2017 (9) TMI 738 - HC - Income Tax

Claim of provision for Mark to Market loss - when it was crystallized - Held that - We are of the opinion that interest of justice would be served if the order of the Tribunal is set aside as far as this issue is concerned as well and the Tribunal be directed to consider it afresh when the appeals as aforesaid are being decided. We therefore permit both sides to argue on the question of the claim of provision for Mark to Market loss and whether it was contingent as urged and whether it was crystallized at the end of the year and therefore not allowable as revenue deduction in the previous relevant year. We keep open all contentions of both sides even with regard to this issue. The Tribunal to decide this ground without being influenced by the earlier order or any finding and conclusion therein.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961
2. Interpretation of Rule 8D(3) of the Income Tax Rules
3. Tax effect and applicability of Revenue Circular on pending appeals
4. Provision for "Mark to Market" loss and its treatment as a revenue deduction

Issue 1: Disallowance under section 14A of the Income Tax Act, 1961
The Revenue appealed against an order by the Tribunal, challenging the disallowance of a specific amount under section 14A. The Court clarified that the issue was restored to the Tribunal and both parties could argue their contentions. The Court emphasized that Rule 8D(3) could be relevant for the controversy, allowing the Revenue to contend its applicability before the Tribunal.

Issue 2: Interpretation of Rule 8D(3) of the Income Tax Rules
The Court admitted the appeal on the question of whether Rule 8D(3) was a substantial question of law. Both parties were given the opportunity to present their arguments on the relevance and applicability of Rule 8D(3) before the Tribunal. The Court emphasized that all contentions could be raised by the parties during the fresh exercise before the Tribunal.

Issue 3: Tax effect and applicability of Revenue Circular on pending appeals
The Court considered the tax effect and the applicability of a Revenue Circular on pending appeals. The Revenue argued that the tax effect in question was minimal and fell below the specified sum mentioned in the circular. However, the Court noted that the overall impact and tax effect needed to be considered, and not just the specific issue in isolation. Ultimately, the Court decided to dismiss the appeal based on the tax effect and the issuance of the Revenue Circular.

Issue 4: Provision for "Mark to Market" loss and its treatment as a revenue deduction
The Court allowed the appeal without costs, directing the Tribunal to consider the claim of provision for "Mark to Market" loss afresh. Both parties were permitted to argue on whether the provision was contingent, crystallized at the end of the year, and whether it should be allowed as a revenue deduction in the previous relevant year. The Tribunal was instructed to decide this ground without being influenced by any earlier orders or findings.