2017 (7) TMI 212 - HC - Income Tax

Mark to Market loss - Held that - There is nothing on record even remotely to suggest that the transaction in question was a speculative one. The assessing officer had not disallowed the said claim. In an appeal filed by the assessee, the Commissioner (Appeals) for the first time that too in an appeal of the assessee has disallowed the amount of ₹ 30,31,633/. There are no facts on record. In the appeal filed by the assessee, the Commissioner (Appeals) has disallowed ₹ 30,31,633/on account of Mark to Market loss. It is stated that the said disallowance is confirmed in fact the assessing officer had never disallowed Mark to Market loss of ₹ 30,31,633/. In the absence of any fact with regard to the nature of the said transaction, it would not be possible to accept the contention of the revenue with regard to Mark to Market loss. There is no basis to arrive at such conclusion in the facts of the present case. Disallowance of rent expenditure - Held that - As observed by the Tribunal that the assessee was running his business in the said premises and the said expenditure has been incurred by the assessee for carrying on his business. The said finding is a finding of fact. No substantial question of law arise

Summary

Issues:
1. Disallowance of rent expenses for assessment year 2007-2008.
2. Disallowance of provision for "Mark to Market" loss for assessment year 2007-2008.

Analysis:
1. The appellant filed two appeals questioning the disallowance of rent expenses and provision for "Mark to Market" loss. The Tribunal set aside the Commissioner (Appeals) order in both cases. The first appeal (No.1554 of 2014) raised concerns about the rent expenses not wholly and exclusively used for the business as required by Section 37(1) of the Income Tax Act, 1961. The second appeal (No.1215 of 2014) focused on the "Mark to Market" loss and the justification for disallowing it. The Revenue argued that the loss was notional and speculative, emphasizing that the expenses were not incurred for earning declared income. The appellant contended that the Tribunal erred in allowing these claims.

2. Regarding the "Mark to Market" loss, the Revenue argued that it was not justified to allow this provision as it was contingent and had not crystallized in the relevant assessment year. The Revenue highlighted that the loss was not actual and was based on a speculative transaction. Reference was made to previous court judgments to support the disallowance. On the other hand, the respondent defended the allowance of the loss, citing relevant case laws and asserting that the loss was a valid expenditure incurred due to fluctuation in rates.

3. The Tribunal's decision to delete the disallowance of rent expenses was challenged by the Revenue, claiming that the rented premises were not exclusively used for business purposes as required by law. The appellant argued that the expenses were not justified as they were not spent for earning the declared income and the business for which the premises were rented had not commenced. The respondent countered by stating that the premises were indeed used for business activities, even if not for the specific business initially intended.

4. The Court analyzed the arguments presented by both parties. Concerning the "Mark to Market" loss, it was found that there was no evidence to suggest the transaction was speculative, and the assessing officer had not disallowed the claim. The Commissioner (Appeals) disallowed the amount in an appeal filed by the assessee, which lacked factual basis. As for the rent expenses, the Tribunal's finding that the premises were used for business was considered a factual determination. Consequently, no substantial question of law arose, leading to the dismissal of the appeals without costs.