2017 (11) TMI 1804 - AT - Income Tax

Addition on account of Mark to Market Loss claimed by the assessee in derivative transactions - whether loss claimed on the basis of value of derivative as on 31st March is merely a notional loss and the actual loss or the profit in respect of such derivative transactions would get crystallized only at the time of settlement of such transaction? - CIT-A allowed the claim - HELD THAT - We noticed that the claim of the assessee has duly covered by the assessee s own case 2012 (3) TMI 612 - ITAT MUMBA in which the claim of the assessee has been allowed. The other law mentioned above and relied upon by the CIT(A) also speaks about allowance by claim of the assessee. Since the issue in question has duly been covered by the above mentioned cases. Therefore we are of the view that the finding of the CIT(A) is quite correct and is not liable to be interfere with - Decided against the revenue. Addition u/s 14A - assessee earned the exempt income in the Form of dividend on shares/MF/debentures held stock exchanged - HELD THAT - The case of Devkant Synthetics (India) Pvt. Ltd. Vs. ITO-3(1)(2) 2015 (11) TMI 1067 - ITAT MUMBAI in which it is specifically held that where the investment was held as stock in trade then the provision u/s 14A r.w. Rule 8D of the Act was not applicable. This issue has also been decided in favour of Assessee by the Bombay High Court in the case of CIT Vs. India Advantages Securities Ltd. 2015 (6) TMI 140 - BOMBAY HIGH COURT and HDFC Bank Ltd. Vs. DCIT 2016 (3) TMI 755 - BOMBAY HIGH COURT . The provision of Section 14A r.w. Rule 8D of the Act was not applicable upon the investment held as stock and trade. The assessee himself assessed the expenses to the earned the exempt income 1, 98, 491/-. The CIT(A) has restricted the expenses to the extent only. In the said circumstances we are of the view that the CIT(A) has passed the order judiciously and correctly which is not required to interfere with - Decided against the revenue.

Summary

Issues Involved:
1. Deletion of Mark to Market Loss claimed by the assessee in derivative transactions.
2. Disallowance under Section 14A of the Income Tax Act, 1961.
3. Premature penalty proceedings under Section 271(1)(c) of the Act.

Issue No. 1:
The revenue challenged the deletion of the addition of Rs. 5,20,75,140 made by the AO on account of Mark to Market Loss claimed by the assessee in derivative transactions. The CIT(A) allowed the claim of the assessee based on various ITAT decisions, stating that the loss claimed was notional and covered by precedent cases. The ITAT upheld the CIT(A)'s decision, citing that the claim had been allowed in previous cases and was not liable for interference. Therefore, this issue was decided in favor of the assessee against the revenue.

Issue No. 2:
The second issue involved the disallowance of Rs. 5,55,86,120 under Section 14A of the Act. The CIT(A) relied on the decision of the ITAT in a specific case where it was held that Section 14A did not apply when investments were held as stock-in-trade. The ITAT also mentioned judgments by the Bombay High Court supporting this view. The CIT(A) restricted the disallowance to the extent of Rs. 1,98,491, which was the amount offered by the assessee suo moto. The ITAT agreed with the CIT(A)'s decision, stating that the provision of Section 14A did not apply to investments held as stock-in-trade, and upheld the order. Hence, this issue was also decided in favor of the assessee against the revenue.

Issue No. 3 & 4:
Issues 3 and 4 were of a general nature and did not require adjudication. The ITAT dismissed the appeal filed by the revenue, and the order was pronounced in open court on 09.11.2017.