ACIT 10(2), MUMBAI V. GODREJ INVESTMENT LTD, MUMBAI

ITA 5879/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84477 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2014
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 10-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 27-09-2012
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Keywords: Capital asset converted into stock in trade; Depreciation; Opportunity of being heard; Rule of consistency; Earning of tax free income; Revenue expenditure
• Section: 14A; 145; 37; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI D. KARUNAKARA RAO, ACCOUNTA N T MEMBER I.T.A.NO. 5897/M/2012 (AY: 2008 - 2009 ) I.T.A.NO. 5898/M/2012 (AY: 2009 - 2010 ) M/S. KOTAK SECURITIES PVT LTD., 1 ST FLOOR, BAKHTAWAR, 229, NARIMAN POINT, MUMBAI 400 021. PAN: AAACK 3436 F VS. ACIT 4(3), 6 TH FLOOR, R.NO.649, AAYAKAR BHAVAN, MUMBAI 400 020. (APPELLANT) (RESPONDENT) I.T.A.NO. 6133/M/2012 (AY: 2008 - 2009 ) I.T.A.NO. 6134/M/2012 (AY: 2009 - 2010 ) ACIT 4(3), 6 TH FLOOR, R.NO.649, AAYAKAR BHAVAN, MUMBAI 400 020. VS. M/S. KOTAK SECURITIES PVT LTD., 1 ST FLOOR, BAKHTAWAR, 229, NARIMAN POINT, MUMBAI 400 021. PAN: AAACK 3436 F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI FARROKH IRANI REVENUE BY : SMT. S. PADMAJA, DR DATE OF HEARING: 5.11.2014 DATE OF ORDER: 11 .12 .2014 O R D E R PER D. KARUNAKARA RAO, AM : THERE ARE 4 APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS FOR TWO AYS NAMELY 2008 - 2009 AND 2009 - 2010. ALL THE FOUR APPEALS ARE FILED AGAINST THE DIFFERENT ORDERS OF THE CIT(A) - 8, MUMBAI COMMONLY DATED 16.7.2012. SINCE, THE ISSUES RAISED IN THESE APPEALS ARE CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE C LUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAS OF THIS ORDER. 2. SINCE, THE ASSESSEE RAISED THE SIMILAR GROUNDS FOR BOTH THE AYS 2008 - 09 AND 2009 - 2010 AND THE ONLY DIFFERENCE I N THE FIGURES, THEREFORE, FOR THE SAKE OF REFERENCE 2 AND ADJUDICATION PURPOSE, THE GROUNDS RAISED IN AY 2008 - 09 ARE REPRODUCED HERE UNDER: GROUND NO.1 - DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 2,18,76,510 UNDER SECTION 14A R.W RULE 8D(2)(III) 1. THE CIT (A) ERRED IN DISALLOWING A SUM OF TO RS. 2,27,71,665/ - U/S. 14A BY INVOKING THE PROVISIONS OF RULE 8D(2)(III) INSTEAD OF DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE OF RS. 19,68,242/ - WORKED OUT BY THE APPELLANT . 2. HE FURTHER ERRED IN DISREGARDING T HE ACCOUNTS OF THE APPELLANT AND IGNORING THE DETAILED SUBMISSIONS MADE REGARDING THE CORRECTNESS OF THE CLAIM OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. 3. HE FURTHER ERRED IN INVOKING RULE 8D, WITHOUT RECORDING HER SATISFACTION ON HOW THE ASSESSEE'S CALCULATION IS INCORRECT . 4. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: A. THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE WHICH WAS DIRECTLY ATTRIBUTABLE TOWARDS EARNING OF TAX FREE DIVIDEND INCOME AND SUCH DISALLOWANCE CANNOT BE M ADE ON THE BASIS OF PRESUMPTIONS AND BY APPLYING RULES MECHANICAL L Y; B. APPLICATION OF FORMULA OF % OF THE AVERAGE VALUE OF SUCH INVESTMENTS IS TOTALLY INEQUITABLE AND THIS DISALLOWANCE HAS NO RELATION TO EITHER THE EXEMPT INCOME OR TO THE EXPENDITURE C LAIMED BY THE APPELLANT; C. THERE WAS NO BASIS FOR MAKING SUCH AN DISALLO WANCE IN ACCORDANCE WITH RULE 8D(III) TO SECTION 14A WITHOUT ESTABLISHING TH AT SUCH EXPENDITURE WAS INDEED INCURRED FOR EARNING EXEMPT DIVIDEND INCOME; D. THE NEW RULE 8D (2)(III) G OES BEYOND THE AUT HORITY GIVEN TO CBDT BY S. 14A AND RULE ONLY DETERMINES THE NOTIONAL COST FOR HOLDING INVESTMENTS WHICH MAY OR MAY NOT YIELD AN EXEMPT INCOME AND SUCH NOTIONAL COST FOR HOLDING THE INVESTMENT HAS NO RELATIONSHIP WITH THE A CTUAL EXPENDITURE INCURRED AND CLAIMED BY THE APPELLANT; E. UNDER SECTION 14A, IT IS VERY MUCH CLEAR THAT ONLY THE EXPENDITURE WHICH HAS BEEN PROVED TO BE INCURRED IN RELATIO N TO EARNING OF TAX FREE INCOME CAN BE DISALLOWED AND, THE SECTION CANNOT BE EXTE NDED TO DISALLOW EVEN THE EXPENDITURE WHICH IS ASSUMED TO HAV E BEEN INCURRED FOR EARNING TAX FREE INCOME. 5. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DELETE THE ENTIRE DISALLOWANCE OF RS. 2,27,71,665/ - U/S 14A MADE BY THE AO. 6. WITHOUT PREJUDICE TO THE ABOVE, STRATEGIC INVEST MENTS SHOULD NOT BE CONSIDERED FOR WORKING OUT DISALLOWANCE ULS. 14. 7. WITHOUT PREJUDICE TO THE ABOVE, THE DIVIDEND INCOME IS INCIDENTAL TO SHARES & SECURITY TRADING ACTIVITY OF THE APPELLANT AND THEREFORE WOULD ONLY ATTRACT DISALLOWANCE UNDER SECTION 14A 8. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT, PRAYS THAT THE AO BE DIRECTED TO RESTRICT THE DISALLOWANCE MADE UNDER SECTION 14A TO RS. 19,68,2 42/ - AS DISALLOWED BY THE APPELLANT IN RETURN OF INCOME. GROUND NO.II - DISALLOWANCE OF MARK TO MARKET LOSS OF RS. 1,10,54,358 1. THE CIT(A) ERRED IN DISALLOWING MARK TO MARKET LOSS OF RS.1,10,54,358 ON STOCK FUTURES AND STOCK / NIFTY OPTIONS ON THE GROUN D THAT SUCH LOSS IS NOTIONAL AND CONTINGENT IN NATURE SINCE THE PROFIT OR LOSS CANNOT ACCRUE UNTIL AND UNLESS THE CONTRACTS ARE SETTLED. 2. HE FURTHER ERRED IN DISREGARDING THE DIRECT DECISION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF EDELWEISS CAPITAL LTD. V. ITO (ITA NO. 5324/M/2007). 3 3. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: A. UNDER MERCANTILE METHOD ACCOUNTING, THE LOSS ARISING ON MARK - TO - MARKET RESTATEMENT OF ASSET (PROPERTY) AT THE YEAR E ND IS AN ALLO WABLE LOSS, WHERE THE ASSET (PROPERTY) IS ON HELD ON TRADING (REVENUE) ACCOUNT . B. LOSS ON UN - MATURED DERIVATIVE CONTRACTS ARE NOT IN THE NATURE OF CONTINGENT LOSS SINCE BINDING OBLIGATION AROSE AGAIN ST THE APPELLANT THE MOMENT IT ENTERED INTO DERIVATIVE CONTRACT. C. A 'DERIVATIVE' IS A SECURITY REPRESENTING THE VALU E OF THE UNDERLYING STOCKS AND SHARES AND MUST BE GIVEN THE SAME TREATMENT AS THAT GIVEN TO THE STOCKS AND SHARES AND ANY LOSS ON ITS VALUATION ON BALANCE SHEET DATE, ON THE BASIS OF FOLLOWING CONSISTENT AND REGULAR METHOD OF VALUATION, IS REALLY A METHOD OF STOCK VALUATION AND ALLOWABLE AS BUSINESS LOSS U / S 28. D. DERIVATIVES ARE ' COMMOD I TIES ' AS THEY DERIVED THE VALUE FROM THE UNDERLYING SHARES AND HENCE STOCK I N TRADE NEEDS TO BE VALUED AT COST OR MARKET VA L UE, WHICHEVER IS L OWER. E. WITHOUT PREJUDICE TO THE ABOVE, SUCH MARK TO MARKET LOSS I S ALSO REVENUE EXPENDITURE ALLOWABLE U/S 37 4. THE APPELLANT PRAYS THAT MARK TO MARKET LOSS OF RS. 2,85,10,681/ - ON NIFTY F UTURES BE ALLOWED WHILE CO MPUTING THE INCOME OF THE APPELLANT . GROUND NO. III - AIR INFORMATION 1. THE CIT(A) ERRED IN CONFIRMING ADDITION OF A SUM OF RS. 3,5 1,240/ - ON ACCOUNT OF TRANSACTIONS LISTED IN AIR INFORMATION OF THE DEPARTMENT ON THE GROUND THAT APPELLANT COULD NOT ABLE T O RECONCILE THE SAME WITH BOOKS OF ACCOUNT . 2. HE FURTHER ERRED IN CONF I RMING ADDITION WITHOUT SUMMONING THE PARTIES REFLECTING THE ABOVE TRANSACT I ON I N THE I R AIR AND WITHOUT GIVING APPELLANT AN OPPORTUNITY TO CROSS EXAM I NES T H E M. GROUND NO. IV NON GRANT OF CREDIT OF TDS CERTIFICATE AMOUNTING TO RS. 1,14,50,196/ - . 1. THE CIT (A) ERRED IN NOT ADJUSTING THE GROUND OF APPELLANT AND THEREBY NOT ALLOWING CREDIT FOR TDS OF RS. 1,14,50,196/ - WITHOUT ASCRIBING ANY REASON FOR THAT. 2. HE FAILED TO APPRECIATE AND OU GHT TO HAVE HELD THAT A. THE APPELLANT HAS OFFERED INCOME PERTAINING TO TDS CERTIFICATE IN AY 2008 - 09 AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 199 OF THE ACT, CREDIT SHOULD HAVE BEEN GRANTED IN THE YEAR IN WHICH INCOME IN RESPECT OF SUCH TDS CERTIFICATES ARE OFFERED TO TAX ON THE BASIS OF TDS CERTIFICATES PRODUCED BY THE APPELLANT. B. NON - GRANT OF CREDIT FOR TDS WOULD TANTAMOUNT TO RECOVERING AGAIN THE AMOUNT OF TAX FROM THE APPELLANT WHOSE INCOME TAX HAS BEEN DEDUCTED AT SOURCED AND HENCE AGAINS T THE PROVISIONS OF SECTION 205 OF THE ACT WHICH PROVIDES THAT THE ASSESSEE SHALL NOT BE CALLED UPON TO PAY THE TAX ITSELF TO THE EXTENT TO WHICH TAX HAS BEEN DEDUCTED FROM THE INCOME. GROUND NO.V - INTEREST U/S 234C 1. THE CIT (A) IS NOT ADJUDICATING THE GROU ND OF APPEAL AND THERE BY CONFIRMING INTEREST U/S 234C AT RS. 76,16,832/ - AS AGAINST RS. 74,49,014/ - CALCULATED ON RETURNED INCOME BY THE APPELLANT THEREBY CHARGING ADDITIONAL INTEREST OF RS. 1,67,818/ - . 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT THE APPELLANT HAS OFFERED INCOME PERTAINING TO TDS CERTIFICATE IN AY 2008 - 2009 AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 199 OF THE ACT, CREDIT SHOULD HAVE BEEN GRANTED IN THE YEAR IN WHICH INCOME IN RESPECT OF SUCH TGDS CERTIFICATES ARE OFFERED TO TAX / ON THE BASIS OF TDS CERTIFICATES PRODUCED BY THE APPELLANT. 3. THE APPELLANT DENIES ITS LIABILITY TO PAY INTEREST OF RS. 1,67,818/ - U/S 234C AND PRAYS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE INTEREST UNDER SECTION 234C AMOUNTING TO RS. 1,67 ,818/ - . 4 3. BRIEFLY STATED RELEVANT FACTS FOR THE AY 2008 - 2009 ARE THAT THE ASSESSEE IS ENGAGED IN SHARE BROKING, MOBILIZATION OF DEPOSITS, MARKETING OF PUBLIC ISSUES ETC. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE INCOME OF RS. 681.75 CR. ASSESSING OFFICER SCRUTINIZED THE RETURN AND DETERMINED THE ASSESSED INCOME AT RS.6,87,21,52,680/ - . ASSESSING OFFICER MADE VARIOUS ADDITIONS INCLUDING DISALLOWANCE U/S 14A, MARK TO MARKET LOSS, BASED ON AIR INFORMATION ETC. ASSESSEE IS AGGRIEVED WITH THE SE ADDITIONS ALONG WITH NON GRANT OF CREDIT TO TDS . THEREFORE, A SSESSEE FILED AN APPEAL BEFORE THE CIT (A) AN D SUCCEEDED PARTLY. AGGRIEVED WITH ORDER OF THE CIT (A), BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEALS FOR BOTH THE AYS BEFORE US . 4. BEFORE US , LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE GROUNDS OF APPEAL BY ASSESSEE AND MENTIONED THAT GROUND NO.1 RELATES TO DISALLOWANCE OF RS. 2,27,71,665/ - U/S 14A R.W. RULE 8D(2)(III) OF THE ACT. IN THIS REGARD, LD COUNS EL FOR THE ASSESSEE MENTIONED THAT THE ASSESSING OFFICER HAS NOT GIVEN HIS SATISFACTION BEFORE REJECTING THE ASSESSEES CLAIMS AND SUBMISSIONS RELATING TO QUANTIFICATION OF RELATED EXPENSES. TO SUPPORT THE SAME, HE RELIED ON THE BINDING JUDGMENT IN THE CASE OF GODREJ BOYCE MFG CO. LTD (328 ITR 81 ). IN THIS REGARD, LD COUNSEL MENTIONED THAT NO EXPENDITURE WAS INCURRED FOR EARNING OF THE DIVIDEND INCOME AND THEREFORE, NO DISALLOWANCE IS WARRANTED U/S 14A OF THE ACT. FURTHER, HE BROUGHT OUR ATTENTION TO THE WRITTEN SUBMISSION D ATED 21.5.2012 BEFORE THE CIT (A) AND SUBMITTED THAT CIT (A) HAS NOT ATTEND ED TO THEM BEFORE CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT. HE FURTHER SUBMITTED THAT, IF ANY DISALLOWANCE IS REQUIRED TO BE MADE U/S 14A, IT SHOULD BE RESTRICTED TO A SUM OF RS. 19,68, 242/ - ONLY. FURTHER, HE ALSO MENTIONED THAT THE IMPUGNED INVESTMENT WAS MADE BY THE ASSESSEE FOR THE CONTROL MANAGEMENT OF ITS CONCERNS AND THE INVESTMENT IS NOT INTENDED FOR EARNING OF THE DIVIDEND INCOME. IN CONNECTION WITH THE GROUND NO.3 RE LATING TO RECORDING OF SATISFACTION, LD COUNSEL FOR THE ASSESSEE FILED A COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. WALCHANDNAGAR INDUSTRIES LTD VS. ACIT VIDE ITA NO.3826/M/2013 FOR THE AY 2009 - 2010 AND MENTIONED THAT THE MATTER HAS TO BE REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER EXPRESSLY 5 RECORDING HIS DISSATISFACTION ABOUT THE ASSESSEES CLAIMS MADE IN THE RETURN OF INCOME. 5 . ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF ASS ESSING OFFICER AND THE PROVISIONS OF RULE 8D R.W.S 14A OF THE ACT. 6 . WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED THE ORDERS OF THE REVENUE . PARA 3 OF THE CIT (A)S ORDER IS RELEVANT TO THE ISSUE AND FIND THAT THE PARA 3.5 CONTAINS THE CONCLU SIONS OF THE CIT (A). IT IS CLEAR FROM THE SAID PARAGRAPH THAT ASSESSEES CLAIM OF NIL EXPENDITURE ON EARNING OF EXEMPT INCOME IS NOT REBUTTED BY THE REVENUE . THEY APPLIED THE PROVISIONS OF SECTION 14A R.W. RULE 8D MECHANICALLY WITHOUT REGRETTING EXPRESSL Y THE CLAIM OF NIL EXPENDITURE ON THE EXEMPT INCOME . IT IS ALSO NOTICED THAT THE CIT (A) HAS NOT ATTENDED TO THE ASSESSEES OBJECTIONS RAISED IN GROUND NOS.1 TO 4 AND ITS SUB - GROUNDS AS WELL AS THE WRITTEN SUBMISSIONS BEFORE THE CI T (A). ASSESSING OFFICE R FAILED TO RECORD SATISFACTION ON INCORRECTNESS , IF ANY , OF THE ASSESSEES CLAIMS IN THE RETURN AND OTHER OBJECTIONS RAISED IN GROUND NO.4(A) TO 4(E) OF THE APPEAL. ON HEARING BOTH THE PARTIES AND ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL IN THE CASE OF M/S. WALCHANDNAGAR INDUSTRIES LTD (SUPRA), WE FIND VIDE PARA 10 THE TRIBUNAL DEALT WITH THE SIMILAR ISSUE AND THE TRIBUNAL REMANDED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH ADJUDICATION. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAID PARA 10 OF THE TRIBUNALS ORDER DATED 21.8.2014 (SUPRA) IS EXTRACTED AS UNDER: 1 0. W E H AVE CA R EF ULL Y PER U SED TH E OR D E R S OF TH E A UTH ORI TI ES B E L OW . WE FI N D FO R CE I N TH E CO NT E N T I O N OF TH E LD . CO UN SE L . TH E A O H AS N OT REFERRE D T O T H E B A L A N CE S H EE T F I G U RES OF TH E ASSESSEE . TH E A O H AS A L SO N OT G I V EN A N Y FI NDIN GS W H E TH ER TH E B O RR OWE D F UND S WERE A L SO U SE D FO R M A K I N G TH E I N VES TM E NT S . THE A O H AS A L SO N O T CO N S ID E RED TH E C L A IM OF TH E ASS E SS E E TH AT TH E IN VES TM E NT S H AVE BE E N M A D E O UT OF OW N F UND S. IN TH E INT E R ES T OF J U STICE, IN O UR CO N S ID ER E D OP INI O N, THI S I SS U E N EE D S T O B E READ JUDI CA TED AFRES H . W E ACCO R DI N G L Y SET ASIDE THI S ISS U E T O TH E FI L E OF T H E A O . TH E AO I S DIR EC T E D T O S H OW T H AT T H E ASSESSEE H AS AC TU A LL Y IN C U RRE D CE RT AI N EXPE NDITUR E F O R E A RNIN G TH E EXE MPT IN CO M E CO N S ID E R I N G TH E FAC T S A ND THE FIG UR ES O F TH E B A L A N CE S H EE T OF THE A SSESSEE . TH E ASSESSE E I S DIR EC TED T O FI L E N ECESSA R Y D E T A IL S BEFORE TH E A O. N EE DL ESS T O M E NTI O N TH E A O S H A LL GIVE A REASO N A BL E A ND FAIR OPPO RTUNI TY OF B EI N G H EAR D TO T H E ASSESSEE . TH IS GRO UND OF TH E ASSESSEE IS A LL OWED FO R STA T IS TI CA L PU RPOSE . 7 . THUS, IT IS THE REQUIREMENT OF LAW THAT THE ASSESSING OFFICER NEED S TO RECORD HIS SATISFACTION ON INCORRECTNESS OF THE ASSESSEES CLAIM IN THE RETURN. ASSESSING 6 OFFICER HAS NOT RECORDED THE SAME IN THIS CASE. THEREFORE, C ONSIDERING THE ABOVE AS WELL AS FOLLOWING THE RULE OF CONSISTENCY, WE ARE OF THE OPINION THAT THIS ISSUE SHOULD ALSO BE REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. ASSESSING OFFICER IS DIRECTED TO RECORD HIS SA TISFACTION IN ACCORDANCE WITH LAW. FURTHER, HE IS DIRECTED TO ATTEND TO THE ARGUMENTS RELATING TO THE CLAIM THAT THE IMPUGNED INVESTMENT S ARE FOR HOLDING CONTROL AND MANAGEMENT OF THE RELATED COMPANIES. ASSESSING OFFICER IS ALSO DIRECTED TO ATTEND TO ALL THE WRITTEN SUBMISSIONS OF THE ASSESSEE MADE BEFORE CIT (A) TOO AND CONSIDERED THE RELEVANT JUDGMENT BEFORE DECIDING THE ISSUE. ASSESSING OFFICER SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . ACCORDINGLY, GROUND NO .1 IS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO.2 RELATES TO DISALLOWANCE OF MARK TO MARKET (MTM) LOSS OF RS. 2,85,10,681/ - . RELEVANT FACTS ON THIS ISSUE ARE THAT THE ASSESSEE MADE A PROVISIONS FOR THE SAID LOSS AND ON DERIVATIVE STOCK AND CLAIMED TH E SAME AS ALLOWABLE LOSS FOR THE YEARS UNDER CONSIDERATION. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO EXPLAIN HOW THE SAID PROVISION IS ALLOWABLE. ASSESSEE SUBMITTED THAT IT DEALS IN DERIVATIVES IN FUTURES AND OPTIONS AND THEY ARE TRADED O N EXCHANGES. ASSESSEE ADJUSTED THE SAID LOS AGAINST PROFIT ON LOSS OF SHARES. ASSESSEE EXPLAINED THE CLAIM OF FUTURES AND OPTIONS AND MADE A WRITTEN SUBMISSION IN THIS REGARD AND THE SAME ARE EXTRACTED IN PARA 8.1 OF THE ASSESSMENT ORDER. IT IS THE SUBM ISSION OF THE ASSESSEE THAT THE LOSS IN QUESTION REPRESENTING DIMINUTION IN VALUE IS AN ALLOWABLE LOS. IN THIS REGARD, HE RELIED ON VARIOUS DECISIONS OF SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SUPREME COURT); BRITISH PAI NTS INDIA LTD, 188 ITR 44 AND CIT VS. WOODWARD GOVERNOR PVT LTD ETC IN SUPPORT OF ITS CLAIM. ASSESSING OFFICER CONSIDERED THE SAME AND REJECTED FOR THE REASON THAT THE ASSESSEE DEBITED THE PROVISION FOR MTM LOSS BUT RELEVANT PROFITS ON THE MTM ARE IGNORED . ASSESSING OFFICER IS OF THE OPINION THAT THE DERIVATIVE CONTRACTS CANNOT FORM PART OF STOCK - IN - TRADE. THEREFORE, THE RELEVANT LOSS IF ANY IS NOT ALLOWABLE. HE ACCORDINGLY MADE ADDITION TO THE INCOME RETURNED BY THE ASSESSEE. 7 9. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE SUBMITTED THAT THE DERIVATIVES WHICH IS THE SUBJECT MATTER OF THE LOSS IN QUESTION CONSTITUTES A COMMODITY AS PER THE KOLKATA SPECIAL BENCH DECISION IN THE CASE OF SHREE CAPITAL SERVICES (ITA NO.1294/KOL/2008) . FURTHER, HE SUBMITTED THAT THE DERIVATIVES ARE STOCK - IN - TRADE AS PER THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM (SUPRA). CIT (A) CONSIDERED THE SAME AND DISCUSSED THE NATURE OF OPTIONS AND DERIVATIVES ON ONE SIDE AN D ALSO DISCUSSED THE INSTRUCTION NO.3/2010 ISSUED BY THE CBDT, WHICH IS RELEVANT FOR THE PROPOSITION THAT MTM LOSSES ARE NOTIONAL LOSSES I.E., CONTINGENT IN NATURE AND HENCE NOT ALLOWABLE. FURTHER, CIT (A) EXAMINED THE JUDGMENT IN THE CASE OF WOODWARD GOV ERNOR (SUPRA) AND MENTIONED THAT THE ASSESSEE IS ONLY DEBITED THE LOSS AND NOT CREDITING THE LOSS ON ACCOUNT OF MTM LOSS IN THE P&L ACCOUNT AND THE SAME CONSTITUTES VIOLATION OF THE PRINCIPLES LAID DOWN IN THE CASE OF WOODWARD GOVERNOR (SUPRA) AND DISTINGU ISHED THE SAME BEFORE CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER. PARA 5 OF THE IMPUGNED ORDER WITH ITS SUB - PARAS ARE RELEVANT IN THIS REGARD. 10. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE FILED A COPY OF THE ORDER OF THE TRIBUNAL IN ITS RELATED CONCERNS NAMED KOTAK MAHINDRA INVESTMENT LTD AND MENTIONED THAT THE TRIBUNAL HAS DECIDED THE IDENTICAL ISSUE IN ASSESSEES FAVOUR VIDE IT A NO.1502/M/2012 (AY 2008 - 2009), DATED 3.5.2015, COPY OF WHICH IS PLACED IN THE COMPILATION OF DECISIONS. HE SUBMITTED THAT THE DERIVATIVES WHICH IS THE SUBJECT MATTER OF LOSS OF MTM LOSS CONSTITUTES A COMMODITY ON REVENUE ACCOUNT AND THE PRINCIPLES RELAT ING TO VIOLATION OF STOCK AND OPTIONS AT THE END OF THE FY AR APPLICABLE TO THEIR DERIVATIVES AS WELL. 11. ON THE OTHER HAND, LD DR FILED WRITTEN SUBMISSIONS AND SUMMARIZED HER OBJECTIONS AT PAGE 5 OF THE SAID WRITTEN SUBMISSIONS AND THE SAME READ AS UND ER: 1. THE APPELLANT COMPANY HAS PURCHASED EQUITY STOCK FUTURE AND OPTIONS AND EQUITY INDEX OPTION IN THE AYS RELEVANT TO THE CAPTIONED APPEALS. 2. THE APPELLANT COMPANY HAS ACCOUNTED FOR STOCK FUTURES AND OPTIONS AND INDEX FUTURES BY REFLECTING THE PAY MENT TOWARDS INITIAL MARGIN AS AN ASSET IN BALANCE SHEET. 3. AS FAR INDEX OPTIONS ARE CONCERNED, THE BUYER OF THE OPTION ACCOUNTS FOR THE SAME UNDER HEAD CURRENT LIABILITIES IN THE BALANCE SHEET. 8 4. THE LOSSES ARE BEING RECOGNIZED AT THE YEAR - END WHILE T HE UNREALIZED PROFITS ARE NOT BEING RECOGNIZED. 5. THE APPELLANT COMPANY HAS CLAIMED PROVISION FOR LOSS ON MTM BUT HAS IGNORED THE PROFITS ON ACCOUNT OF MTM ON THE BASIS OF PRUDENCE PRINCIPLE. 6. THE DERIVATIVE CONTRACTS ARE NOT ACCOUNTED FOR AS STOCK - IN - T RADE BY THE APPELLANT COMPANY AT THE TIME OF PURCHASE. 7. AS THE DERIVATIVE CONTRACTS ARE NOT ACCOUNTED FOR AS STOCK IN TRADE BY THE APPELLANT COMPANY AT THE TIME OF PURCHASE, IT CANNOT BE VALUED AS STOCK - IN - TRADE AT THE TIME OF PREPARATION OF BALANCE SHEE T. AS SUCH, NO PROVISION FOR LOSS ON MTM CAN BE ALLOWED. 12. FURTHER, SHE DISTINGUISHED THE JUDGMENT OF WOODWARD GOVERNOR (SUPRA) ON THE GROUND THAT THE PROFITS ARE IGNORED BY THE ASSESSEE BY NOT CREDITING THEM TO THE P&L ACCOUNT. AS SUCH, THE SAID JUDG MENT WAS DELIVERED IN THE CONTEXT OF FOREIGN EXCHANGE FLUCTUATIONS. SHE ALSO DISTINGUISHED THE MUMBAI BENCH TRIBUNAL DECISION IN THE CASE OF EDELWEISS CAPITAL LTD, 8 TAXMANN.COM 157 (MUM) (2010) BY MENTIONING THAT THE SUPREME COURT JUDGMENT IN THE CASE OF WOODWARD GOVERNOR (SUPRA) WAS NOT REFERRED TO. FURTHER, REFERRING TO THE TRIBUNAL DECISION IN THE CASE OF KOTAK MAHINDRA INVESTMENT LTD (SUPRA), WHICH IS RELEVANT FOR THE PROPOSITION THAT IT IS NOT ONLY THE ACTUAL STOCK BUT DERIVATIVE CAN ALSO BE HELD AS STOCK - IN - TRADE AND THEREFORE, THE LOSS IF ANY IS ALLOWABLE DEDUCTION, THE UNDISPUTED PROFITS WERE NOT CREDITED TO THE P&L ACCOUNT RELYING ON THE PRINCIPLE OF PRUDENCE. SHE MENTIONED THAT IN THE INSTANT CASE, THE DERIVATIVES ARE NOT HELD AS STOCK - IN - TRADE. HE ALSO RELIED ON THE INSTRUCTION NO.3/2010 AND SUBMITTED THAT THE LOSS IN QUESTION IS A NOTIONAL LOSS AND THEREFORE, THE SAME IS CONTINGENT IN NATURE WHICH CANNOT BE SET OFF AGAINST THE TAXABLE INCOME. DURING THE REBUTTAL TIME, LD COUNSEL FOR THE ASSES SEE FILED WRITTEN SUBMISSIONS CONTAINING EACH OF THE OBJECTIONS OF THE LD DR AND MENTIONED THAT THE DERIVATIVES SINCE CONNECTED TO THE FUTURES AND OPTIONS, WHICH ARE STOCK - IN - TRADE, CONSTITUTES A COMMODITY CONSIDERING THE SPECIAL BENCH DECISION IN THE CASE O F SHREE CAPITAL SERVICES LTD 1 21 ITD 498 (SB) WHICH IS RELEVANT FOR THE PROPOSITION THAT DERIVATIVES DERIVES ITS VALUE FROM THE UNDERLYING ASSETS. IN OTHER WORDS, THE UNDERLYING ASSETS ARE REPRESENTED BY DERIVATIVES. WHEN THE UNDERLYING ASSET OF ANY DERIVATIVE IS SHARE AND STOCK, FOR ALL PRACTICAL PURPOSES, THE TREATMENT GIVEN TO SUCH DERIVA TIVES SHOULD BE SIMILAR TO STOCK AND SECURITIES. IT IS MENTIONED THAT THIS PRINCIPLE TO HAVE BEEN APPROVED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BHARAT R. RUIA (HUF) REPORTED IN 337 ITR 452. REFERRING TO THE NON - 9 CREDITING THE PROFITS C OMPUTED ON ACCOUNT OF VALUATION, LD COUNSEL FOR THE ASSESSEE COMMENTED IN THE WRITTEN SUBMISSION THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING THIS METHOD OF ACCOUNTING OF IGNORING THE PROFITS AND RELIED ON NOTIFICATION S.O.69E, DATED 25.1.1994 IN CONNECTION WITH THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT, 1961. IT IS THE SUBMISSION OF THE ASSESSEE THAT SUCH TREATMENT OF PROFITS IS ACCEPTED BY THE DEPARTMENT CONSISTENTLY. FURTHER, LD COUNSEL FOR THE ASSESSEE ENLISTED VARIOUS DECISIONS IN HIS SUPPOR T AND THE LIST INCLUDES THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF KOTAK MAHINDRA INVESTMENT LTD (SUPRA). IN PARA 9 OF THE NOTE, ASSESSEE POINTED OUT THE MISTAKEN FACTS TAKEN BY THE CIT - DR AND SUBMITTED THAT THE DERIVATIVES ARE HELD IN STOCK - IN - TRADE IN THE PRESENT CASE AS WELL. LD COUNSEL FOR THE ASSESSEE IS ALSO CRITICAL OF THE WAY OF BINDING DECISIONS ARE DISTINGUISHED. FURTHER, HE ADDED THE WRITTEN SUBMISSIONS THAT THE JUDGMENTS ARE BINDING AND THE CITED VARIOUS DECISIONS WHICH ARE DECIDED IN FA VOUR OF THE ASSESSEE ON IDENTICAL FACTS. AT THE END, IN PARA 10 OF THE WRITTEN SUBMISSIONS, DATED 5.11.2014, IT IS THE SUBMISSION OF THE ASSESSEE THAT THE ISSUE UNDER CONSIDERATION STANDS COVERED IN FAVOUR OF THE ASSESSEE AND THE SAID PARA 10 READS AS UND ER: 10. IN THE LIGHT OF THE ABOVE, THE APPELLANT RESPECTFULLY SUBMITS THAT ITS ABOVE GROUNDS SHOULD BE ALLOWED , INTER ALIA, AS: (I) THE SAID GROUNDS ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE ELEVEN DECISIONS OF THE HONBLE MUMBAI ITAT. (II) NOT A SINGLE CONTRARY DECISION HAS BEEN CITED BY THE DEPARTMENT. (III) NO CASE WHATSOEVER HAS BEEN MADE OUT BY THE DEPARTMENT FOR DEPARTING FROM THE CONSISTENT VIEW TAKEN BY THE MUMBAI ITAT. 1 3 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AU THORITIES AS WELL AS CITED DECISION OF THE TRIBUNAL AND THE RELEVANT MATERIAL PLACED BEFORE US. IT IS AN UNDISPUTED FACT THAT THE DERIVATIVES, WHICH IS THE SUBJECT MATTER OF IMPUGNED MTM LOSS, ARE COMMODITIES OF TRADING ACCOUNT. THE SAME ARE TRADED ON EXCHANGE ON PAR WITH SHARES AND STOCK OPTIONS AND FUTURES. THE LOSSES ARE HELD ALLOWABLE AGAINST T HE PROFITS OF THE ASSESSEE WHILE THE RELATED PROFITS ON ACCOUNT OF MTM ARE BEING IGNORED CONSIDERING THE CONSISTENT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE SAME IS IN ACCORDANCE WITH GUIDANCE NOTE / AN ACCOUNTING STANDARD ISSUED BY THE ICAI. I T IS THE CLAIM OF THE ASSESSEE THAT THE SAME CONSISTENTLY ACCEPTED BY THE DEPARTMENT AS WELL. WE HAVE ALSO PERUSED THE ORDER OF 10 THE TRIBUNAL IN THE CASE OF KOTAK MAHINDRA INVESTMENT LTD (SUPRA), WHICH WAS DECIDED BASED ON THE OTHER DECISIONS OF THE TRIBUN AL OF BOMBAY BENCHES. WE FIND PARA 3 OF THE SAID ORDER OF THE TRIBUNAL IN THE CASE OF KOTAK MAHINDRA INVESTMENT LTD (SUPRA) IS RELEVANT AND THE FACTS ARE COMPARABLE TO THE INSTANT CASE. CONSIDERING THE SIGNIFICANCE OF THE SAID PARA, THE SAME IS REPRODUCE D AS UNDER: 3. WE HAVE HEARD THE LEARNED REPRESENTATIVE OF THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORD. THE STOCK FUTURE IS ONE OF THE TYPES OF FORWARD CONTRACT, WHICH IS TRADED ON EXCHANGES. THIS CAN BE TRADED IN BSE AS WELL AS IN NSE. IN SUCH TY PE OF CONTRACTS THE STOCK IS NOT ACTUALLY PURCHASED RATHER THE PROFIT OR LOSS IS CALCULATED ON THE BOOK VALUE IN COMPARISON TO THE ACTUAL MARKET RATE OF THE STOCKS ON THE DATE WHICH HAS BEEN AGREED BY THE PARTIES FOR THE PERFORMANCE OF THE CONTRACT. CERTA IN STOCKS ARE BOOKED TO BE PURCHASED AT PREDETERMINED PARTICULAR RATE ON FUTURE DATE AND WHEN SUCH FUTURE DATE OF PERFORMANCE OF CONTRACT BECOMES DUE, THEN THE PREDETERMINED PRICE IS COMPARED WITH THE ACTUAL MARKET RATE OF THE BOOKED STOCK AND THE DIFFEREN CE, IF ANY, IS PAID BY THE PARTIES WITHOUT ACTUALLY PURCHASING OR SELLING THE STOCKS IN QUESTION. THE DAILY MARKET RATE OF THE SAID STOCK IN QUESTION IS TAKEN AND THE DIFFERENCE BETWEEN THE MARKET RATE AND THE PREDETERMINED RATE IS DAILY CALCULATED AND THE DIFFERENCE MARGIN, IF ANY, IS RECEIVED/PAID TO THE BROKER AND FINALLY ON THE STIPULATED DATE THE CONTRACTS ARE SQUARED OFF RESULTING INTO ACTUAL LOSS OR PROFIT. THE CONTRACTS IN SUCH TYPE OF CASES CAN BE SQUARED OFF BEFORE THE ARRIVAL OF ACTUAL PERFORMAN CE DATE OF CONTRACT, AS THE PROFIT AND LOSS ARE CALCULATED ON DAILY BASIS AND THE MARGINS ARE SETTLED ACCORDINGLY. SUCH TYPE OF CONTRACTS ARE NOT PURELY CONTINGENT IN NATURE RATHER LOSS OR PROFIT IS SOMEWHAT ASCERTAINABLE IN VIEW OF CONSTANT WATCH ON DAIL Y MARKET VALUE AND EVEN THE QUANTUM OF PROFIT OR LOSS THOUGH NOT ACTUALLY ASCERTAINABLE, CAN BE ANTICIPATED IN VIEW OF THE TRENDS OF THE MARKET. THE DIFFERENCE BETWEEN THE PREDETERMINED PRICE AND MARKET PRICE IS SETTLED DAILY ON MARK - TO - MARKET BASIS. IN SUCH TYPE OF CONTRACTS, IT IS NOT THE STOCK VALUE WHICH IS SUBJECT MATTER OF THE CONTRACT RATHER THE CONTRACT ITSELF IS THE STOCK IN TRADE WHICH IS PURCHASED BY PAYING/DEPOSITING THE INITIAL MARGINS ON PERCENTAGE BASIS TO THE BROKER TAKING INTO CONSIDERATI ON MAXIMUM ANTICIPATED RISE OR FALL IN THE PRICE OF THE STOCK IN FUTURE. AS OBSERVED ABOVE, THE DIFFERENCE OF MARGIN IN CALCULATED AND SETTLED ON DAILY BASIS IN VIEW OF THE MARKET RATES AND TRENDS. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. WOODWAR D GOVERNOR INDIA (P.) LTD (2009) 179 TAXMAN 326, WHILE DEALING WITH THE QUESTION AS TO WHETHER THE ADDITIONAL LIABILITY ARISING ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE CAN BE ALLOWED TO BE ADJUSTED PENDING ACTUAL PAYMENT OF THE VARIED, HAS OBSERV ED THAT EXPENDITURE AS USED IN SECTION 37 IN INCOME TAX ACT MAY IN THE CIRCUMSTANCES OF A PARTICULAR CASE COVER AN AMOUNT WHICH IS A LOSS EVEN THOUGH SAID AMOUNT HAS NOT BEEN GIVEN FROM THE POCKET OF THE ASSESSEE. IT HAS BEEN FURTHER OBSERVED THAT THE ORDINARY PRINCIPLE OF COMMERCIAL ACCOUNTING REQUIRES THAT IN THE PROFIT & LOSS ACCOUNT THE VALUE OF STOCK IN TRADE AT THE BEGINNING AND AT THE END OF THE YEAR SHOULD BE ENTERED AT COST OR MARKET PRICE, WHICHEVER IS LOWER. WHILE ANTICIPATED LOSS IS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASE PROFITS BEFORE ACTUAL REALIZATION. PROFITS FOR INCOME - TAX PURPOSES ARE TO BE COMPUTED IN ACCORDANCE WITH ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLESS, SUCH PRINCIPLES STAND SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENTS. UNREALIZED PROFITS IN THE SHAPE OF APPRECIATED VALUE OF GOODS REMAINING UNSOLD AT THE END OF THE ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING YEARS ACCOUNT IN A CONTINUING BUSINESS ARE NOT BROUGHT TO THE CHARGE AS A MATTER OF PRACTICE, THOUGH, AS STATED ABOVE, LOSS DUE TO FALL IN THE PRICE BELOW COST IS ALLOWED EVEN THOUGH SUCH LOSS HAS NOT BEEN REALIZED ACTUALL Y. ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS ARE TO BE TAKEN AS 11 CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. UNDER SECTION 145(2) OF THE IT ACT, THE CENTRAL GOVERNMENT IS EMPOWERED TO NOTIFY F ROM TIME TO TIME THE ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEE OR IN RESPECT OF ANY CLASS OF INCOME. THE LEARNED AR HAS BROUGHT INTO OUR NOTICE THAT THE METHOD OF ACCOUNTING MADE BY THE ASSESSEE IS AS PER ACCOUNTING STANDARDS. THE AS SESSEE IN THIS RESPECT HAS RELIED UPON EXPLANATION TO NOTE NO.I OF SCHEDULE 19 OF THE NOTES TO ACCOUNTS WITH REGARD TO SIGNIFICANT ACCOUNTING POLICIES, WHICH READ AS UNDER: EQUITY INDEX/STOCK FUTURES A. INITIAL MARGIN - EQUITY/INDEX DERIVATIVE INSTRUMENT REPRESENTING THE INITIAL MARGIN PAID AND/OR ADDITIONAL MARGIN PAID OVER AND ABOVE THE INITIAL MARGIN, FOR ENTERING INTO CONTRACT FOR EQUITY INDEX/STOCK FUTURES, WHICH ARE RELEASED ON FINAL SETTLEMENT/SQUARING UP OF THE UNDERLYING CONTRACTS, ARE DISCLOSED UNDER LOANS AND ADVANCES. B. DEPOSIT FOR MARK TO MARKET MARGIN EQUITY/INDEX DERIVATIVE INSTRUMENT REPRESENTING THE DEPOSIT PAID IN RESPECT OF MARK TO MARKET MARGIN IS DISCLOSED UNDER LOANS AND ADVANCES. C. EQUITY INDEX/STOCK FUTURES ARE MARKED TO MARKET ON A DAILY BASIS AND THE RESULTANT UNREALIZED LOSS IS RECOGNISED IN THE PROFIT AND LOSS ACCOUNT. ON FINAL SETTLEMENT OR SQUARING UP OF CONTRACTS FOR EQUITY INDEX/STOCK FUTURES, THE REALISED PROFIT OR LOSS AFTER ADJUSTING THE UNREALIZED LOSS ALREADY ACCOUNTED, IF ANY IS RECOGNISED IN THE PROFIT AND LOSS ACCOUNT AND SHOWN AS PROFIT/(LOSS) ON TRADING IN OPTIONS/FUTURES. SO TRADING IN STOCK FUTURE HAS NOT ONLY BEEN RECOGNIZED BUT CERTAIN STANDARDS HAVE ALSO BEEN RECOGNIZED FOR RECORDING LOSS AND PROFIT UNDER SUCH TYPE OF TRANSACTIONS. WHILE DEALING WITH A SIMILAR ISSUE, THE CO - ORDINATE BENCH OF THIS TRIBUNAL VIDE ORDER DATED 10.11.2010 IN ITA NO.5324/MUM/2007 FOR A.Y. 2004 - 05 IN THE CASE OF EDELWEISS CAPITAL LTD., HAS OBSERVED AS UNDER: WE HAVE CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. IN THE SCHEDULED ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER APPEAL (PAGE 13 OF THE PAPER BOOK), THE ASSESSEE HAS MADE THE FOLLOWING NOTE: H. EQUITY FUTURES - INDEX/STOCK (A ) INITIAL MARGIN - EQUITY DERIVATIVE INSTRUMENTS, REPRESENTING INITIAL MARGIN PAID, AND MARGIN DEPOSITS, REPRESENTING ADDITIONAL MARGIN OVER AND ABOVE INITIAL MARGIN , FOR ENTERING INTO CONTRACTS FOR EQUITY INDEX/ STOCK FUTURES, WHICH ARE RELEASED ON FIN AL SETTLEMENT/SQUARING - UP OF UNDERLYING CONTRACTS, ARE DISCLOSED UNDER LOANS AND ADVANCES. (B) EQUITY INDEX/STOCK FUTURES ARE MARKED - TO - MARKET ON A DAILY BASIS. DEBIT OR CREDIT BALANCE DISCLOSED UNDER LOANS AND ADVANCES OR CURRENT LIABILITIES RESPECTIVEL Y, IN THE MARK - TO - MARKET MARGIN EQUITY INDEX /STOCK FUTURES ACCOUNT, REPRESENTS THE NET AMOUNT PAID OR RECEIVED ON THE BAIS OF MOVEMENT IN THE PRICES OF INDEX/STOCK FUTURES TILL THE BALANCE SHEET DATE AMOUNT PAID TO BROKERS IN ADDITION TO MARK - TO - MARKE T MARGINS IS DISCLOSED AS MARGIN DEPOSITS UNDER LOANS AND ADVANCES. (C) AS ON THE BALANCE SHEET DATE, PROFIT/LOSS ON OPEN POSITIONS IN INDEX/STOCK FUTURES ARE ACCOUNTED FOR AS FOLLOWS: 12 CREDIT BALANCE IN THE MARK - TO - MARKET MARGIN EQUITY INDEX/STOCK FU TURES ACCOUNT, BEING ANTICIPATED PROFIT, IS IGNORED AND NO CREDIT FOR THE SAME IS TAKEN IN THE PROFIT AND LOSS ACCOUNT DEBIT BALANCE IN THE MARK - TO - MARKET MARGIN EQUITY INDEX /STOCK FUTURES ACCOUNT, BEING ANTICIPATED LOSS, IS ADJUSTED IN THE PROFIT AN D LOSS ACCOUNT. (D) ON FINAL SETTLEMENT OF SQUARING - UP OF CONTRACTS FOR EQUITY INDEX/STOCK FUTURES, THE PROFIT OR LOSS IS CALCULATED AS THE DIFFERENCE BETWEEN SETTLEMENT/SQUARING UP PRICE AND CONTRACT PRICE. ACCORDINGLY, DEBIT OR CREDIT BALANCE PERTAINING TO THE SETTLED/SQUARED - UP CONTRACT IN MARK - TO - MARKET MARGIN EQUITY INDEX/STOCK FUTURES ACCOUNT IS RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT. THE AFORESAID NOTE GIVES A FAIR PICTURE OF THE NATURE OF THE PROVISION. THE PROVISION IN SUBSTANCE HAS BEEN M ADE TO COVER THE ANTICIPATED LOSS IN THE DERIVATES TRADING. THERE IS NO DISPUTE THAT THE ASSESSEE HOLDS DERIVATIVES AS ITS STOCK - IN - TRADE AND THERE IS ALSO NO DISPUTE THAT IT FOLLOWS THE PRINCIPLE COST OR MARKET PRICE, WHICHEVER IS LOWER IN VALUING THE DERIVATIVES. WHEN THE DERIVATIVES ARE HELD AS STOCK - IN - TRADE THEN WHATEVER RULES APPLY TO THE VALUATION OF STOCK - IN - TRADE WILL HAVE TO BE NECESSARILY APPLY TO THEIR VALUATION ALSO. IT IS A WELL SETTLED POSITION IN LAW THAT WHILE ANTICIPATED LOSS IS TAKE N INTO ACCOUNT IN VALUING THE CLOSING STOCK, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF CLOSING STOCK IS NOT BROUGHT INTO THE ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASED PROFIT BEFORE ITS REALIZATION. THIS IS THE THEORY UNDERLYI NG THE RULE THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS THE LOWER, AND IT IS NOW GENERALLY ACCEPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNTANCY. THIS IS WHAT THE SUPREME COURT HELD IN THE CASE OF CHAINRUP SAMPATRAM VS. COMMISSIONER OF INCOME TAX, WEST BENGAL (1953) 24 ITR 481 (SC) SPEAKING THROUGH HONBLE JUSTICE PATANJALI SASTRI, THE THEN CHIEF JUSTICE OF INDIA (PAGE 485 - 486 OF THE REPORT). AT PAGE 486 THE SUPREME COURT FURTHER OBSERVED THAT LOSS DUE TO A FALL IN PRICE BELOW COST IS ALLOWED EVEN IF SUCH LOSS HAS NOT BEEN ACTUALLY REALIZED. QUOTING FROM THE CAS E OF WHIMSTER & CO. VS. COMMISSIONERS OF INLAND REVENUE (1926) 12 TAX CASES 813, THE SUPREME COURT OBSERVED THAT THE PROFITS THAT ARE CHARGEABLE TO TAX ARE THOSE REALIZED IN T YEAR AND THAT AN EXCEPTION IS RECOGNIZED WHERE A TRADER PURCHASED AND STILL HOLDS GOODS WHICH A RE FALLEN IN VALUE IN WHICH CASE THOUGH NO LOSS HAS BEEN REALIZED NOR IT HAS OCCURRED, NEVERTHELESS AT THE CLOSE OF THE YEAR HE IS PERMITTED TO TREAT THESE GOODS AS OF THEIR MARKET VALUE. THIS DECISION OF THE SUPREME COURT GOVERNS THE FACTS OF THE PRESENT CASE. IT IS TO THE ASSESSEES STRENGTH THAT THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IN ITS GUIDELINES HAVE ALSO APPROVED OF THE RULE OF PRUDENCE WHICH REALLY MEANS THAT WHILE ANTICIPATED LOSSES CAN BE TAKEN NOTE OF WHILE VALUING THE CLOSING STOCK , ANTICIPATED PROFITS CANNOT BE RECOGNIZED. THE ANTICIPATED LOSS, IN THE LIGHT OF THE JUDGMENT OF THE SUPREME COURT CITED ABOVE, CANNOT BE TREATED AS A CONTINGENT LIABILITY. 8. THE LEARNED DR POINTED OUT THAT THE ASSESSEE HAS VALUED EACH SCRIP OF THE DE RIVATIVES AS AT THE END OF THE YEAR. WE DO NOT SEE HOW THIS CAN MAKE ANY DIFFERENCE TO THE LEGAL PRINCIPLE. IF THE DERIVATIVES HAVE BEEN TREATED AS STOCK - IN - TRADE THEN THERE IS NOTHING UNUSUAL IN THE ASSESSEE VALUING EACH DERIVATIVE BY APPLYING THE RULE C OST OR MARKET WHICHEVER IS LOWER. 9. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO ALLOW THE PROVISION AS REFLECTING IN SUBSTANCE THE LOSS ARISING ON ACCOUNT OF VALUATION OF THE CLOSING STOCK. THE GROUND IS ALLOWED. RESPECTFULLY FOLLOWING THE DECISION O F THE TRIBUNAL IN THE CASE OF EDELWEISS CAPITAL LTD. (SUPRA), WHICH VIEW HAS FURTHER BEEN FOLLOWED BY ANOTHER CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI RAMESH KUMAR DAMANI VS. THE ADDL. CIT [ITA NO. 13 1443/MUM/2009 FOR A.Y. 2006 - 07, ORDER DATED 26.11.2010], IT CAN BE SAFELY HELD THAT IT IS NOT ONLY THE ACTUAL STOCK BUT DERIVATIVES CAN ALSO BE HELD AS STOCK IN TRADE AND THE PRINCIPLE COST OR MARKET PRICE WHICHEVER IS LOWER HAS BEEN RIGHTLY FOLLOWED BY THE ASSESSEE IN VALUING THE DERIVATIVES AND FURTHER WHEN THE DERIVATES ARE HELD AS STOCK IN TRADE THEN WHATEVER RULES APPLY TO THE STOCK IN TRADE WILL HAVE TO APPLY TO THEIR VALUATION ALSO. WHILE ANTICIPATED LOSS IS TAKEN INTO ACCOUNT WHILE VALUATION OF CLOSING STOCK, ANTICIPATED PROFIT IN THE SHAP E OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO ACCOUNT, AS NOT PRUDENT TRADER WOULD CARE TO SHOW INCREASED PROFITS BEFORE ACTUAL REALIZATION. RESPECTFULLY FOLLOWING THE LAW LAID DOWN BY THE AUTHORITIES AS MENTIONED ABOVE, WE HOLD THAT THE ASSESSEE HAS RIGHTLY CLAIMED MARK - TO - MARKET LOSS OF RS.1,38,93,853/ - WHICH IS LIABLE TO BE ALLOWED. THE LEARNED CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE, HIS ORDER IS HEREBY UPHELD. 14. THE FACTS PERTAINING TO THE DECISION OF THE TRIBUNAL IN THE ABOVE EXTRACTED CASE INCLUDE THAT THE DERIVATIVES WHICH IS THE SUBJECT MATTER OF IMPUGNED MTM LOSSES WAS HELD AS STOCK - IN - TRADE IN THE BOOKS OF ACCOUNTS IN THE PRESENT CASE. THE PROFITS WERE NOT ACCOUNTED FOR IN THE BOOKS. ON THESE FACTS, TRIBUNAL HE LD THAT THE MTM LOSS IS LIABLE TO BE ALLOWED. ON THE CONTRARY, THE REVENUE HAS NOT BROUGHT ANY DECISION IN THEIR SUPPORT. THEREFORE, WE ARE OF THE OPINION THAT THE ASSESSEES CLAIM OF MARK - TO - MARKET LOSS OF RS. 2,85,10,681/ IS LIABLE TO BE ALLOWED. THERE FORE, THE ORDER OF THE CIT (A) IN THIS REGARD NEEDS TO BE REVERSED. ACCORDINGLY, THE GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED. 15 . GROUND NO.3 RELATES TO THE ADDITION OF RS. 3,51,240/ - BASED ON THE AIR INFORMATION. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER ASKED THE ASSESSEE TO RECONCILE CERTAIN TRANSACTIONS QUA THE DATA GATHERED THROUGH THE AIR (ANNUAL INFORMATION REPORTS) MECHANISM OF THE DEPARTMENT. IN REPLY, ASSESSEE SUBMITTED THAT HE IS UNABLE TO REC ONCILE THE SAME WITH THEIR BOOKS. THUS, ASSESSING OFFICER MADE ADDITION OF RS. 3,51,240/ - AS UNRECONCILED TRANSACTIONS AND PARA 11 OF THE ASSESSING OFFICER IS RELEVANT IN THIS REGARD. 16. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE SUBMITTED IN WRITI NG DATED 21.5.2012 THAT ASSESSING OFFICER CANNOT MAKE SUCH ADDITIONS WITHOUT SUMMONING CONCERN PARTIES AND WITHOUT GRANTING ADEQUATE OPPORTUNITY TO THE ASSESSEE FOR RECONCILIATION OF AIR DATA WITH THE BOOKS OF THE ASSESSEE. PARA 5 OF THE SAID LETTER DAT ED 21.5.2012 IS RELEVANT. ON CONSIDERING TH E SAID SUBMISSIONS, VIDE PARA 6 , LD CIT (A) DISMISSED THE ASSESSEES CLAIM STATING THAT THE ASSESSEE FAILS TO PRODUCE ANY 14 EVIDENCE TO PROVE THAT THE TRANSACTIONS ARE LISTED IN AIR DID NOT PERTAIN TO THE ASSESSE E. AGGRIEVED WITH THE SAME, ASSESSEE RAISED GROUND NO.3 IN THE APPEAL . 16.1 . BEFORE US, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSEE IS NOT GIVEN ADEQUATE OPPORTUNITY FOR RECONCILIATION OF THE DISCREPANCIES, IF ANY, REPORTED BY AIR. HE IS CER TAIN OF RECONCILING THE SAME AND REQUESTED FOR REMANDING THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. PER CONTRA, LD DR FOR THE REVENUE RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT (A). 16.2. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE ON THIS ISSUED OF RECONCILIATION OF AIR DATA QUA THE BOOKS OF ACCOUNTS OF THE ASSESSEE. A FINDING IS RECORDED BY THE ASSESSING OFFICER THAT NO EXHAUSTIVE EXERCISE OF RECONCILIATION IS UNDERTAKEN BY HIM BEFORE MAKING THE SAID ADDITION. ASSESSEE IS CERTAIN OF FULL RECONCILIATION, IF ONE MORE OPPORTUNITY IS GRANTED. CONSIDERING THE SAME, WE REMAND THIS GROUND TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION OF THE ISSUE AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.3 IS ALLOWED FOR STATISTICAL P URPOSES. 17 . GROUND NO.4 RELATES TO NON - GRANTING OF CREDIT OF TDS CERTIFICATE AMOUNTING TO RS. 1,14,50,196/ - . IN THIS REGARD, AT THE VERY OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE FACT THAT THE ASSESSEE GOT NECESSARY RELIEF FROM THE CIT (A) DURING THE PROCEEDINGS U/S 154 OF THE A CT. CONSIDERING THE RELIEF GRANTED BY THE CIT (A), WE ARE OF THE OPINION THAT THE ADJUDICATION OF THIS GROUND BECOMES INFRUCTUOUS. ACCORDINGLY, GROUND NO.4 IS DISMISSED AS INFRUCTUOUS. 18 . GROUND NO.5 RELAT ES TO CONFIRMING OF THE INTEREST U/S 234C OF THE ACT. CONSIDERING THE CONSEQUENTIAL NATURE OF THIS GROUND, THE ADJUDICATION OF THE SAME IS A MERE ACADEMIC EXERCISE. ACCORDINGLY, GROUND NO.5 RAISED BY THE ASSESSEE IS DISMISSED. 19 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15 ITA NO.5898/M/2012 (AY 2009 - 2010) (BY ASSESSEE) 20 . THIS APPEAL FILED BY THE ASSESSEE ON 27.9.2012 IS AGAINST THE ORDER OF THE CIT (A) - 8, MUMBAI DATED 16.7.2012 FOR THE ASSESSMENT YEAR 2009 - 2010. 21 . IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: GROUND NO.1 - DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 2,18,76,510 UNDER SECTION 14A R.W RULE 8D(2)(III) 3. THE CIT (A) ERRED IN DISALLOWING A SUM OF TO RS. 2,18,76,510 U/S. 14A BY INVOKING THE PROVISIONS OF RULE 8D(2)(III) INSTEAD OF DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE OF RS. 22,43,198 WORKED OUT BY THE APPELLANT . 4. HE FURTHER ERRED IN DISREGARDING THE A CCOUNTS OF THE APPELLANT AND IGNORING THE DETAILED SUBMISSIONS MADE REGARDING THE CORRECTNESS OF THE CLAIM OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. 3. HE FURTHER ERRED IN INVOKING RULE 8D, WITHOUT RECORDING HER SATISFACTION ON HOW THE ASSESSEE'S CALCULATION IS INCORRECT . 4. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: A. THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE WHICH WAS DIRECTLY ATTRIBUTABLE TOWARDS EARNING OF TAX FREE DIVIDEND INCOME AND SUCH DISALLOWANCE CANNOT BE MADE ON THE BASIS OF PRESUMPTIONS AND BY APPLYING RULES MECHANICAL L Y; B. APPLICATION OF FORMULA OF % OF THE AVERAGE VALUE OF SUCH INVESTMENTS IS TOTALLY INEQUITABLE AND THIS DISALLOWANCE HAS NO RELATION TO EITHER THE EXEMPT INCOME OR TO THE EXPENDITURE CLAIMED BY THE APPELLANT; C. THERE WAS NO BASIS FOR MAKING SUCH AN DISALL OWANCE IN ACCORDANCE WITH RULE 8D(III) TO SECTION 14A WITHOUT ESTABLISHING TH AT SUCH EXPENDITURE WAS INDEED INCURRED FOR EARNING EXEMPT DIVIDEND INCOME; D. THE NEW RULE 8D (2)(III) GOES BEYOND THE AUTHORIT Y GIVEN TO CBDT BY S. 14A AND RULE ONLY DETERMINES THE NOTIONAL COST FOR HOLDING INVESTMENTS WHICH MAY OR MAY NOT YIELD AN EXEMPT INCOME AND SUCH NOTIONAL COST FOR HOLDING THE INVESTMENT HAS NO RELATIONS HIP WITH THE A CTUAL EXPENDITURE INCURRED AND CLAIMED BY THE APPELLANT; E. UNDER SECTION 14A, IT IS VERY MUCH CLEAR THAT ONLY THE EXPENDITURE WHICH HAS BEEN PROVED TO BE INCURRED IN RELATION TO EAR NING OF TAX FREE INCOME CAN BE DISALLOWED AND, THE SECTION CANNOT BE EXTENDED TO DISALLOW EVEN THE EXPENDITURE WHICH IS ASSUMED TO HAVE BEEN INCURRED FOR EARNING TAX FREE INCOME. 5. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DELETE THE ENTIRE DISALLOWANCE OF RS. 2,18,76,510 U/S 14A MADE BY THE AO. 6. WITHOU T PREJUDICE TO THE ABOVE, STRATEGIC INVESTMENTS SHOULD NOT BE CONSIDERED FOR WORKING OUT DISALLOWANCE ULS. 14. 7. WITHOUT PREJUDICE TO THE ABOVE, THE DIVIDEND INCOME IS INCIDENTAL TO SHARES & SECURITY TRADING ACTIVITY OF THE APPELLANT AND THEREFORE WOULD ONLY ATTRACT DISALLOWANCE UNDER SECTION 14A 8. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT, PRAYS THAT THE AO BE DIRECTED TO RESTRICT THE DISALLOWANCE MADE UNDER SECTION 14A TO RS. 22,43,1 98 AS DISALLOWED BY THE APPELLANT IN RETURN OF INCOME. GROUND NO.II - DISALLOWANCE OF MARK TO MARKET LOSS OF RS. 1,10,54,358 2. THE CIT(A) ERRED IN DISALLOWING MARK TO MARKET LOSS OF RS.1,10,54,358 ON STOCK FUTURES AND STOCK / NIFTY OPTIONS ON THE GROUND THAT SUCH LOSS IS NOTIONAL AND CONTINGENT IN NATURE SINCE THE PROFIT OR LOSS CANNOT ACCRUE UNTIL AND UNLESS THE CONTRACTS ARE SETTLED. 2. HE FURTHER ERRED IN DISREGARDING THE DIRECT DECISION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF EDELWEISS CAPITAL L TD. V. ITO (ITA NO. 5324/M/2007). 3. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: A. UNDER MERCANTILE METHOD ACCOUNTING, THE LOSS ARISING ON MARK - TO - MARKET RESTATEMENT OF ASSET (PROPERTY) AT THE YEAR E ND IS AN ALLOWABLE LOSS, WHERE THE ASSET (PROPERTY) IS ON HELD ON TRADING (REVENUE) ACCOUNT . B. LOSS ON UN - MATURED DERIVATIVE CONTRACTS ARE NOT IN TH E NATURE OF CONTINGENT LOSS SINCE BINDING OBLIGATION AROSE AGAIN ST THE APPELLANT THE MOMENT IT ENTERED INTO DERIVATIVE CONTRACT. C. A 'DERIVATIVE' IS A SECURITY REPRESENTING THE VALU E OF THE UNDERLYING STOCKS AND SHARES AND MUST BE GIVEN THE SAME TREATMENT AS THAT GIVEN TO THE STOCKS AND SHARES AND ANY LOSS ON ITS VALUATION ON BALANCE SHEET DATE, ON THE BASIS OF FOLLOWING CONSISTENT AND REGULAR METH OD OF VALUATION, IS REALLY A METHOD OF STOCK VALUATION AND ALLOWABLE AS BUSINESS LOSS U / S 28. D. DERIVATIVES ARE ' COMMOD I TIES ' AS THEY DERIVED THE VALUE FROM THE UNDERLYING SHARES AND HENCE STOCK I N TRADE NEEDS TO BE VALUED AT COST OR MARKET VA L UE, WHICHEVER IS L OWER. 16 E. WITHOUT PREJUDICE TO THE ABOVE, SUCH MARK TO MARKET LOSS I S ALSO REVENUE EXPENDITURE ALLOWABLE U/S 37 4. THE APPELLANT PRAYS THAT MARK TO MARKET LOSS OF RS. 1,10, 54,358 ON NIFTY FUTURES BE ALLOWED WHILE COMPUTING THE INCOME OF THE APPELLANT . GROUND NO. III - AIR INFORMATION 3. THE CIT(A) ERRED IN CONFIRMING ADDITION OF A SUM OF RS. 3,59,966 ON ACCOUNT OF TRANSACTIONS LISTED IN AIR INFORMATION OF THE DEPARTMENT ON THE GROUND THAT APPELLANT COULD NOT ABLE T O RECONCILE THE SAME WITH BOOKS OF ACCOUNT . 4. HE FURTHER ERRED IN CONF I RMING ADDITION WITHOUT SUMMONING THE PARTIES REFLECTING THE ABOVE TRANSACT I ON I N THE I R AIR AND WITHOUT GIVING APPELLANT AN OPPORTUNITY TO CROSS EXAM I NES T H E M. 22 . GROUND NOS.1,2 AND 3 RAISED BY THE ASSESSEE IN THIS APPEAL ARE IDENTICAL TO THAT OF THE ASSESSEES APPEAL FOR THE AY 2008 - 2009. THE SAID APPEAL FOR THE AY 2008 - 2009 IS ADJUDICATED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER. SINCE, THE GROUNDS RAISED BY THE ASSESSEE IN THE INSTANT APPEAL ARE IDENTI CAL TO THAT OF THE APPEAL ITA NO.5807/M/2012 (AY 2008 - 2009), THEREFORE, THE ADJUDICATION GIVEN BY US THEREIN SQUARELY APPLIES TO THE INSTANT APPEAL TOO. CONSIDERING THE SAME, GROUND NO.1, WHICH RELATES TO DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 2,1 8,76,510/ - IS REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION WITH IDENTICAL DIRECTIONS THEREOF. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO.2 RELATING TO MARK TO MARKET LOSS OF RS. 1,10,54,358/ - IS ALLOWED IN FAVOUR OF THE ASSESSEE FOR THE REASONS AND DETAILS GIVEN ABOVE WHILE ADJUDICATING GROUND NO.2 OF THE ASSESSEES APPEAL FOR THE AY 2008 - 09. GROUND NO.3 RELATING TO AIR INFORMATION STANDS REMANDED TO THE FILE OF THE ASSESSING OFF ICER FOR FRESH ADJUDICATION AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 23 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ITA NO .6133/M/2012 (AY 2008 - 2009) (BY REVENUE) 24 . THIS APPEAL FILED BY THE REVENUE ON 5.10.2012 IS AGAINST THE ORDER OF THE CIT (A) - 8, MUMBAI DATED 16.7.2012 FOR THE ASSESSMENT YEAR 2008 - 2009. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO GRANT DEPRECIATION @ 80% ON UPS AS AGAINST 15%. 17 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LD CIT (A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 25 . AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE GROUNDS AND MENTIONED THAT THE ISSUE RAISED IN GROUND NO.1 RELATES TO T HE GRANT OF DEPRECIATION @ 80% ON UPS AS AGAINST 15% ALLOWED BY THE ASSESSING OFFICER. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE VIDE ITA NO.1013/M/2010 (AY 2006 - 2007) AND OTH ERS , DATED 21.5.2012 AND MENTIONED THAT IDENTICAL ISSUE WAS ADJUDICATED BY THE TRIBUNAL VIDE PARA 13 OF THE SAID ORDER OF THE TRIBUNAL. HE READ OUT THE SAID PARA 13 WHEREIN THE TRIBUNAL HELD THAT THE DEPRECIATION @ 80% SHOULD BE ALLOWED ON UPS INSTEAD OF 15% GRANTED BY THE ASSESSING OFFICER. 26 . ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 27 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED ORDER OF THE TRIBUNAL (SUPRA) DATED 2 1.5.2012. ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL, WE FIND THE SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2006 - 07 AND PARA 13 IS RELEVANT. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAID PARA 13 OF THE TRIBUNAL S ORDER DATED 21.5.2012 IS EXTRACTED AS FOLLOWS. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. WE FIND THAT THE ISSUE STANDS COVERED BY THE COORDINATE BENCH OF THE ITAT, JODHPUR IN THE CASE OF SURFACE FINISHING EQUIPMENT (SUPRA). WE, THEREFORE, FOLLOWING THE DECISION OF THE COORDINATE BENCH, DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION @ 80% ON THE UPS INSTEAD OF 15%. ACCORDINGLY, GROUND NO.7 IS ALLOWED. 28 . CONSIDERING THE ABOVE COVERED NATURE OF THE ISSUE AS WELL AS RES PECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH AND ALSO FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE DEPRECIATION @ 80% SHOULD BE ALLOWED ON UPS INSTEAD OF 15% GRANTED BY THE ASSESSING OFFICER. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMI SSED. 29 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 18 ITA NO.6134/M/2012 (AY 2009 - 2010 ) (BY REVENUE) 30 . THIS APPEAL FILED BY THE REVENUE ON 5.10.2012 IS AGAINST THE ORDER OF THE CIT (A) - 8, MUMBAI DATED 16.7.2012 FOR THE ASSESSMENT YEAR 2008 - 2009. 31 . IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO GRANT DEPRECIATION @ 80% ON UPS AS AGAINST 15%. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LD CIT (A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 32 . THE GROUNDS RAISED BY THE REVENUE IN THIS APPEAL ARE IDENTICAL TO THAT O F THE GROUNDS RAISED BY THE REVENUE FOR THE AY 2008 - 2009. THE SAID APPEAL FOR THE AY 2008 - 2009 IS ADJUDICATED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER. SINCE, THE GROUNDS RAISED BY THE REVENUE IN THE INSTANT APPEAL ARE IDENTICAL TO THAT OF THE APPEAL ITA NO.6133/M/2012 (AY 2008 - 2009), THEREFORE, THE ADJUDICATION GIVEN BY US THEREIN SQUARELY APPLIES TO THE INSTANT APPEAL TOO. CONSIDERING THE SAME, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 33 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN T HE OPEN COURT ON 11 TH DECEMBER , 2014. SD/ - SD/ - (H.L. KARWA) (D. KARUNAKARA RAO) PRESIDENT ACCOUNTANT MEMBER DATE: 11 .12 .2014. AT :MUMBAI OKK COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR A, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI