2013 (5) TMI 641 - AT - Income Tax

Loss on account of REPO price adjustments - CIT(A) deleted the disallowance - whether the loss on outstanding REPO transactions are purely in the nature of provisions and such loss neither accrued nor crystalised during the previous year? - Held that - Going through the guidelines issued by the RBI for uniform accounting and reverse repo transactions dated 20.3.2004 it is found that the assessee company has followed the guidelines issued by the RBI and accordingly debited the amount of Rs.109.69 lacs under the head provision for outstanding repo transaction. Thus CIT(A) has correctly appreciated the facts and has deleted the disallowance made by the AO. As DR could not point out any distinguishable features or mistake in the order of the CIT(A)ground raised by the revenue is accordingly dismissed. In favour of assessee.

Summary

Issues:
Appeal against deletion of disallowance of loss on account of REPO price adjustments for A.Y. 2004-05.

Analysis:
The revenue appealed against the deletion of disallowance of loss on securities for outstanding repo transactions by the learned CIT(A). The AO disallowed the loss, stating it was a mere provision and not actual loss accrued during the relevant financial year. However, the CIT(A) allowed the appeal, emphasizing that the loss on outstanding repo transactions is actual and not contingent. The CIT(A) referred to RBI guidelines recognizing repo transactions as outright sale/purchase, leading to actual loss. The revenue challenged this decision before the ITAT Mumbai.

The ITAT Mumbai analyzed the case, noting that the anticipated loss in outstanding repo transactions is real and not contingent, as it is not dependent on future events. The ITAT observed that the assessee correctly debited the actual anticipated loss following RBI guidelines. The ITAT cited a previous decision where a similar issue was upheld, emphasizing adherence to RBI guidelines. Consequently, the ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeal.

In conclusion, the ITAT Mumbai dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the claim of the appellant regarding the loss on outstanding repo transactions. The ITAT reiterated that the loss claimed was actual and not a mere provision, in line with RBI guidelines and previous tribunal decisions.