2022 (6) TMI 1373 - AT - Income Tax

Disallowance of mark to market loss - whether loss arising out valuation of stock-in-trade (also termed as marked to market loss in this case) is allowable as deduction or not? - HELD THAT - As relying on case of M/s. Edel Commodities Limited 2018 (4) TMI 562 - ITAT MUMBAI we hold that the claim made by the assessee is allowable as deduction. Accordingly we direct the AO to delete this disallowance. MAT computation - AO has added the above said amount to the net profit while computing book profit u/s 115JB of the Act treating it as contingent liability - HELD THAT - In the preceding paragraph we have held that it is not a contingent liability and accordingly we direct the AO to delete addition of the above said amount made in computing book profit u/s115JB of the Act. Disallowance made u/s 14A - HELD THAT - There is no dispute with regard to the fact that the assessee did not earn any exempt income during the year under consideration. The Hon ble Delhi High Court has held in the case of PCIT vs. IL FS Energy Development Company Ltd ( 2017 (8) TMI 732 - DELHI HIGH COURT has held that the no disallowance u/s 14A of the Act was called for in case of no exempt income earned by the assessee. Accordingly we direct the AO to delete the disallowance made u/s 14A of the Act for computing total income under normal provisions of the Act. AO has added the amount of disallowance computed as per Rule 8D r.w.s. 14A of the Act to the net profit while computing book profit u/s 115JB - In the instant case the assessee has not earned any exempt income. Hence the question of making any addition under clause (f) referred above does not arise. Accordingly we direct the AO to delete the addition made to the net profit while computing book profit u/s 115JB. Adjustment made in respect of specified domestic transactions - A.R submitted that the clause (i) of sec. 92BA has been omitted by the Finance Act 2017 w.e.f. 1st July 2017 without making any saving clause and hence the said omission shall have retrospective effect as if the said clause was never in existence - HELD THAT - As relying on TEXPORT OVERSEAS (P.) LTD. 2019 (12) TMI 1312 - KARNATAKA HIGH COURT MAHINDRA TWO WHEELERS LTD 2022 (8) TMI 482 - ITAT MUMBAI we hold that the reference made to TPO under clause (i) of sec.92BA is not valid and consequently the transfer pricing adjustment made in respect of Specified Domestic Transaction is liable to be deleted. Accordingly we direct the AO to delete the transfer pricing adjustment. As issue is required to be examined afresh in terms of sec. 40A(2)(a) of the Act. Accordingly we restore this issue to the file of the AO with the direction to examine the claim of expenditure mentioned above in terms of the provisions of section 40A(2) of the Act.

Issues Involved:
1. Disallowance of mark to market losses
2. Disallowance made under section 14A of the Act
3. Transfer pricing adjustment in respect of specified domestic transactions
4. Validity of the assessment order on the ground that it is time-barred
5. Short credit of TDS

Detailed Analysis:

Disallowance of Mark to Market Losses:
The assessee claimed a deduction for provisions made for loss of currency and commodities futures amounting to Rs. 16.26 crore. The Assessing Officer (AO) disallowed this, treating it as contingent in nature, both for computing total income under normal provisions and for book profit under section 115JB. The Dispute Resolution Panel (DRP) confirmed the disallowance under normal provisions but did not adjudicate under section 115JB, considering it academic. The assessee argued that the commodities, currency futures, and stock options were held as stock-in-trade and valued at cost or market value, whichever was lower, as per accounting standards. The Tribunal referred to previous decisions, including M/s. Edel Commodities Limited Vs. DCIT, which allowed similar claims. Consequently, the Tribunal directed the AO to delete the disallowance, both under normal provisions and section 115JB.

Disallowance under Section 14A:
The AO noticed substantial investments by the assessee but no disallowance under section 14A. The AO computed a disallowance of Rs. 4.71 crore under Rule 8D and added it to the total income and book profit under section 115JB. The DRP confirmed the disallowance under normal provisions but did not adjudicate under section 115JB. The assessee contended that no exempt income was earned during the year, citing the Delhi High Court's decision in PCIT vs. IL & FS Energy Development Company Ltd, which held no disallowance is required in the absence of exempt income. The Tribunal directed the AO to delete the disallowance under both normal provisions and section 115JB, following the Delhi Special Bench's decision in Vireet Investments P Ltd.

Transfer Pricing Adjustment:
The Transfer Pricing Officer (TPO) proposed an adjustment of Rs. 15.43 crore, reduced to Rs. 9.18 crore by the DRP. The assessee argued that clause (i) of section 92BA, which covered specified domestic transactions, was omitted by the Finance Act, 2017, effective from July 1, 2017, without a saving clause, making the adjustment invalid. The Tribunal referred to the Bangalore ITAT's decision in Neogenetics Foods P Ltd vs. DCIT and the Karnataka High Court's decision in PCIT vs. Texport Overseas P Ltd, which supported the assessee's view. The Tribunal directed the AO to delete the transfer pricing adjustment but restored the issue to the AO for examination under section 40A(2)(a).

Validity of the Assessment Order:
The assessee challenged the validity of the assessment order on the grounds of being time-barred. Since all other issues were decided in favor of the assessee, the Tribunal left this issue open for the assessee to raise before an appropriate forum if needed.

Short Credit of TDS:
The issue of short credit of TDS required verification by the AO. The Tribunal restored this issue to the AO for verification.

Conclusion:
The appeal filed by the assessee was treated as allowed, with directions to the AO to delete the disallowances and adjustments and to verify the short credit of TDS. The issue of the validity of the assessment order was left open for future adjudication if required.

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