MEHTA FINANCIAL SERVICES LTD, MUMBAI V. ASST CIT 4(2), MUMBAI

ITA 874/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1729 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 09-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transactions in derivatives
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , ! '# $ $ $ $ '% &', ( '# ') BEFORE SHRI DINESH KUMAR AGARWAL, JM AND SHRI SANJAY ARORA, AM './ I.T.A. NO. 874/MUM/2012 ( ! , -, ! , -, ! , -, ! , -, / / / / ASSESSMENT YEAR : 2008-09) M/S MEHTA FINANCIAL SERVICES LTD., 612, ARUN CHAMBERS, TARDEO, MUMBAI 400 034. / VS. ASSISTANT COMMISSIONER OF INCOME-TAX- 4(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. #. ( './ PAN : AAACR 4142 D ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) ./ 2 3 ' / APPELLANT BY : SHRI NEEL KHANDELWAL 01./ 2 3 ' / RESPONDENT BY : SHRI MOHIT JAIN ' 2 4( / // / DATE OF HEARING : 11-02-2013 5&- 2 4( / DATE OF PRONOUNCEMENT : 15-02-2013 / O R D E R PER DINESH KUMAR AGARWAL, JM. : THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DTD. 12-12-2011 PASSED BY THE LD. CIT(A)- 8, MUMBAI FOR THE ASSESSMENT YEAR 2008-09. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES , FILED RETURN DECLARING TOTAL INCOME OF RS. 1,47,76,121/-. THE A.O. AFTER PROCESS ING THE RETURN U/S 143 (1) ITA NO.874/MUM/2012 2 OF THE INCOME TAX ACT, 1961 (THE ACT), SELECTED THE CASE FOR SCRUTINY AND ACCORDINGLY ISSUED STATUTORY NOTICES U/S 143(2) AND 142(1) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDING, IT WAS INTER A LIA, OBSERVED BY THE A.O. THAT THE ASSESSEE HAS BOOKED LOSS ON ACCOUNT OF MAR K TO MARKET VALUATION OF OPEN POSITIONS IN RESPECT OF FUTURES. HE FURTHER O BSERVED THAT IN RESPECT OF FORWARD CONTRACT, THE LOSS ACTUALLY MATERIALIZES ON THE DATE WHEN THE CONTRACT IS EXPIRED. IN BETWEEN, IT ONLY REMAINS NOTIONAL P ROFIT OR NOTIONAL LOSS WHICH VARIES ON DAY-TO-DAY BASIS. HE FURTHER OBSERVED TH AT ALTHOUGH THE ACCOUNTING STANDARDS DO PRESCRIBE TO ACCOUNT FOR ANY LOSSES IN RESPECT OF ALL SUCH NOTIONAL LOSSES, AS A RULE IN THIS PRACTICE, HOWEVER, SUCH N OTIONAL LOSSES ARE NOT ALLOWABLE UNDER THE INCOME TAX ACT. THE A.O. WHILE RELYING ON CERTAIN DECISIONS, DISALLOWED THE SAID LOSS OF RS. 1,70,000 /- LACS AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE A.O. AFTE R MAKING SOME OTHER DISALLOWANCES COMPLETED THE ASSESSMENT AT AN INCOME OF RS. 1,47,76,120/- VIDE ASSESSMENT ORDER DTD. 25-11-2010 PASSED U/S 14 3(3) OF THE ACT. ON APPEAL, THE LD. CIT(A) WHILE RELYING ON THE DECISIO N OF THE HONBLE SUPREME COURT IN CIT VS. WOODWARD GOVERNOR INDIA P. LTD. (2 009) 312 ITR 254 (SC) OBSERVED THAT THE ASSESSEE IS ONLY DEBITING THE LOS SES AND NOT CREDITING THE PROFIT ON ACCOUNT OF MARK TO MARKET VALUATION IN HI S P&L ACCOUNT, UPHELD THE DISALLOWANCE OF LOSS MADE BY THE A.O. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.874/MUM/2012 3 4. GROUND NO. 1 IS AGAINST THE SUSTENANCE OF DISALL OWANCE U/S 14A OF THE ACT RS. 2,00,756/- 5. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE DID NOT PRESS THE ABOVE GROUND WHICH WAS NOT OBJECTED TO BY THE LD. D .R. 6. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORTI NG MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE, THE GRO UND TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTED BEING NOT PRESSED. 7. GROUND NO. 2 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF NOTIONAL LOSS OF RS. 1,70,000/-. 8. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE WHILE REFERRING TO THE FINANCIAL STATEMENT OF THE ASSESSEE APPEARING A T PAGES NO. 9,17, 25-27 & 28 OF THE ASSESSEES PAPER BOOK SUBMITS THAT THE LD . CIT(A) HAS ERRED IN OBSERVING THAT THE ASSESSEE IS ONLY DEBITING THE LO SSES AND NOT CREDITING THE PROFIT WHEREAS, IN FACT, AT PAGE NO. 28 OF THE PAPE R BOOK THE FIRST ENTRY OF STATEMENT SHOWING DETAILS OF LOSS IN OPEN POSITION OF F&O AS ON 31-3-2008 IS THE CREDIT ENTRY OF RS. 6342/- AND THE REMAINING TH REE ENTRIES ARE DEBIT ENTRY AND AFTER ADJUSTING THE SAME THE NET LOSS OF RS. 1, 70,660/- WAS CLAIMED AS A LOSS IN THE P&L ACCOUNT. HE FURTHER SUBMITS THAT T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECI AL BENCH OF THE TRIBUNAL IN DCIT VS. BANK OF BAHRAIN AND KUWAIT (2010) 5 ITR (T RIB) 301 (MUMBAI) [SB]. HE, THEREFORE, SUBMITS THAT THE LOSS CLAIMED BY THE ASSESSEE BE ALLOWED. ITA NO.874/MUM/2012 4 9. ON THE OTHER HAND, THE LD. D.R. SUPPORTS THE ORD ER OF THE A.O. AND THE LD. CIT(A). 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND M ERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN THE STATEMENT SHOW ING DETAILS OF LOSS IN OPEN POSITION OF F&O AS ON 31-3-2008 APPEARING AT PAGE 2 8 OF THE ASSESSEES PAPER BOOK THE ASSESSEE HAS SHOWN PROFIT OF RS. 6342/- IN ONE TRANSACTION AND IN REMAINING THREE TRANSACTIONS THE ASSESSEE HAS SHOWN LOSS OF RS. 1,77,002/- AND AFTER ADJUSTING THE PROFIT OF RS. 6342/- THE NE T LOSS OF RS. 1,70,660/- WAS CLAIMED AS A LOSS IN OPEN POSITION OF F&O. 11. IN BANK OF BAHRAIN AND KUWAIT (SUPRA) IT HAS BE EN HELD THAT THAT WHERE A FORWARD CONTRACT IS ENTERED INTO BY THE ASSESSEE TO SELL THE FOREIGN CURRENCY AT AN AGREED PRICE AT A FUTURE DATE FALLING BEYOND THE LAST DATE OF ACCOUNTING PERIOD, THE LOSS IS INCURRED TO THE ASSESSEE ON ACC OUNT OF EVALUATION OF THE CONTRACT ON THE LAST DATE OF THE ACCOUNTING PERIOD, I.E., BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT IS ALLOWABLE . 12. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE ABOVE DECISI ON HOLD THAT THE SAID LOSS CLAIMED BY THE ASSESSEE IS ALLOWABLE AND ACCORDINGL Y WE WHILE SETTING ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS GROUND, ALLOW THE GROUND TAKEN BY THE ASSESSEE. ITA NO.874/MUM/2012 5 10. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. 6 47 ! ,64 2 #4 8 2 %4 9: ORDER PRONOUNCED IN THE OPEN COURT ON 15-02-2013. . 2 5&- ( 7 15-02-2013 & 2 A SD/- SD/- (SANJAY ARORA) (DINE SH KUMAR AGARWAL) ( '# / ACCOUNTANT MEMBER ! '# / JUDICIAL MEMBER MUMBAI; DATED 15-02-2013. .!.'./ R.K. , SR. PS 2 0!4BC C-4 2 0!4BC C-4 2 0!4BC C-4 2 0!4BC C-4/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT . 3. D () / THE CIT(A)- 8, MUMBAI 4. D / CIT - 4, MUMBAI 5. CGA 0!4! , , / DR, ITAT, MUMBAI B BENCH 6. AH, I / GUARD FILE. '1C4 0!4 // TRUE COPY // ' ' ' ' / BY ORDER, J JJ J/ // /'9 % '9 % '9 % '9 % (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI