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Issues Involved:
1. Allowability of the loss incurred on future trading. Summary: Issue 1: Allowability of the loss incurred on future trading The assessee, engaged in share trading and broking, claimed a loss of Rs. 23,42,830 from Stock Index Futures transactions. The Assessing Officer (AO) questioned the treatment of this loss as notional and disallowed it, referencing the ICAI guidance note and relevant case laws. The AO concluded that the derivatives are marked to market daily, and the margin payments are not expenses but refundable advances. The AO disallowed the loss, citing it as unascertained liability or provision for loss, referencing CIT v Indian Overseas Bank (151 ITR 446) and CIT v Kamani Metal Products P Ltd (208 ITR 1017). On appeal, the CIT(A) upheld the AO's decision, stating that the mark-to-market loss is notional, and real loss or profit occurs on the settlement date. The CIT(A) disallowed the loss of Rs. 23,42,830 and enhanced the income by Rs. 13,33,180, being the loss incurred on 31.3.2005 and settled on the next day. The assessee appealed to the ITAT, arguing that futures contracts are settled daily, and the daily variations are actual payments, not notional. The ITAT agreed, stating that the losses or profits accrue daily and are settled, thus cannot be ignored for computing total income. The ITAT distinguished the AO's and CIT(A)'s reliance on case laws, noting that the losses in this case are actual and settled daily, not anticipatory or estimated. The ITAT held that the loss claimed by the assessee on a mark-to-market basis on the stock index future of Rs. 23,42,830 (incurred up to 31.3.2005) and Rs. 13,33,180 (incurred on 31.3.2005) is an accrued loss and allowable. In the case of Subhkam Securities Pvt. Ltd, the issue was identical, with the assessee claiming a loss of Rs. 14,40,720 from mark-to-market valuations in derivative trading. The AO disallowed it, and the CIT(A) confirmed the disallowance. The ITAT, following its reasoning in the previous case, held that the loss is an accrued loss and allowable. In conclusion, the appeals filed by the assessee in both cases were allowed. Order pronounced on this 25th day of June, 2010.
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