ACIT 2(3), MUMBAI V. URUDAVAN INVESTMENT & TRADING P.LTD, MUMBAI

ITA 2450/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79315 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S SENT H IL KUMARAN
• Assessee Lawyers: RITESH V ZAVERI
• Keywords: Transactions in derivatives

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - F BENCH. . , !'# !$%&' , %! () BEFORE S/SH.D.MANMOHAN, VICE-PRES IDENT & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.2450/MUM/2013, ! ! ! ! * * * * / ASSESSMENT YEAR-2009-10 ACIT 2(3)(4), ROOM.NO.552,5TH FLOOR,AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-20 V/S. M/S. URUDAVAN INVESTMENT & TRADING PVT. LTD. 209-210, ARCADIA BUILDING, 195, NARIMAN POINT, MUMBAI-400021 PAN:AAACU1353M ( !+, / APPELLANT) ( -.+, / RESPONDENT) !$) / 0 % / REVENUE BY : SHRI S. SENTHIL KUMARAN !12 !12 !12 !12 0 0 0 0 % %% % / ASSESSEE BY : SHRI RITESH V ZAVERI ! ! ! ! / // / 2! 2! 2! 2! / DATE OF HEARING : 02.07-2014 3* ! / 2! / DATE OF PRONOUNCEMENT : 02.07-2014 , 1961 / // / !! !! !! !! 254 )1( % %% % &242 &242 &242 &242 (%5 (%5 (%5 (%5 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM %! %! %! %! () () () () !$%&' !$%&' !$%&' !$%&' % %% % ! ! ! ! : CHALLENGING THE ORDERS DATED 08.01.2013 OF THE CIT( A)-6,MUMBAI,ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUG NED IN THE GROUNDS ENUMERATED BELOW: 1.THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FAC TS OF THE CASE. 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 70,18,210/- MADE ON ACCOUNT OF MARK TO MARKET LOSS CLAIMED ON ACCOUNT OF TRADING IN DERIVATIVE TRANSACTIONS, WITHOUT APPRECIATING TH E FACT THAT THE LOSS CLAIMED ON THE BASIS OF VALUE OF DERIVATIVE AS ON 31S T MARCH IS MERELY NOTIONAL LOSS AND THE ACTUAL LOSS O R THE PROFIT IN RESPECT OF SUCH DERIVATIVE TRANSACTIONS WOULD GET CRYSTALLIZED ONLY AT THE TIME OF SETTLEMENT OF SUCH TRANSACTION. 3.FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT,FILED ITS RETURN OF INCOME ON 25.09.2009 DECLARING LOSS OF RS.24.65 CRORES.ASS ESSING OFFICER(AO) FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 19.12.2011,DETERMINING THE INCOME OF THE ASSESSEE AT RS.(-)16.55 CRORES. 3 .DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT TH E ASSESSEE HAD INCURRED LOSS OF RS. 17.24 CRORES IN THE FUTURE & OPTION (F&O) SEGMENT,THAT IT INCLUDED LOSS OF RS.70.18 LAKHS ON ACCOUNT OF MARK TO MARKET (M TO M) ON F&O UPON POSSESSION AS O N 31.03.2009.HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ASKING IT AS TO WHY THE M TO M LOSS ON F&O SEGMENT SHOULD NOT BE DISALLOW -ED.ASSESSEE ARGUED BEFORE THE AO THAT IT WAS DEALI NG IN DERIVATIVES(F&O),THAT IT WAS PART OF BUSINESS OF THE ASSESSEE,THAT IT FOLLOWED THE PRINC IPLE OF COST OR MARKET PRICE WHICHEVER IS LOWER IN VALUING THE DERIVATIVES WHICH WAS IN ACCORDANCE WIT H THE GUIDANCE NOTE ON ACCOUNTING ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA,THA T FOLLOWING THE SAID SYSTEM LOSS OF RS. 70.18 LAKHS HAD BEEN CLAIMED.HOWEVER,THE AO WAS NOT SATIS FIED WITH THE SUBMISSIONS OF THE ASSESSEE. REFERRING TO THE CASES OF BHARAT R. RUIA (HUF)(241 CTR 1),TUTICORIN ALKALINE CHEMICALS & FERTILIZERS LTD. (277 ITR 172) & ARJAN KHIMJI & CO. (121 ITR 421), HE HELD THAT LOSS CLAIMED BY THE ASSESSEE WAS NOT ALLOWABLE. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA).IT WAS ARGUED BEFORE 2 ITA NO. 2450/MUM/2013 M/S. URUDAVAN INVESTMENT & TRA DING PVT. LTD . HIM THAT THE ASSESSEE HAD RIGHTLY CLAIMED THE LOSS ARISING OUT OF F&O SEGMENT, THAT IT HAD NEVER CLAIMED FOREIGN EXCHANGE LOSS AND RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION AS WELL AS IN THE EARLIER YEARS,THAT TO THAT EXTENT OBSERVATION O F THE AO WERE INCORRECT. ASSESSEE RELIED UON THE FOLLOWING DECISIONS: I) EDELWEISS CAPITAL LTD. (ITA NO. 5324/MUM/2007). II) WOODWORD GOVERNOR INDIA P. LTD. (312 ITR 254). III) BANK OF BAHRAIN AND KUWAIT (ITA NO. 4404 & 1883/MUM /2004). IV) BANK OF INDIA (218 ITR 371). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, FAA HELD THAT ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CA SE OF ELEILWEISS CAPITAL LTD. (SUPRA), THAT THE DECISIONS OF BHARAT R. RUIA,TUTICORIN ALKALINE CHEM ICALS & FERTILIZERS LTD. AND URJAN KHIMJI & CO.(SUPRA) WERE NOT RELEVANT TO DECIDE THE ISSUE OF M TO M LOSS ON DERIVATIVES ON THE LAST DATE OF PARTICULAR FINANCIAL YEAR.FOLLOWING THE ORDER OF ED ELWEISS CAPITAL LTD.,HE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US,DEPARTMENTAL REPRESENTATIVE (DR) REFERRED THE INSTRUCTION ISSUED BY THE CBDT ON 23.03.2010 (INSTRUCTION NO. 03/2010).AR SUPPORTED T HE ORDER OF THE FAA.WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FI ND THAT IDENTICAL ISSUE HAS BEEN DECIDED BY J BENCH OF MUMBAI TRIBUNAL ON 10.11.2010 IN THE CASE OF ELEILWEISS CAPITAL LTD.(SUPRA),THEREFORE, FOLLOWING THAT ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL F ILED BY THE AO STANDS DISMISSED. 27 !12 ! 8!! (!9 / 4 ):2 / $!2 ; . ORDER PRONOUNCED IN THE OPEN COURT ON 2ND,JULY, 2014 . (%5 / 3* ! % &!! < =(! 2 $! , 201 4 / 4 > ( . / D.MANMOHAN) ( !$%&' !$%&' !$%&' !$%&' / RAJENDRA) !'# / VICE PRESIDENT %! %! %! %! () () () () /ACCOUNTANT MEMBER / MUMBAI, =(! /DATE: 02.07.2014. SK (%5 (%5 (%5 (%5 / // / -2? -2? -2? -2? @%?*2 @%?*2 @%?*2 @%?*2 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / !+, 2. RESPONDENT / -.+, 3. THE CONCERNED CIT(A)/ A B , 4. THE CONCERNED CIT / A B 5. DR F BENCH, ITAT, MUMBAI / ?C!4 -2 , . . &!! . 6. GUARD FILE/ 4! ! .!?2 .!?2 .!?2 .!?2 -2 -2-2 -2 //TRUE COPY// (%5!! / BY ORDER, / ! $! DY./ASST. REGISTRAR , /ITAT, MUMBAI