ACIT, CHENNAI V. Barclays Investments and Loans (I) Ltd., CHENNAI

ITA 3292/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4440 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 04-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 05-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA IRS
• Keywords: Earning of tax free income; Cost of acquisition
• Section: 14A; 144

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . , . , BEFORE SHRI ABRAHAM P. GEORGE , ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO. 3292/MDS/2016 / ASSESSMENT YEAR : 2010-2011 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2) CHENNAI 600 034. VS. M/S. BARCLAYS INVESTMENTS AND LOANS (I) LTD, NO.144-145. MALAVIKA CENTRE, GROUND FLOOR, KODAMBAKKAM HIGH ROAD, CHENNAI 600 034. [PAN AAACR 3653F] ( / APPELLANT) ( /RESPONDENT) ! / APPELLANT BY : SHRI. PATHLAVATH PEERYA, IRS, CIT. '# ! /RESPONDENT BY : NONE $ %& /DATE OF HEARING : 04-05-2017 '( %& /DATE OF PRONOUNCEMENT : 31-05-2017 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: IN THIS APPEAL FILED BY THE REVENUE, IT HAS RAISE D THE FOLLOWING GROUNDS:- ITA NO.3292/MDS/2016 :- 2 -: 2. THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE IN RESPECT OF LOSSES CLAIMED ON F AIR VALUATION OF EQUITY LINKED DEBENTURES (ELDS) . 2.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THE LO SSES CLAIMED ON FAIR VALUATION OF ELDS WERE NOTIONAL IN NATURE AND HENCE NOT ALLOWABLE . 2.2 THE LEARNED CIT(A) FAILED TO CONSIDER THE CONT ENTION OF THE A.O. IN THE REMAND REPORT THAT THE STATISTIC AL MODELS ADOPTED BY THE ASSESSEE CONTAINED DRAWBACKS AND HEN CE THE VALUATION ARRIVED AT UTILIZING THESE STATISTICA L MODELS OF THE ELDS DOES NOT GIVE A TRUE AND CORRECT PICTURE O F THE PROFIT/LOSS 2.3 THE LEARNED CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSSEE INSTEAD OF REMANDING THE ISSUE BACK TO TH E A.O. PLACING RELIANCE ON THE DECISION IN J.P. MORGAN SEC URITIES INDIA PVT LTD VS. ADDL.CIT AND THE FINDINGS OF THE CIT(A) ARE PERVERSE ON FACTS TO THE EXTENT THAT THE LOSS IS AL LOWED WITHOUT VERIFICATION OF THE QUANTUM OF LOSS. 2.4 THE CIT(A) FAILED TO APPRECIATE THAT THE BOARD 'S CIRCULAR NO.3/2010 DT. 23.10.2010 WHICH WAS SUBSEQU ENT TO THE QUOTED DECISION OF THE APEX COURT IN CIT VS. M/S. WOODWARD GOVERNOR INDIA PVT LTD (2009) 312 ITR 254, INDICATING THAT NOTIONAL LOSSES ON MTM VALUATIONS A RE NOT ALLOWABLE, BECOMES RELEVANT. 3. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT DISALLOWANCE U/S.14A WILL NOT APPLY IF NO EXEMPT IN COME IS RECEIVED OR RECEIVABLE DURING THE YEAR . 3.1 THE LEARNED CIT(A) ERRED IN DELETING THE DIS ALLOWANCE EFFECTED U/S.14A WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD INVESTMENTS IN SHARES AND MUTUAL FUNDS , CAPABLE OF EARNING EXEMPT INCOME, THEREBY ATTRACTIN G THE PROVISIONS OF SEC.14A READ WITH RULE 8D 3.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FA CT THAT EVEN IN THE ABSENCE OF EXEMPT INCOME, IF EXEMPT INC OME BEARING INVESTMENTS ARE AVAILABLE IN A PARTICULAR Y EAR, THE PROVISIONS OF SEC.14A READ WITH RULE 8D SHALL HAVE APPLICABILITY AND THE ASSESSING OFFICER IS BOUND TO DISALLOW THE EXPENDITURE THUS WORKED OUT. 3.3 THE CIT(A) FAILED TO APPRECIATE THAT THE HON'B LE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE HAS HELD THAT THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTION 14A ITA NO.3292/MDS/2016 :- 3 -: OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VAL ID AND THAT THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES A S INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULT RA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SU B SECTION (2) AND DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTIO N; 3.4 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT IN A CASE INVOLVING DIVERSION OF FUNDS TO AFFILIATES WITHOUT INTEREST, THE ASSESSEE IS DUTY BOUND TO PROVE THE COMMERCIAL EXPE DIENCY FOR ENTERING INTO INTEREST FREE TRANSACTIONS WITH T HE SUBSIDIARY COMPANIES/AFFILIATES, WITH SUFFICIENT EVIDENCE BEFO RE THE A.O. 3.5 THE LEARNED CIT(A) FAILED TO APPRECIATE CIT V S. CORNERSTONE EXPORTS PVT . LTD. [67 TAXMAN.COM 345.] AND DECISION OF THE HON'BLE HIGH COURT OF PUNJAB & LUDH I ANA IN THE CASE OF CIT VS ABHISHEK INDUSTRIES LTD ARE SQUA RELY APPLICABLE TO THE INSTANT CASE . 2. A READING OF THE ABOVE GROUNDS CLEARLY SHOW THAT RE VENUE IS AGGRIEVED ON THE LD. COMMISSIONER OF INCOME TAX (A PPEALS) ALLOWING LOSS ARISING OUT OF FAIR VALUATION OF EQUITY LINKED DEBENTURES (ELDS) AND DELETING THE DISALLOWANCE MADE BY THE LD. ASSES SING OFFICER U/S.14A OF THE ACT. 3. ASSESSEE A NON BANKING FINANCE COMPANY HAD FILED IT S RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARIN G A LOSS OF =160,87,18,146/-. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, IT WAS NOTED BY THE LD. ASSESSING OFFICER THAT ASSESSE E HAD CLAIMED A LOSS OF =3,21,37,17,255/- ON FAIR VALUATION OF ELD S. ASSESSEES CLAIM WAS THAT UNDERLYING INSTRUMENTS FUNDED BY THE ITA NO.3292/MDS/2016 :- 4 -: ELDS, WERE A BASKET OF EQUITY SHARES TRADED IN BO MBAY OR NATIONAL STOCK EXCHANGE, S P CNX NIFTY INDEX OR BSE 30 SHARE. AS PER THE ASSESSEE VALUATION OF ELDS WAS DONE, CONSIDERING SU CH UNDERLYING INVESTMENTS BASED ON CERTAIN SOPHISTICATED STATISTI CAL MODELS NAMED VASICEK MODEL BLACK SCHOLES STOCHASTIC VOLATILITY MODE GREEN FUNCTION APPRACH. CONTENTION OF THE ASSESSEE WAS THAT GAIN ARISING O N FAIR VALUATION OF THE ELPS WERE RECOGNIZED AND OFFERED TO TAX WHENEVE R IT WAS THERE. LD. ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURN ISH DETAILS OF THE GAINS RECOGNIZED ON FAIR VALUATION ON ELPS FOR ASS ESSMENT YEARS 2008- 09, 2009-10 AND 2010-2011. AS PER THE LD. ASSESSI NG OFFICER SUCH DETAILS FOR ASSESSMENT YEARS 2008-09 AND 2009-10 W ERE NOT FURNISHED DESPITE NUMBER OF OPPORTUNITIES GIVEN TO THE ASSES SEE. THE OBSERVATION OF THE LD. ASSESSING OFFICER IN THIS RE GARD AS APPEARING IN THE ASSESSMENT ORDER IS REPRODUCED HEREUNDER:- IT IS NOT POSSIBLE TO VERIFY WHETHER THE ADDITION AL LOSS PROVIDED AS ON DATE OF BALANCE SHEET IS ADJUSTED AS PER ACTUAL LOSS/GAIN WHICH TAKE PLACE ON THE DATE OF CL OSURE OF THIS ELD. FOR EXAMPLE: LET US ASSUME IF AN ELD IS B OOKED AT A FACE VALUE 11AKH FOR 1 YEARS, SAY FROM 01.01.2 011 TO 31.01.2012, LET US ASSUME AS ON 31.03.2011, THE ASSESSEE PROVIDE FOR A LOSS OF SAY RS. 30,000/-, BU T ON THE CLOSURE OF THIS ELD, THE FINAL LOSS MAY BE RS. 20,0 00/-, ITA NO.3292/MDS/2016 :- 5 -: IN WHICH CASE THE ASSESSEE COMPANY HAS TO ADD BACK THE EXCESS PROVISION OF RS. 10,000/-. IN THE INSTANT CA SE, IT IS NOT SUPPORTED BY ANY EVIDENCE. MOREOVER THE ASSESSE E COMPANY CLAIMS THAT ACCOUNTING STANDARD 30 WAS ADOP TED FOR VALUING THE FINANCIAL INSTRUMENT BUT THERE WAS NO DETAIL OF HOW THIS ACCOUNTING STANDARD IS APPLIED IN FAIR VALUATION ELD. HENCE THIS SYSTEM ADOPTED BY THE ASSESSEE COMPANY DOES NOT REFLECT THE TRUE/CORRECT PROFIT OF THE ASSESSEE COMPANY; HENCE THE LOSS ON VALUATION O F ELD IS DISALLOWED HE THUS DISALLOWED THE CLAIM OF =3,21,37,17,255/-. 4. LD. ASSESSING OFFICER ALSO NOTED THAT ASSESSEE HAD SUBSTANTIAL INVESTMENTS, INCOME FROM WHICH WERE EX EMPT FROM TAX. HE APPLIED SEC. 14A OF THE ACT R.W.R 8D AND MADE A DISALLOWANCE OF =1,55,60,891/-. 5. AGGRIEVED, THE ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME. WITH REGARD TO VALUATION OF ELPS, CONTENTION OF THE ASSESSEE WAS THE MODELS USED BY IT CONSIDER ED THE RETURNS DELIVERED BY THE UNDERLYING INSTRUMENTS, OVER THE T ENURE OF ELDS. ASSESSEE POINTED OUT THAT THIS WAS IN ACCORDANCE WI TH ACCOUNTING STANDARD 30 OF ICAI. CONTENTION OF THE ASSESSEE WA S THAT GAINS ARISING ON FAIR VALUATION OF ELP WAS ALSO OFFERED TO TAX. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD (2009) 312 ITR 254 FOR ITS ARGUMENT THAT MARK TO MARKET LOSS WAS AN ALLOWABL E EXPENDITURE. FURTHER, ACCORDING TO THE ASSESSEE IT WAS NOT A NOT IONAL LOSS. ASSESSEE ITA NO.3292/MDS/2016 :- 6 -: ALSO RELIED ON ORDERS OF LD. COMMISSIONER OF INCOM E TAX (APPEALS) FOR ASSESSMENT YEARS 2008-09 AND 2009-2010 WHICH DEALT WITH THIS ISSUE. LD. COMMISSIONER OF INCOME TAX (APPEALS) THEREUPON REQUIRED THE LD. ASSESSING OFFICER TO FURNISH A REMAND REPORT. WHE N THE REMAND REPORT WAS PUT TO ASSESSEE IT GAVE FOLLOWING COMMEN TS. SR.NO CONTENTION OF THE ASSESSING OFFICER THE DOCUMENT IN WHICH CONTENTION MADE APPELLANTS SUBMISSION 1 ASSESSEE DID NOT FURNISH LIST OF E:LDS (PARA 4.3) AND THEIR FAIR VALUATION FOR THE A YS 2008-09 AND A Y 2009-10. ASSESSMENT ORDER THE AVERMENT OF THE ASSESSING OFFICER THAT THE APPELLANT DID NOT FURNISH LIST OF ELDS AND THEIR FAIR VALUATION FOR A YS 2008-09 AND A Y 2009-,10 IS FACTUALLY INCORRECT. THE AO VIDE HIS NOTICE DATED 19 MARCH 20'14 HAD REQUESTED FOR FOLLOWING DATA FOR A '( 200809 TO AY 2010- 11 : NAME OF THE SUBSCRIBER DEBENTURE NO FACE VALUE (FV) AMOUNT UNDERLYING ASSET COST OF ACQUISITION SALE LOSS GAIN THE APPELLANT VIDE ITS SUBMISSION DATED 25 MARCH 2014 HAD DULY SUBMITTED THE RELEVANT DETAILS REQUISITIONED BY THE AO. DURING THE ASSESSMENT PROCEEDING)S, THE ASSESSEE WAS REMAND THESE DETAILS WERE ITA NO.3292/MDS/2016 :- 7 -: SPECIFICALLY REQUESTED TO .SUBMIT THE FOLLOWING DETAILS 1. HOW THE FAIR VALUATION OF ELD WAS DONE? HOW THE COST OF ACQUISITION AND SALE CONSIDERATION WAS ASSUMED FOR ARRIVING 2. LOSS/GAIN FOR THE ASST. YEAR 2008-09/2009-10/2010- 11 ON FAIR VALUATION OF ELD. 3. SINCE THE GAIN/LOSS IS PROVIDED CONTINGENTLY, HOW THE ADDITIONAL LOSS./ REDUCTION IN LOSS ON ACTUAL CLOSURE OF DEBENTURE IS ACCOUNTED, 4. HOW DOES THIS SYSTEM REFLECT TRUE AND CORRECT PROFIT 5. DETAILS OF ACCOUNTING STANDARDS ADOPTED AND ITS IMPLICATION IN RESPONSE THE ASSESSEE HAD STATED THAT VARIOUS VALUATION MODELS SUCH AS VASICEK MODEL, BLACKSHOLES MODEL, STOCHASTIC VOLATILITY MODEL, MODEL AND GREEN FUNCTION APPROACH. REPORT SUBMITTED BY THE APPELLANT TO THE ASSESSING OFFICER VIDE SUBMISSION DATED 25 MARCH 2014. THE AO HAS NOT MADE) ANY AVERMENT IN RELATION TO THESE DETAILS IN TILE REMAND REPORT, THEREFORE BY IMPLICATION, THE AO HAS ACCEPTED THAT THE DETAILS WERE SUBMITTED DURING THE ASSESSMENT PROCEEDINGS. 3 THE AO HAS . STATED THAT ASSESSEE HAS NOT SUBMITTED THE . FOLLOWING : 1 THE ASSESSEE HAS NOT EXPLAINED OUT OF . THE VARIOUS MODELS (I.E. I/ASICEK MODEL, STOCHASTIC VOLATILITY' BLACK AND SCHOOLS MODEL) WHICH MODEL WAS ADOPTED FOR WHICH INSTRUMENTS /DERIVATIVES. 2. THE ASSESSEE HAS NOT STATED WHETHER THE SAME MODEL REMAND REPORT IT IS PERTINENT TO NOTE THAT THESE DETAILS HAVE BEEN PICKED UP BY THE AO FROM THE SUBMISSION OF (HE APPELLANT DATED 25 MARCH .2014. POST THE SUBMISSION BY THE APPELLANT, THE ASSESSING OFFICER NOT REQUISITIONED ANY FURTHER DETAILS I EVIDENCES FROM THE APPELLANT IN RELATION TO FAIR VALUATION THE APPELLANT HAD ISSUED ITA NO.3292/MDS/2016 :- 8 -: WAS USED FOR ALL YEARS FOR ALL YEARS FOR THE SAME INSTRUMENTS/DERIVATIVES 3. THE ASSESSEE HAS NOT SUBMITTED, A SINGLE EVIDENCE TO PROVIDE THAT THE ASSUMPTIONS MADE UNDER THE VARIOUS MODEL ARE ON REALISTIC BASIS. 4. POINTED OUT CERTAIN DRAWBACKS IN THE MODELS ADOPTED DUE TO WHICH THE CLOSING VALUE / GAINS / LOSS MAY BE ABNORMAL AND THAT THE ASSESSEE HAS NOT SUBMITTED ANY MATERIAL EVIDENCES /11 SUPPORT OF THE VALUATION. ELDS IN EARLIER $05 WELL AS IN THE YEAR UNDER CONSIDERATION AND THESE VALUATION MODELS WERE USED TO FAIR VALUE SUCH ELDS AS ON THE LAST DAY OF THE PREVIOUS YEAR. IN FACT, THESE 1191]1 SAME MODELS ARE USED BY THE APPELLANT ON A YEAR AN YEAR BASIS AND THE RESULTANT GAINS / IOSSES ARISING ON SUCH ,'AIR VALUATION HAVE BEEN OFFERED TO TAX / CLAIMED AS DEDUCTION. THE AO WAS INFORMED THAT THE I APPROACH OF FAIR VALUING THE ELDS IS FOLLOWED CONSISTENTLY EVERY YEAR. PERTINENTLY, IN THE YEARS WHEN THE APPELLANT HAD OFFERED TO TAX. THE GAINS ARISING ON FAIR; VALUATION OF ELDS, NO, QUESTIONS ABOUT THE VALUATION APPROACH, ETC. HAS BEEN RAISED TILE' AO. ONLY IN THE YEAR IN WHICH LOSSES HAVE BEEN CLAIMED THE ASSESSING OFFICER , AS AN AFTER-THOUGHT (AS THESE POINTS WERE NEITHER RAISED DURINQ THE, COURSE' OF ASSESSMENT PROCEEDINGS NOR HAVE, THESE POINTS' BEEN MENTIONED IN THE ASSESSMENT ORDER) IS ALLEGING THAT THE VALUATION MODELS USED HAVE CERTAIN INHERENT DEFI CIENCIES AND THE APPELLANT HAD NOT SUBMITTED COMPLETE DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT REITERATES THAT ALL THE DETAILS AS WERE REQUISTIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS WERE SUBMITTED AND THE APPROACH ADOPTED BY THE AO IS INCONSISTENT AND AGAINST THEE PRINCIPLES OF NATURAL ITA NO.3292/MDS/2016 :- 9 -: JUSTICE AS ON ONE HAND THE LOSSES ARE BEING DISALLOWED AND ON THE OTHER HAND THE GAINS ARE BEING TAXED IT MAY BE FURTHER MENTIONED THAT UNDER R SECTION 145(2) OF THE ACT, INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IS SUBJECT TO THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THUS, IN THE ABSENCE OF ANY SPECIFIC TREATMENT BEING PRESCRIBED UNDER THE ACT FOR VALUATION OF ELDS FOR THE YEAR UNDER CONSIDERATION, AS-30 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS BEEN FOLLOWED CONSISTENTLY BY THE APPELLANT' WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OF BOOKS OF ACCOUNTS, HE CAN UNDER SECTION 145(3) OF THE ACT HAS THE RIGHT TO REJECT THE BOOKS OF ACCOUNTS OF THE APPELLANT AND MAKE AS ASSESSMENT UNDER SECTION 144 OF THE ACT. SUCH POWER COULD BE EXERCISED BY THE ASSESSING OFFICER ONLY WHEN HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. IN THE ASSESSMENT ORDER PASSED FOR AY 2010-11, THE AO HAS NOT POINTED OUT ANY DEFICIENCY IN THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT. THE LD. AO FAILED TO APPRECIATE THE FACT THAT THE ITA NO.3292/MDS/2016 :- 10 -: APPELLANT ;S A PART OF A VERY LARGE GROUP: OF BANK IN UNITED KINGDOM AND THAT THE BOOKS OF ACCOUNT OF THE APPELLANT ARE AUDITED BY THE REPUTED CHATERED ACCOUNTANCY FIRM. HAS THERE BEEN ANY DEVIATION/ INCONSISTENCIES IN APPLYING THE VALUATION MODELS, .THE' SAME WOULD HAVE BEEN REPORT ED (INCLUDING QUANTIFICATION OF SUCH DEVIATION) BY THE AUDITORS , IN THEIR AUDIT REPORT.' 5 GAINS REFLECTED BY ASSESSEE ON FAIR VALUATION OF VALUATION OF ELDS FOR II Y 2008-09 AND A Y :2009-10 DID NOT MATCH WITH THE FINANCIALS OF THE ASSESSEE ASSE SSMENT ORDER (PARA 4.3) IN THIS REGARD, IT IS SUBMITTED THAT ASSESSING OFFICER INADVERTENTLY COMPARED GAINS ON FAIR VALUATION OF EL:1)S FOR A YS 2008-09 AND A Y 2009- 10 WITH THE GAINS ARISING ON REDEMPTION OF ELDS (I IE ON ACTUAL REDEMPTION AS AGAINST FAIR VALUATION. AT THE YEAR END). 6 NO SUCH RECONCILIATION HAS BEEN SUBMITTED DURING THE ASSESSMENT PROCEEDINGS AS WELL AS BEFORE THE CIT(A). REMAND REPORT. THE FACTUAL ERROR WAS ON THE PART OF THE AO WHICH WAS DULY POINTED TO HIM AND REQUISITE DOCUMENTS WERE SUBMITTED AS AN EVIDENCE :ON 2 MAV 2014 VIDE A RECTIFICATION APPLICATION. THE QUESTION OF SUBMITTING ANY RECONCILIATION DOES NOT ARISE.. 7 ASSESSEE DID NOT FURNISH AS TO HOW ACCOUNTING STANDARD (AS-30) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS O F INDIA'(LCAI) WAS APPLIED TO FAIR VALUATION OF ELDS. ASSESSMENT ORDER (PARA 4.4) IN RELATION TO THIS, IT IS SUBMITTED THAT THESE DETAILS WERE SUBMITTED VIDE SUBMISSIONS DATED 6 MARCH 2014 AND 25 MARCH 2014 WHEREIN IT WAS CATEGORICALLY MENTIONED THAT ELDS WERE FAIR VALUED AS PER ACCOUNTING STANDARD ('AS) _. 30 AND REFERENCE WAS ITA NO.3292/MDS/2016 :- 11 -: MADE TO PARAGRAPH2.13 OF SCHEDULE 18 OF THE AUDITED FINANCIAL STATEMENTS WHEREIN DETAILS ABOUT THE ACCOUNTING POLICY CONSISTENTLY FOLLOWED BY APPELLANT FOR ACCOUNTING OF ELDS WAS MENTIONED. 8 THOUGH THE ASSESSEE HAS CLAIMED THAT THE FAIR VALUATION OF ELD AS PER THE ACCOUNTING STANDARD (AS) - 30 IS FOLLOWED CONSISTENTLY, THE ASSESSEE HAS NOT SUBSTANTIATED WITH - EVIDENCE THAT THE VALUATION MODELS ADOPTED / VALUE THE INSTRUMENTS / DERIVATIVES IS ON CONSISTENT BASIS . REMAND REPORT. THE ASSESSING OFFICER NEVER ASKED THE APPELLANT TO SUBSTANTIATE AS TO WHETHER THE AS 30 HAS BEEN CONSISTENTLY FOLLOWED BY THE APPELLANT. NEVERTHELESS, ON MULTIPLE OCCASION, THE APPEL LANT SUBMITTED THAT FAIR VALUATION OF ELDS ' IS BEING DONE ON A CONSISTENT BASIS. THIS FACT ,IS ALSO EVIDENT FROM THE FINANCIAL STATEMENTS OF THE APPELLANT WHEREIN THE ACCOUNTING' POLICIES FOLLOWED ARE DISCLOSED AND WHICH CATEGORICALLY MENTION THE ACCOUNT ING POLICY FOLLOWING BY THE APPELLANT IN RELATION TO ELDS. AS MENTIONED EARLIER, THE BOOKS OF ACCOUNT OF THE APPELLANT ARE AUDITED BY A' REPUTED FIRM OF CHARTERED ACCOUNTANTS AND THE APPELLANT IS A PART OF A VERY LARGE GROUP OF BANK IN UNITED KINGDOM. HAD THERE BEEN ANY DEVIATION /INCONSISTENCIES IN APPLICATION OF FAIR VALUATION MODELS, THE SAME WOULD HAVE BEEN REPORTED (INCLUDING QUANTIFICATION OF SUCH DEVIATION) BY THE AUDITORS IN THE AUDITED FINANCIAL STATEMENTS. 9 THE A2-30 HAS NOT RECOGNIZED ANY OF THE MODELS ADOPTED BY THE ASSESSEE TO VALUE THE REMAND REPORT. THIS STATEMENT IS FACTUALLY INCORRECT THOUGH AS-30 DOES NOT PRESCRIBE ANY PARTICULAR ITA NO.3292/MDS/2016 :- 12 -: DERIVATIVES. VALUATION MODEL, PARA 54 DEALING WITH FAIR VALUE MEASUREMENT CONSIDERATIONS STATES THAT IF THERE IS A VALUATION TECHNIQUE COMMONLY USED BY MARKET PARTICIPANTS TO PRICE THE INSTRUMENT AND THAT TECHNIQUE HAS BEEN DEMONSTRATED TO PROVIDE RELIABLE ESTIMATES OF PRICE OBTAINED IN ACTUAL MARKET TRANSACTIONS, THE ENTITY CAN USE SUCH TECHNIQUE (THE EXTRACT OF THE AS-30 IS ATTACHED HEREWITH FOR YOUR PERUSAL) THUS, THE CHOICE OF SELECTION OF A PARTICULAR VALUATION MODEL IS LEFT TO THE ENTITY CONCERNED. GIVEN THIS, THE APPELLANT CHOSE TO USE THE VALUATION MODELS DETAILS OF WHICH HAS ALREADY BEEN SUBMITTED. 6. LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER VERI FYING THE ABOVE COMMENTS OF THE ASSESSEE AND REMAND REPOR T OF THE LD. ASSESSING OFFICER HELD THAT THE CLAIM WAS IN ACCO RDANCE WITH ACCOUNTING STANDARDS 30 PRESCRIBED IN ICAI AND WAS ALLOWABLE. WITH REGARD TO THE DISALLOWANCE U/S. 14A OF THE ACT, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT LD. ASSESSING OFFIC ER HAD NOT MADE ANY COMMENTS IN HIS REMAND REPORT. ACCORDING TO HI M, ASSESSEE HAD NOT EARNED ANY DIVIDEND INCOME AND HENCE SEC. 14A O F THE ACT HAD NO APPLICABILITY. HE THUS ALLOWED THE APPEAL OF THE A SSESSEE. ITA NO.3292/MDS/2016 :- 13 -: 7. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE STR ONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS) SUBMITTED THAT LD. ASSESSING OFFICER WAS NEVER GIVE N A CHANCE TO SUBSTANTIATE THE STAND TAKEN BY HIM IN REMAND REPOR T. ACCORDING TO HIM, ASSESSEE WAS CLAIMING NOTIONAL LOSS EVERY YEA R WITH THE SOLE INTENTION OF DEPRESSING ITS PROFITS. VALUE OF THE UNDERLYING INSTRUMENTS OF THE ELDS WAS NOT CORRECTLY ESTIMATED BY THE ASSESSEE. AS PER LD. DEPARTMENTAL REPRESENTATIVE ASSESSEE HA D FOLLOWED A METHOD, WHICH WAS NOT KNOWN TO LAW. WITH RESPECT TO DISALLOWANCE U/S. 14A OF THE ACT, LD. DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT ASSESSEES CLAIM OF HAVING NO EXEMPT INCOME WAS NOT VERIFIED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 8. NOBODY APPEARED ON BEHALF OF THE ASSESSEE. WE FIND THAT THE CASE WAS EARLIER POSTED FOR HEARING ON 23.01.20 07, WHEN ONE SHRI. BALACHANDER APPEARED AND ON HIS REQUEST THE CASE W AS ADJOURNED TO 08.03.2017. ON 08.03.2017 NOBODY APPEARED ON BEHAL F OF THE ASSESSEE AND THE CASE WAS ADJOURNED TO 04.05.2017. TODAY WHEN THE CASE WAS TAKEN UP, WE FOUND A LETTER 03.05.2017 PLE ADING FOR ANOTHER ADJOURNMENT. HOWEVER, NO POWER OF ATTORNEY HAS BEE N FILED BY M/S. SRBC & ASSOCIATES LTD AUTHORIZING THEM TO APPEAR O N BEHALF OF THE ASSESSEE. WE ARE NOT INCLINED TO GRANT ADJOURNMENT SOUGHT BY AN UNAUTHORIZED PARTY. ITA NO.3292/MDS/2016 :- 14 -: 9. COMING TO THE MERITS OF THE CASE OF THE REVENUE, W HAT WE FIND IS THAT METHOD OF VALUATION OF ELDS WAS NOT C AREFULLY VERIFIED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), BEFOR E GIVING RELIEF TO THE ASSESSEE. ASSESSEE HAD HIMSELF STATED THAT MET HOD USED BY IT WERE BASED ON CERTAIN STATISTICAL TOOL WHAT HAS BE EN REPRODUCED BY US AT PARA 3 ABOVE. EVEN OTHERWISE, ASSESSEES REPLY TO THE REMAND REPORT GIVEN BY THE ASSESSING OFFICER, WAS NEVER FU RNISHED TO THE ASSESSING OFFICER. IN OUR OPINION THE LD. ASSESSIN G OFFICER SHOULD HAVE BEEN GIVEN ONE MORE OPPORTUNITY SINCE ASSESSEE HAD STRONGLY OBJECTED TO THE OBSERVATIONS OF THE LD. ASSESSING OFFICER MADE IN THE REMAND REPORT. 10. COMING TO THE ASPECT OF CLAIM OF DISALLOWANCE U/S. 14A OF THE ACT, WHETHER ASSESSEE HAD CLAIMED ANY EXEMPT INCOME IS NOT CLEAR FROM THE RECORDS. IT MAY BE TRUE THAT LD. ASSESSING OFFICER NEVER OFFERED ANY COMMENTS ON THIS ASPECT IN REMAND REPO RT. HOWEVER, IN OUR OPINION LD. COMMISSIONER OF INCOME TAX (APPEALS ) SHOULD HAVE FACTUALLY ASCERTAINED WHETHER ASSESSEE HAD ANY EXEM PT INCOME. 11. CONSIDERING ALL THESE, WE ARE OF THE OPINION THAT BOTH THE ISSUES REQUIRE A FRESH LOOK BY THE LD. ASSESSING OF FICER. WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT BOT H THE ISSUES BACK TO ITA NO.3292/MDS/2016 :- 15 -: THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERA TION AFRESH IN ACCORDANCE WITH LAW. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY, THE 31 ST DAY OF MAY, 2017, AT CHENNAI. SD/- ( . ) (G. PAVAN KUMAR) $ %& / JUDICIAL MEMBER SD/- ( . ) (ABRAHAM P. GEORGE) ' %& / ACCOUNTANT MEMBER +$ / CHENNAI , / DATED: 31ST MAY, 2017. KV - '%./ 0/% / COPY TO: 1 . / APPELLANT 3. 1% () / CIT(A) 5. / 45 '%6 / DR 2. '# / RESPONDENT 4. 1% / CIT 6. 57 8$ / GF