DCIT 3(2), MUMBAI V. KIDUJA INDIA LTD, MUMBAI

ITA 1852/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93103 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 11-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-03-2013
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A. NO.1852/M/2013 (AY:2009 - 2010 ) DCIT 3(2), R.NO.609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 20. / VS. M/S. KIDUJA (INDIA) LTD., 127 - B, MITTAL TOWER, NARIMAN POINT, MUMBAI - 21. ./ PAN : AAACK1720E ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI JEEVAN LAL LAVIDIYA / RESPONDENT BY : SHRI RAJESH P SHAH / DATE OF HEARING : 11.06.2015 / DATE OF PRONOUNCEMENT : 30 .06.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 7.3.2013 IS AGAINST THE ORDER OF THE CIT (A) - 4, MUMBAI DATED 20.12.2011 FOR THE ASSESSMENT YEAR 2009 - 2010. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 32,81,661/ - MADE ON ACCOUNT OF MARK - TO - MARKET LOSS CLAIMED ON ACCOUNT OF TRADING IN DERIVATIVE TRANSACTIONS, WITHOUT APPRECIATING THE FACT THAT THE LOSS CLAI MED ON THE BASIS OF VALUE OF DERIVATIVE IS MERELY A NOTIONAL LOSS AND THE ACTUAL LOSS OR THE PROFIT IN RESPECT OF SUCH DERIVATIVE TRANSACTION WOULD GET CRYSTALLIZED ONLY AT THE TIME OF SETTLEMENT OF SUCH TRANSACTION. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT AND DEALING IN SHARES & SECURITIES. ASSESSEE FILED E - RETURN DECLARING THE TOTAL LOSS OF RS. 7,74,88,854/ - . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 7,59,74,693/ - . IN THE ASSESSMENT, AO MADE A DISALLOWANCE OF RS. 32,81,661/ - ON ACCOUNT OF NOTIONAL 2 MARK - TO - MARKET LOSS. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) ALLOWED THE APPEAL OF THE A SSESSEE. WHILE ALLOWING THE ASSESSEES APPEAL, CIT (A) RELIED ON HIS OWN DECISION FOR THE AY 2008 - 2009 AND ALSO RELIED ON THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF EDELWEISS CAPITAL LTD VS. ITO [2011] (37 (II) ITCL 65) . PARA 4 OF THE CIT (A)S ORDE R IS RELEVANT IN THIS REGARD. AGGRIEVED WITH THE SAID DECISION OF THE CIT (A), REVENUE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 4. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE ORDER OF THE CIT (A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE FURTHER RELIED ON THE ORDER OF THE ITAT, MUMBAI IN THE CASE OF DCIT VS. KOTAK MAHINDRA INVESTMENT LTD [2013] 36 CCH 0059, DATED 3.5.2013 AND ALSO THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. FUTUREPATH MANAGEMENT SERVICE PVT LTD [2013] 36 CCH 0220 (MUM)(TRIB), DATED 27.2.2013 . IT IS THE PRAYER OF THE LD COUNSEL, THAT THE CONSIDERING THE COVERED NATURE OF THE ISSUE, THE PRESENT APPEAL MAY ALSO BE DECIDED I N THE SAME LINES. 5. ON THE OTHER HAND, LD DR FOR THE REVENUE DUTIFULLY RELIED ON THE ORDER OF THE AO. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED ON TO THE RECORD. ON PERUSAL OF THE SAID ORDER OF THE CIT (A) IN GENERAL AND PARA 4 IN PARTICULAR, WE FIND THE SAME IS RELEVANT HERE. CONSIDERING THE SIGNIFICANCE OF THE SAID PARA 4 OF THE CIT (A)S ORDER, WE FIND IT RELEVANT TO EXTRACT THE SAME FOR THE SAKE OF COMPLETENESS OF THIS ORDER AND THE SAME IS AS FOLLOWS. 4. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE. SIMILAR ISSUE HAS BEEN DECIDED BY ME IN THE CASE OF THE ASSESSEE FOR AY 2008 - 2009 AND THE RELEVANT PORTION OF THE DECISION IS AS FOLLOWS: - I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE. THERE IS UNDISPUTED RULE THAT STOCK - IN - TRADE IS VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER AND, THEREFORE, WHEREVER THE MARKET PRICE OF THE STOCK IS LOWER THAN THE COST, THEN AUTOMATICALLY THE LOSS IS ALLOWED EVEN THE STOCK HAS NOT YET BEEN SOLD AND THE LOSS MAY BE SAID TO BE A NOTIONAL LOSS ONLY. BUT IN CASE THE MARKET VALUE OF THE STOCK IS HIGHER, THEN NO SUCH PROFIT IS BOOKED AND THE STOCK IS VALUED AT COST ONLY. IN THE C ASE OF THE ASSESSEE, OPEN ENDED 3 CONTRACTS IN FUTURE DERIVATIVES MARKET ARE LIKE STOCK - IN - TRADE OF THE ASSESSEE AND THEY ARE THE CURRENT ASSETS AND THEREFORE, IT IS AS PER THE NORMAL RULE OF VALUATION OF STOCK - IN - TRADE THAT THEY ARE VALUED AT COST OR MARKET PRICE WHICHEVER IS LESS AT THE END OF THE YEAR AND ANY SUCH LOSS ON SUCH VALUATION WHICH IS CALLED MARK TO MARKET LOSS HAS TO BE ALLOWED EVEN THOUGH IT MAY APPEAR TO BE A NOTIONAL LOSS. THIS FACT HAS ALSO BEEN RECOGNIZED BY THE INSTITUTE OF CHARTERED ACC OUNTANTS, THE ACCOUNTANCY BODY IN THE COUNTRY, THAT SUCH A LOSS IS TO BE ALLOWED AT THE CLOSE OF THE YEAR AS HAS BEEN CLAIMED BY THE ASSESSEE. THE ASSESSEE HAS BEEN FOLLOWING THIS METHOD OF VALUATION OF SUCH CONTRACTS CONSISTENTLY YEAR AFTER YEAR AS CLAIM ED. THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY VARIOUS JUDICIAL AUTHORITIES WHICH INCLUDES THE FOLLOWING CASE: A. EDELWEISSE CAPITAL LTD VS. ITO (SUPRA) IN THIS CASE BRIEFLY IT IS HELD AS FOLLOWS: IN CASE OF EDELWEISS CAPITAL LTD VS. ITO 3(1) (1) (2011) 37 (II) ITCL 65 (MUMJ TRIB.) THE MUMBAI ITAT HAS HELD THAT PROVISION FOR LOSS MADE BY THE ASSESSEE ON MARK TO MARKET BASIS IN RESPECT OF TRADING IN DERIVATIVES IS ALLOWABLE AS DEDUCTION. THIS IS A DIRECT JUDGMENT BY MUMBAI ITAT ON THE ISSUE I NVOLVED IN THE APPELLANTS CASE. THE MUMBAI ITAT RELIED ON JUDGMENT OF THE SUPREME COURT HELD IN THE CASE OF CHANRUP SAMPATRAM VS. CIT, WEST BENGAL (1953) 24 ITR 481 (SC) AND GUIDANCE NOTE ISSUED BY THE ICAI ON RULE OF PRUDENCE. IN VIEW OF THE ABOVE DISCUSSION AND DECISION CITED, THE CLAIM OF MARK TO MARKET LOSS OF THE ASSESSEE TO THE EXTENT OF RS. 8,62,972/ - IS ALLOWED AND THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION AND DECISION FOR AY 2008 - 2009, MARK TO MARKET LOSS OF FUTURE OPTIONS / DERIVATIVES IS ALLOWED TO THE ASSESSEE. IN RESULT, THE GROUND OF APPEAL IS ALLOWED. 7. FROM THE ABOVE, WE FIND THE CIT (A) DISCUSSED THE ISSUE AT LENGTH AND ADJUDICATED THE MATTER CORRECTLY BY RELYING ON THE ORDER OF THE ITAT IN THE CASE OF EDELWEISS CAPITAL LTD VS. ITO (SUPRA). CONSIDERING THE SETTLED NATURE OF THE ORDER, IN OUR OPINION, THE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND THEREFORE, IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY T HE REVENUE ARE DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNC ED IN THE OPEN COURT ON 30 TH JUNE, 2015. SD/ - SD/ - (I.P. BANSAL) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 30 .6 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 4 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI