SHUBHKAM SECURITIES P. LTD, MUMBAI V. DCIT RG 4(2), MUMBAI

ITA 1940/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1266 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 30-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R C JAIN
• Keywords: Cost of acquisition; Futures and options

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI S.V. MEHROTRA (AM) AND SMT. ASHA VIJAY ARAGHAVAN (JM) ITA NO. 1940/MUM/2009 ASSESSMENT YEAR-2005-06 M/S. SUBHKAM SECURITIES PVT. LTD., 15, ONLOOKER BLDG., 2 ND FLOOR, SIR P.M. ROAD, MUMBAI-400 001 PAN - AADCS4498N VS. THE DY. CIT, RANGE 4(2), MUMBAI (APPELLANT) (RESPONDENT) ITA NO. 1941/MUM/2009 ASSESSMENT YEAR-2005-06 M/S. SUBHKAM STOCK & SHARES LTD., 15, ONLOOKER BLDG., 2 ND FLOOR, SIR P.M. ROAD, MUMBAI-400 001 PAN- AAACM7389K VS. THE ITO, WARD 4(2)(3), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.C. JAIN RESPONDENT BY: SHRI CHANDRAJIT SINGH O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THESE TWO APPEALS ARE PREFERRED BY THE ASSESSEE WH ICH ARE DIRECTED AGAINST THE ORDERS DT. 17.2.2009 PASSED BY THE LD. CIT(A)-IV, MUMBAI FOR THE ASSESSMENT YEAR 2005-06. AS THE ISSUES INVOLVED IN BOTH THE ASSESSEES APPEALS ARE IDENTICAL, VIZ., ALLOWABILIT Y OF THE LOSS INCURRED ON FUTURE TRADING, BOTH THE APPEALS ARE DISPOSED OFF T OGETHER. FIRST WE SHALL ITA NOS. 1940 & 1941 /M/09 2 DEAL WITH ITA NO 1941/M/09 IN THE CASE OF M/S. SUBH KAM STOCK & SHARES LTD. ITA NO 1941/M/09 M/S. SUBHAKAM STOCK & SHARES LTD: 2. THE ASSESSEE, M/S. SUBHAKAM STOCK & SHARES LTD, IS IN THE BUSINESS OF SHARE TRADING AND BROKING. DURING THE Y EAR THE ASSESSEE CLAIMED A LOSS OF RS. 23,42,,830/- FROM THEIR STOCK INDEX FUTURES TRANSACTIONS. WHEN THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY THE LOSS ARISING FROM THE OPEN POSITION OF THE FUTU RE OPTIONS AS ON 31.3.2005 CANNOT BE TREATED AS NOTIONAL LOSS AND DI SALLOWED, THE A/R OF THE ASSESSEE VIDE LETTER DT 27.12.2007 REPLIED AS U NDER: UNDER INSTRUCTIONS FROM ABOVE CLIENTS AND IN RESPO NSE TO YOUR QUERY WITH RESPECT TO DISALLOWANCE OF LOSS ON OPEN POSITION OF FUTURES & OPTIONS WE WOULD LIKE TO INFORM YOU THAT ALL CONTRAC TS ENTERED INTO, WHICH ARE ULTIMATELY SQUARED UP ARE CARRIED FORWARD ON A DAY TO DAY BASIS AT THE CLOSING RATE PREVAILING AT THE END OF THE DAY, TO THE SUBSEQUENT DAY THEREBY CHARGING THE PROFIT OR LOSS ON THE RESPECTIVE DAYS. HENCE IN OUR HUMBLE SUBMISSION WE WOULD LIKE TO INFORM YOU THAT OUR CLIENTS . 3. AS PER ICAI GUIDANCE NOTE ON ACCOUNTING FOR EQUI TY INDEX AND EQUITY STOCK FUTURES AND OPTIONS , A FUTURE CONTRAC T, LIKE A FORWARD CONTRACT, IS AN AGREEMENT BETWEEN TWO PARTIES TO BU Y OR SELL AN ASSET A CERTAIN TIME IN FUTURE FOR AN AGREED PRICE. FUTURE CONTRACTS ARE NORMALLY TRADED ON AN EXCHANGE. TO MAKE TRADING POSSIBLE, TH E EXCHANGE SPECIFIES CERTAIN STANDARDIZED FEATURES OF THE CONTRACT. AN OPTION IS A TYPE OF DERIVATIVE INSTRUMENT WHEREBY A PERSON GETS THE RIG HT TO BUY OR SELL AT AN AGREED AMOUNT AN UNDERLYING ASSET ON OR BEFORE THE SPECIFIED DATE. HE IS NOT UNDER ANY OBLIGATION TO DO SO. 4. THE AO CONCLUDED THAT THE DERIVATIVES ARE MARKED TO MARKET DAILY AND THE ACCOUNTS ARE SQUARED UP ON A DAILY BASIS. T HE PAYMENT OF MARGIN IS AN ADVANCE PAYMENT FOR SECURING THE BROKE R AND IS NOT A ITA NOS. 1940 & 1941 /M/09 3 PAYMENT ON REVENUE ACCOUNT. MARGIN PAYMENT IS NOT A N EXPENSE AS THE MARGIN IS REFUNDABLE OR WILL BE ADJUSTED AGAINST FU TURE LOSSES. DERIVATIVES MAY BE COMMODITIES AS PER SEC 43(5), BU T THEIR COST OF ACQUISITION IS NIL. IN A CASE WHEN MARK TO MARKET I S A LOSS THEN AS COST OF ACQUISITION IS NIL, VALUATION OF SUCH CONTRACT FIGU RE WILL BECOME NEGATIVE. THE VALUE OF STOCK IN TRADE CANNOT BE NEGATIVE. HEN CE THE FUTURE CONTRACTS CANNOT CONSTITUTE STOCK IN TRADE AND THE MARK TO MARKET LOSSES ARE ONLY UNASCERTAINED LIABILITY OR A PROVISION FOR LOSS. IN SUCH A TYPE OF CONTRACTS THE PROFITS OR LOSS WILL NOT ACCRUE UNLES S THE CONTRACTS ARE SETTLED. THE AO ALSO RELIED ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT V INDIAN OVERSEAS BANK (151 ITR 446 ) AND THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V KAMANI M ETAL PRODUCTS P LTD (208 ITR 1017). HE DISALLOWED THE LOSS OF RS. 23,42 ,830/- CLAIMED BY THE ASSESSEE. 5. AGGRIEVED THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A). THE CIT(A) HAS OBSERVED THAT STOCK INDEX FUTURES TRANS ACTION ARE SETTLED ON A DAILY BASIS. EACH EVENING THE CLOSING PRICE WOULD BE COMPARED WITH THE CLOSING PRICE OF THE PREVIOUS EVENING AND PROFIT OR LOSS COMPUTED BY THE EXCHANGE. THE EXCHANGE WOULD COLLECT OR PAY THE DIF FERENCE TO THE MEMBER- BROKERS ON A DAILY BASIS. THE BROKER COULD FURTHER PAY THE DIFFERENCE TO HIS CLIENTS ON A DAILY BASIS. ALTERNA TIVELY, COULD SETTLE WITH THE CLIENT ON A WEEKLY BASIS AS DAILY FUND MOVEMENT S COULD BE DIFFICULT ESPECIALLY AT THE RETAIL LEVEL. ANALYSING THE ACCOU NTING GUIDELINES ISSUED IN THIS REGARD BY THE INSTITUTE OF CHARTERED ACCOUN TANTS, THE CIT(A) HAS OBSERVED: . GUIDANCE NOTE ON ACCOUNTING OF EQUITY INDEX AND EQUITY STOCK FUTURES & OPTIONS WAS ISSUED WHICH WAS PUBLIS HED IN THE CHARTERED ACCOUNTANTS ASSOCIATION IN SEPTEMBE R, 2002. ACCOUNTING FOR OPEN FUTURES CONTRACTS AS ON BALANCE SHEET DATE WAS PRESCRIBED AS UNDER: ITA NOS. 1940 & 1941 /M/09 4 44. THE DEBIT/CREDIT BALANCE IN THE MARK-TO-MARKE T MARGIN- EQUITY INDEX FUTURES ACCOUNTANT OR THE MARK-TO-MA RKET MARGIN-EQUITY STOCK FUTURES ACCOUNT AS THE CASE MA Y BE, REPRESENTS THE NET AMOUNT PAID TO/RECEIVED FROM THE CLEARING/TRADING MEMBER ON THE BASIS OF MOVEMENT IN THE PRICES OF EQUITY INDEX FUTURES OR EQUITY STOCK FUTU RES TILL THE BALANCE SHEET DATE IN RESPECT OF OPEN FUTURES CONT RACTS. IN CASE, THE SAID ACCOUNT HAS A DEBIT BALANCE ON THE BALANCE SHEET DATE, THE SAME SHOULD BE SHOWN AS A CURRENT A SSET. ON THE OTHER HAND, IN CASE THE SAID ACCOUNT HAS A CRED IT BALANCE ON THE BALANCE SHEET DATE, THE SAME SHOULD BE SHOWN AS A CURRENT LIABILITY. 45. KEEPING IN VIEW PRUDENCE AS A CONSIDERATION F OR THE PREPARATION OF FINANCIAL STATEMENTS, PROVISION FOR THE ANTICIPATED LOSS IN RESPECT OF OPEN FUTURES CONTRAC T SHOULD BE MADE. FOR THIS PURPOSE, THE NET AMOUNT PAID/RECEIV ED ON ACCOUNT OF MARK-TO-MARKET MARGIN ON OPEN FUTURES CO NTRACTS ON THE BALANCE SHEET DATE SHOULD BE DETERMINED INDE X- WISE/SCRIPT-WISE. WHERE THE INDEX-WISE/SCRIPT-WISE BALANCE IS A DEBIT BALANCE REPRESENTING THE NET AMOUNT PAID , PROVISIONS SHOULD BE MADE FOR THE SAID AMOUNT. HOW EVER, WHERE THE INDEX-WISE/SCRIPT-WISE BALANCE IS A CREDI T BALANCE REPRESENTING THE NET AMOUNT RECEIVED, THE SAME SHOU LD BE IGNORED KEEPING IN VIEW THE CONSIDERATION OF PRUDE NCE TO FACILITATE THESE COMPUTATIONS, THE MARK-TO-MARKET M ARGIN ACCOUNTS MAY BE MAINTAINED INDEX-WISE/SCRIPT-WISE. 46. THE PROVISIONS AS CREATED ABOVE SHOULD BE CREDI TED TO AN APPROPRIATE ACCOUNT, SAY PROVISION FOR LOSS ON EQUITY INDEX FUTURES ACCOUNT OR TO PROVISION FOR LOSS ON EQUIT Y STOCK FUTURES ACCOUNT AS THE CASE MAY BE. IN CASE OF AN Y OPENING BALANCE IN THE PROVISION FOR LOSS ON EQUITY INDEX FUTURES ACCOUNT OR THE PROVISION FOR LOSS SON EQUITY STOC K FUTURES ACCOUNT, THE SAME SHOULD BE ADJUSTED AGAINST THE P ROVISION REQUIRED IN THE CURRENT YEAR AND THE PROFIT AND LOS S ACCOUNT SHOULD BE DEBITED/CREDITED WITH THE BALANCE PROVISI ON REQUIRED TO BE MADE/EXCESS PROVISION WRITTEN BACK. 47. THE PROVISION FOR LOSS ON EQUITY INDEX FUTURE S ACCOUNT OR THE PROVISION FOR LOSS ON EQUITY STOCK FUTURES ACCOUNT SHOULD BE SHOWN AS A DEDUCTION FROM THE BA LANCE OF THE MARK-TO-MARKET MARGIN-EQUITY INDEX FUTURES ACC OUNT OR THE MARK-TO-MARKET MARGIN-EQUITY STOCK FUTURES ACC OUNT, IF DISCLOSED AS A CURRENT ASSET. ON THE OTHER HAND, I F THE ABOVE STATED MARGIN ACCOUNTS IS DISCLOSED AS A CURRENT LI ABILITY, THE ITA NOS. 1940 & 1941 /M/09 5 AFORESAID PROVISION ACCOUNTS SHOULD BE SHOWN AS A P ROVISION ON THE LIABILITIES SIDE OF THE BALANCE SHEET. AT PARA 48 & 49, ACCOUNTING AT THE TIME OF FINAL SETTLEMENT OR SQUARING UP WAS PROVIDED AS UNDER: 48. AT THE EXPIRY OF A SERIES OF EQUITY INDEX FUTUR ES/EQUITY STOCK FUTURES, THE PROFIT/LOSS, ON FINAL SETTLEMENT OF THE CONTRACTS IN THE SERIES SHOULD BE CALCULATED AS THE DIFFERENCE BETWEEN THE FINAL SETTLEMENT PRICE AND THE CONTRACT PRICES OF ALL THE CONTRACTS IN THE SERIES. THE PROFIT/LOSS, SO COMPUTED SHOULD BE RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT BY CORRESPONDING DEBIT/CREDIT TO THE MARK-TO-MARKET MA RGIN- EQUITY INDEX FUTURES ACCOUNT OR THE MARK-TO-MARKET MARGIN- EQUITY STOCK FUTURES ACCOUNT AS THE CASE MAY BE. 49. THE SAME ACCOUNTING TREATMENT AS RECOMMENDED IN PARA 48 SHOULD BE MADE WHEN A CONTRACT IS SQUARED-U P BY ENTERING INTO A REVERSE CONTRACT. IF MORE THAN ONE CONTRACT IN RESPECT OF THE RELEVANT SERIES OF EQUITY INDEX FUTU RES/EQUITY STOCK FUTURES CONTRACT TO WHICH THE SQUARED-UP CONT RACT PERTAINS IS OUTSTANDING AT THE TIME OF THE DQUARING UP OF THE CONTRACT, THE CONTRACT PRICE OF THE CONTRACT SO SQU ARED UP SHOULD BE DETERMINED USING WEIGHTED AVERAGE METHOD FOR CALCULATING PROFIT/LOSS ON SQUARING UP CBDT NOTIFICATION NO. SO 69E DT. 25.1.1996 PROVIDE S THAT ACCOUNTING POLICIES ADOPTED BY THE ASSESSEE SH OULD BE SUCH THAT IT REPRESENTS A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE BUSINESS AND FINANCIAL STATEMENTS PR EPARED AND PRESENTED ON THE BASIS OF SUCH ACCOUNTING POLICIES. 6. THE CIT(A) THEREFORE DISALLOWED THE ASSESSEES C LAIM OF LOSS OBSERVING AS UNDER: THE ARGUMENTS OF THE APPELLANT HAVE BEEN EXAMINED IN DETAIL IN THE AFORESAID QUOTED DECISION OF THE UNDERSIGNED IN CASE OF M/S. EDELWEISS SECURITIES PVT. LTD. , A.Y. 2005-06. FOLLOWING THE SAME, IT HELD THAT MARK TO MARKET LOSS IS A NOT IONAL LOSS, THE REAL LOSS OR PROFIT OCCUR NOT ON THE BALANCE DA TE BUT ON THE DATE OF SETTLEMENT OR SQUARING UP OF CONTRACT WHICH TAKES PLACE ON SUBSEQUENT DATE. IN VIEW OF THE ABOVE, ITA NOS. 1940 & 1941 /M/09 6 (I) THE DISALLOWANCE OF LOSS OF RS. 23,42,830/- IS CONFIRMED. (II) THE INCOME IS ENHANCED BY A SUM OF RS. 13,33,1 80/-. 7. THE ASSESSEE HAS CLAIMED A LOSS OF RS. RS. 23,42 ,830/- ON THIS COUNT WHICH WAS DISALLOWED BY THE AO. THIS LOSS PER TAINS TO LOSS FOR THE PERIOD UPTO 30.3.2005. THE CIT(A) GAVE A NOTICE FOR ENHANCEMENT AND DISALLOWED RS. 13,33,180/- , BEING THE LOSS INCURRE D ON 31.3.2005, FOR WHICH THE ASSESSEE MADE A PROVISION IN THE ACCOUNTS AND THE AMOUNTS WERE SETTLED ON THE NEXT DAY. 8. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. 9. WE HEARD BOTH THE PARTIES. THE FUTURES ARE CONTR ACTS FOR PURCHASE OR SALE OF AN ASSET AT A FUTURE DATE AT AN AGREED P RICE. WHILE TRADING THESE FUTURES IN THE MARKET, THE EXCHANGE HAS STIPU LATED CERTAIN CONDITIONS VIZ., THE CONTRACT HAS TO BE SETTLED ON A DAILY BASIS. THEY ARE SQUARED UP AND CARRIED FORWARD ON A DAY TO DAY BASI S AT THE CLOSING RATE PREVAILING AT THE END OF THE DAY. IT WILL TANTAMOUN T TO SETTLEMENT OF THE CONTRACT EVERY DAY AND ENTERING INTO A FRESH DEAL A T THE PRICE PREVAILING AT THE CLOSE OF THAT DAY AND SETTLING THE DIFFERENCE. ON A DAY TO DAY BASIS THESE ARE VALUED AND THE DIFFERENCE BETWEEN THE CLO SING PRICE OF THE FUTURES ON ANY DAY AND THE CLOSING PRICE ON THE PRE VIOUS DAY ARE COLLECTED FROM OR PAID TO THE BROKERS BY THE EXCHAN GE. THE BROKERS PASS IT ON OR ADJUST IT AGAINST THE MARGIN MONIES DEPOSI TED BY THE CLIENTS. THEREFORE THESE PAYMENTS OR RECEIPTS WHICH ACCRUE ON A DAY TO DAY BASIS AND WILL HAVE TO BE SETTLED TO THE EXCHANGE, INDEPE NDENT OF THE UNDERLYING FORWARD CONTRACT WHICH IS ULTIMATELY SET TLED. IT IS NOT AS IF THE DAILY VARIATIONS ARE MERELY BOOK ENTRIES, MADE ON A NOTIONAL BASIS. ACTUAL PAYMENTS ARE MADE BY OR TO THE EXCHANGE ON THE DAIL Y DIFFERENCES. THESE ARE NOT NOTIONAL. THE LOSS OR AS THE CASE MAY BE PR OFITS ACCRUE ON A DAILY BASIS AND SETTLED. THEREFORE THE LOSSES OR PROFITS CANNOT BE IGNORED FOR ITA NOS. 1940 & 1941 /M/09 7 THE PURPOSE OF COMPUTING TOTAL INCOME ON THE BASIS THAT THEY ARE ONLY NOTIONAL. 10. THE LOSS OR PROFIT IS NOT MERELY ON A NOTIONAL VALUATION OF THE DERIVATIVE CONTRACT. THUS IT IS NOT NECESSARY TO DE CIDED WHETHER THE DERIVATIVE CONTRACT CAN BE CONSIDERED AS STOCK IN T RADE OR NOT AS THEIR COST OF ACQUISITION IS NIL OR WHETHER THE LOSS CAN ARISE ON VALUATION OF THE RIGHTS UNDER THE CONTRACT WHOSE COST OF ACQUISITION IS NIL. THE NATURE OF CONTRACT IS SUCH THAT THE ASSESSEE IS REQUIRED TO S ETTLE OR RECEIVE FROM EXCHANGE LOSSES OR PROFITS COMPUTED ON A DAILY BASI S. THESE PAYMENTS ARE NOT ON A REFUNDABLE BASIS. THEY ARE PAYABLE ON A DAY TO DAY BASIS. 11. THE DECISIONS RELIED ON BY THE AO AND THE LD. C IT(A) ARE DISTINGUISHABLE ON FACTS. IN THE CASE OF INDIAN OVE RSEAS BANK (151 ITR 446 (MAD), THE ASSESSEE HAD ENTERED INTO FORWARD CO NTRACTS FOR FOREIGN EXCHANGE. ON THE OUTSTANDING CONTRACTS THE ASSESSEE ESTIMATED THE LIKELY LOSS. THE MADRAS HIGH COURT HAS HELD THAT IN VIEW O F THE UNPREDICTABILITY OF THE FOREIGN EXCHANGE FLUCTUATION, THE LOSS ON UN EXPIRED CONTRACTS CANNOT BE ESTIMATED. IN THIS CASE IT IS NOT AN EST IMATE OF LOSS AT A FUTURE DATE. THE LOSS HAS ACTUALLY OCCURRED ON THE BASIS O F THE FLUCTUATION OF THE PRICE OF THE FUTURES EVERY DAY AND THE SAME IS ALSO SETTLED. 12. THE BOMBAY HIGH COURT IN THE CASE OF CIT VS KAM ANI METAL PRODUCTS PVT. LTD (208 ITR 1017), THE ASSESSEE CONT RACTED TO PURCHASE COPPER CATHODE AT RS. 33,825 PER M.T. TILL THE LAST DATE OF THE ACCOUNTING YEAR THE MATERIAL WAS NOT RECEIVED. THE MARKET PRICE OF COPPER CATHODES FELL TO RS. 25,461/-. THE ASSESSEE PROVIDED FOR THE ANTICIPATED LOSS IN THE PRICE OF COPPER CATHODES AN D CLAIMED IT AS A DEDUCTION. THE BOMBAY HIGH COURT HELD THAT THE ASSE SSEE DID NOT HAVE ANY STOCK IN TRADE ON HAND AS ON THE LAST DAY OF TH E PREVIOUS YEAR WHICH CAN BE VALUED AT MARKET VALUE AND LOSS CAN BE BOOKE D. IT WAS ONLY A CONTRACT TO PURCHASE THE MATERIAL AT A FUTURE DATE. THE ASSESSEE HAD NOT ITA NOS. 1940 & 1941 /M/09 8 PAID ANY AMOUNT AND NO PROPERTY PASSED TO ASSESSEE. HENCE THE ASSESSEE COULD NOT CLAIM ANY ANTICIPATORY LOSS. IN THE INSTANT CASE IT IS NOT AN ANTICIPATORY LOSS. IT IS ACTUAL LOSS BASED O N THE DIFFERENCE BETWEEN THE PRICES ON TWO SUCCESSIVE DAYS AND MORE IMPORTAN TLY THE SAME IS TO BE SETTLED ON A DAY TO DAY BASIS. 13. THE ASSESSEE HAD CLAIMED A LOSS OF RS. 23,42,83 0/- BEING THE LOSS INCURRED UPTO 30.3.2005 WHICH HAS BEEN ACTUALLY SET TLED AND MADE A PROVISION OF RS. 13,33,180/- BEING THE LOSS INCURRE D ON 31.3.2005 AND SETTLED ON 1.4.2005. THE AO DISALLOWED RS. 23,42,83 0/- AND THE CIT(A) ISSUED ENHANCEMENT NOTICE AND DISALLOWED, IN ADDITI ON TO SUSTAINING THE DISALLOWANCE OF RS. 23,42,830/- MADE BY THE AO, THE LOSS OF RS. 13,33,180/- INCURRED ON 31.3.2005. IN THE LIGHT OF THE DISCUSSIONS ABOVE, THE LOSSES INCURRED UPTO AND INCLUDING 31.3.2005, N ET OF ANY PROFITS EARNED DURING THE PERIOD ON FAVOURABLE FLUCTUATION OF THE PRICE OF THE FUTURES, ARE ACCRUED LOSSES INCURRED DURING THE YEA R. THEY HAVE BEEN INCURRED IN THE COURSE OF BUSINESS OF THE ASSESSEE. 14. WE THEREFORE HOLD THAT THE LOSS CLAIMED BY THE ASSESSEE ON A MARK TO MARKET BASIS ON THE STOCK INDEX FUTURE OF RS. 23 ,42,830/- (INCURRED UPTO 31.3.2005) AND RS. 13,33,180/-(INCURRED ON 31. 3.2005), ON THE BASIS OF ACTUAL SETTLEMENT OF LOSSES ON FUTURE CONT RACTS BASED ON THE PRICE DIFFERENTIAL OF THE FUTURES ON A DAY TO DAY B ASIS, WHICH IS NET OFF ANY PROFITS EARNED DURING THIS PERIOD ON THE COMPUTATIO N OF THE DIFFERENTIAL PRICING, IS AN ACCRUED LOSS AND IS ALLOWABLE . 15. IN THE RESULT THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. ITA NO 1940/M/09: SUBHKAM SECURITIES PVT. LTD 16. THE ISSUE INVOLVED IN THIS APPEAL IS ALSO IDENT ICAL WITH THAT OF M/S SHUBKAM STOCKS AND SHARES LTD IN ITA NO 1941/M/2009 . IN THIS CASE ITA NOS. 1940 & 1941 /M/09 9 THE ASSESSEE HAD CLAIMED A LOSS OF RS. 14,40,720/- FROM THE OPERATIONS OF MARK-TO-MARKET VALUATIONS IN DERIVATIVE TRADING. TH E AO DISALLOWED ON THE GROUND THAT IT IS MERELY PROVISION. 17. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANC E FOR THE SAME REASONS AS EXTRACTED IN THE CASE OF M/S SUBHKAM ST OCKS AND SHARES LTD IN ITA NO 1941/M/09 SUPRA. 18. AGGRIEVED, ASSESSEE IS ON APPEAL BEFORE US. 19. FOR THE REASONS STATED IN OUR ORDER IN ITA NO. 1941/M/09 IN THE CASE OF M/S SUBHKAM STOCKS AND SHARES LTD, (SUPRA), WE HOLD THAT THE LOSS CLAIMED BY THE ASSESSEE ON A MARK TO MARKET BA SIS ON THE STOCK INDEX FUTURE OF RS. 14,40,720/-, ON THE BASIS OF AC TUAL SETTLEMENT OF LOSSES ON FUTURE CONTRACTS BASED ON THE PRICE DIFFE RENTIAL OF THE FUTURES ON A DAY TODAY BASIS, WHICH IS NET OFF ANY PROFITS EARNED DURING THIS PERIOD ON THE COMPUTATION OF THE DIFFERENTIAL PRICI NG, IS AN ACCRUED LOSS AND IS ALLOWABLE . 20. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JUNE, 2010 SD/- SD/- (S.V. MEHROTRA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 25 TH JUNE, 2010 RJ ITA NOS. 1940 & 1941 /M/09 10 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NOS. 1940 & 1941 /M/09 11 DATE INITIALS 1 DRAFT DICTATED ON: 6.5.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 6.5 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______