY THE APPELLANT REVENUE FAILS AND THE ORDER OF CIT-A IS JUSTIFIED, CONSEQUENTLY GROUND NO-2 IS DISMISSED. 5.1 THE LD. AR FOR THE ASSESSEE HAS VEHEMENTLY SUBM ITTED THAT THE ABOVE CITED DECISION OF HON`BLE ITAT ,KOLKATA IS IDENTICAL TO T HE FACTS OF THE ASSESSEE UNDER CONSIDERATION. THE TREATMENT FOLLOWED BY THE ASSESS EE COMPANY IS IN LINE WITH THE MATCHING CONCEPT OF EXPENDITURE AND LIABILITY SINCE AS AT THE CLOSE OF THE ACCOUNTING YEAR THERE WAS A LIABILITY WHICH CANNOT BE IGNORED OR ELSE THE FINANCIAL STATEMENTS WOULD NOT REFLECT A TRUE AND FAIR VIEW OF THE ASSET S AND LIABILITIES AND CORRESPONDING PROFIT FOR THE YEAR. IN ADDITION TO THIS, THE LD. A R HAS ALSO PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: 1. IN THE CASE OF - BANK OF BAHRAIN & KUWAIT (J 32 TTJ 505) (MUMBAI ITAT SB) WHEREIN IT HAS BEEN HELD THAT LOSS ON ACCOUNT OF VA LUATION OF FORWARD CONTRACTS ON THE LAST DAY OF ACCOUNTING PERIOD IS AN ALLOWABLE B USINESS LOSS. 2. WOODWARD GOVERNOR INDIA (P) LTD. (2009) 312 ITR 254 (SC). 5.2 THE LD. AR FOR THE ASSESSEE STATED THAT IN VIEW OF DETAILED SUBMISSIONS MADE AND CASE LAW CITED ABOVE, IT IS CLEAR THAT THE BUSI NESS LOSS OF RS..1,58,94,821/- ON ACCOUNT OF MARK TO MARKET OF UNEXPIRED FOREX DERIVA TIVES CONTRACTS IS ALLOWABLE AND PRAYED THAT ADDITION MADE ON THIS ACCOUNT MAY B E DELETED. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE LD. AO AND THE LD. CIT(A) AND CITED BEFORE US THE CBDT CIRCULAR NO.3/2010 DATED 23RD MA RCH, 2010, WHEREIN THE CBDT HAS INSTRUCTED TO THE DEPARTMENT THAT MARK TO MARKET LOSSES WHICH ARE IN THE NATURE OF SPECULATION SHOULD NOT BE ALLOWED AS A BU SINESS EXPENDITURE. LD. DR STATED THAT IT IS A NOTIONAL LOSS WHICH WILL BE ACT UALLY DEDUCTIBLE FROM THE INCOME OF THE ASSESSEE ON THE MATURITY OF THE CONTRACT. THE I SSUE UNDER CONSIDERATION IS IN RESPECT OF UNSETTLED CONTRACTS AND MOREOVER THERE I S NO ANY UNDERLYING ASSETS AND LIABILITY TO HEDGE THE RISK. HE FURTHER SUBMITTED T HAT LOSS ARISING FROM MARK TO MARKET POSITION OF FINANCIAL INSTRUMENTS IS DIFFERE NT AND CANNOT BE CONSIDERED ALLOWABLE AS DEDUCTION AS SUCH LOSS HAS NOT ARISEN SO FAR IN THE NORMAL COURSE OF BUSINESS OPERATION OF THE ASSESSEE. THE EXCHANGE RA TES ARE STILL LIABLE TO FLUCTUATE OF THE MARKET IN FUTURE, THEREFORE, IT IS KIND OF A SP ECULATIVE TRANSACTION WHICH SETTLES OTHERWISE THAN BY THE ACTUAL DELIVERY WITHIN THE ME ANING OF SUB-SECTION 5 OF SECTION 43 OF THE INCOME TAX ACT, 1961. THE LD. DR ALSO REL IED ON THE FOLLOWING JUDGMENTS. 1). ACIT-VS- K. MOHAN & COMPANY PRIVATE LTD., BANG ALORE ITAT 126 ITD 59 2) D. KISHORE COMMERCIAL & COMPANY, MUMBAI ITAT, 2 SOT 769 3) S. VINOD KUMAR VS- ACIT, MUMBAI ITAT IN ITA NO .506/MUM/13 STENLY SECURITIES LTD. ITA NO.1718/KOL/2017 ASSESSMENT YEAR:2008-09 P PP PA AA AG GG GE EE E | || | 8 88 8 ALL THE JUDGMENTS CITED ABOVE SPEAK ABOUT THE SPECU LATIVE TRANSACTIONS WHICH DO NOT HAVE ANY UNDERLYING ASSETS AND LIABILITIES TO H EDGE AND THESE TRANSACTIONS SETTLE IN FUTURE WITHOUT ACTUAL DELIVERY OF GOODS. 7. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF T HE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS OF THE LD. AR FOR THE ASSESSEE, SINCE T HE PROPOSITION CANVASSED BY LD AR IS SUPPORTED BY HON`BLE ITAT-KOLKATA, CITED SUPR A. THERE IS AN UNDERLYING LIABILITY ( LOAN) TO HEDGE THE RISK AND HENCE THE D ERIVATIVE CONTRACT UNDER CONSIDERATION IS FOR THE PURPOSE OF BUSINESS AND NO T FOR THE PURPOSE TO SPECULATE THE TRANSACTION WITHOUT AND UNDERLYING ASSETS AND LIABI LITIES. IN THE INSTANT CASE THERE IS AN UNDERLYING LIABILITY AND PURPOSE OF THIS DERIVAT IVE CONTRACT IS TO MINIMISE THE BUSINESS RISK BY WAY OF HEDGING THEREFORE IT IS NOT A SPECULATIVE TRANSACTION AS LD. DR HAS POINTED OUT (SUPRA), HENCE WE DIRECT THE LD. CIT (A) TO DELETE THE ADDITION. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE CO-ORDIN ATE BENCH IN THE CASE OF M/S NAGREEKA EXPORTS (SUPRA), WE ALLOW THE GROUND RAISE D BY THE ASSESSEE. 10. GROUND NO. 3 RAISED BY THE ASSESSEE RELATES TO ADDITIONAL GROUND RAISED IN THE COURSE OF APPELLATE PROCEEDINGS TO CONTEST THE DISA LLOWANCE OF STT OF RS. 4,50,677/-. 11. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT AS PER FORM NO. 10DB, THE TOTAL STT PAID WAS RS.7,94,107/- BUT THE ASSESSEE HAS DEBITED STT OF RS. 4,50,677/- ONLY, THEREFORE, THE BALANCE STT OF RS. 3,43,430/-(RS.7,94,107- RS. 4,50,677) HA S NOT BEEN DEBITED / PROVIDED. THEREFORE, AO TREATED THE BALANCE SUM OF RS. 3,43,4 30/- AS INCOME OF THE ASSESSEE FROM UNDISCLOSED SOURCES AND HENCE HE DISALLOWED TH E SAME. 12. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS ALLO WED THE GROUND RAISED BY THE ASSESSEE FOR STATISTICAL PURPOSES, OBSERVING THE FO LLOWING: I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORIZ ED REPRESENTATIVE OF THE APPELLANT AS WELL AS THE ASSESSMENT ORDER FRAMED IN THE LIGHT OF THE MATERIALS AVAILABLE ON RECORD BEFORE THE ASSESSING OFFICER DU RING THE ASSESSMENT PROCEEDINGS. THE A.R. HAS SUBMITTED THAT RS. 3,43,4 30/- PERTAINS TO NEXT YEAR. IN VIEW OF ABOVE, THE A.O. IS DIRECTED TO VERIFY THE CLAIM OF THE APPELLATE AND TAKE ACTION ACCORDINGLY. THIS GROUND OF APPEAL IS ALLOWE D FOR STATISTICAL PURPOSES. 13. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. STENLY SECURITIES LTD. ITA NO.1718/KOL/2017 ASSESSMENT YEAR:2008-09 P PP PA AA AG GG GE EE E | || | 9 99 9 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSING OFFICER DID NOT UNDERSTA ND THE FACTUAL POSITION AS IT WAS GIVEN IN CERTIFICATE 10DB SUBMITTED BY THE ASSE SSEE. WE NOTE THAT THE TOTAL AMOUNT OF RS. 7,94,107/- PERTAINS TO FOR TWO YEARS I.E. F.Y. 2007-08 AND 2008-09, THE DETAILS OF THE SAME IS GIVEN BELOW: FINANCIAL YEAR STOCK EXCHANGE AMOUNT 2007-08 NATIONAL STOCK EXCHANGE 101949 2007-08 BOMBAY STOCK EXCHANGE 8155 2008-09 BOMBAY STOCK EXCHANGE 44281 2008-09 F & O NSE 628966 2008-09 NATIONAL STOCK EXCHANGE 10756 TOT AL 794107 IT IS PERTINENT TO NOTE THAT THE AMOUNT OF RS. 7,94 ,107/- CONSIDERED BY THE ASSESSING OFFICER INCLUDES THREE FORMS FOR F.Y. 200 8-09. WE NOTE THAT COPIES OF FORM NO. 10DB REFLECTING AGGREGATE AMOUNT OF RS. 4, 50,677/- WITH RESPECT TO STT PAID FOR F.Y. 2007-08 HAS NOT BEEN CONSIDERED BY AO . THEREFORE, WE DIRECT THE ASSESSING OFFICER TO EXAMINE FORM NO. 10DB AND ALLO W THE CLAIM OF THE ASSESSEE TO THE TUNE OF RS. 4,50,677/- IN ACCORDANCE TO LAW. THEREFORE, WE ALLOW THIS GROUND RAISED BY THE ASSESSEE FOR STATISTICAL PURPOSES. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 06.09.2019 SD/- ( A.T. VARKEY ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 06/09/2019 ( SB, SR.PS ) STENLY SECURITIES LTD. ITA NO.1718/KOL/2017 ASSESSMENT YEAR:2008-09 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 COPY OF THE ORDER FORWARDED TO: 1. STENLY SECURITIES LTD. 2. DCIT, CIRCLE-5, KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATABENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES