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2021 (10) TMI 501 - AT - Income TaxMark to market loss on account of decrease in the value of closing stock - diminution in the value of stock-in-trade of equity shares - disallowance of claim as per Board circular No. 3/2010 dated 23.03.2010 and the fact that such loss is nothing but speculation loss within the meaning of Explanation to section 73 of the IT Act, 1961 - CIT-A allowed the claim - HELD THAT - As the addition made by the A.O. w.r.t. diminution in the value of 'closing stock' of equity shares remains the same as were there before the Tribunal in the assessee's own case for preceding years 2017 (12) TMI 1815 - ITAT MUMBAI therefore, finding no infirmity in the view taken by the CIT(A) who had followed the view taken by the Tribunal we find no reason to dislodge the well reasoned order of the CIT(A) and uphold the same. Insofar the support drawn by the A.O. from the CBDT Instruction No. 03/2010, dated 23.03.2010, to the effect that the notional loss should not be allowed is concerned, we are of the considered view that as stated by the ld. A.R., and rightly so, as the said CBDT instruction is in context of reporting of mark-to-market losses on account of forex-derivatives by an assessee, thus, the same cannot be applied to the method of valuation of closing stock of equity shares. - Decided in favour of assessee.
Issues Involved:
1. Allowability of Mark to Market (MTM) loss on closing stock of equity shares. 2. Validity of jurisdiction assumed by the A.O. for reopening the assessee's case u/s. 147 of the Income Tax Act, 1961. 3. Disallowance of Provision for MTM margin Equity Stock Future. Issue-wise Detailed Analysis: 1. Allowability of Mark to Market (MTM) Loss on Closing Stock of Equity Shares: The primary issue contested in both appeals (A.Y. 2009-10 and A.Y. 2013-14) concerns the allowability of MTM loss on the closing stock of equity shares. The assessee, engaged in the business of investment and dealing in shares and securities, valued its stock-in-trade at cost or market value, whichever is lower, as mandated by the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998. For A.Y. 2009-10, the A.O. disallowed the MTM loss of ?10,68,95,694/- citing the Explanation to Section 73 of the IT Act, 1961, which treats losses from share trading as speculation losses. The A.O. relied on the Supreme Court judgment in Chainrup Sampatram Vs. CIT (1953) to argue that the valuation of closing stock at less than cost is an anticipated loss from the business of purchase and sale of shares. The CIT(A) overturned the A.O.'s decision, citing prior Tribunal decisions in the assessee's favor for A.Y. 2002-03, A.Y. 2003-04, A.Y. 2010-11, and A.Y. 2011-12, where similar disallowances were vacated. The Tribunal observed that the assessee consistently followed this valuation method, which had been accepted by the department. For A.Y. 2013-14, the facts and issues remained identical. The Tribunal upheld the CIT(A)'s decision to allow the MTM loss of ?2,79,95,384/-, following the same rationale as in A.Y. 2009-10. 2. Validity of Jurisdiction Assumed by the A.O. for Reopening the Assessee's Case u/s. 147: During the appeal for A.Y. 2009-10, the assessee challenged the validity of the A.O.'s jurisdiction for reopening the case under Section 147. However, the Tribunal noted that the assessee did not file a cross-appeal, cross-objection, or preliminary objection. Consequently, the Tribunal refrained from adjudicating on this issue. 3. Disallowance of Provision for MTM Margin Equity Stock Future: For A.Y. 2013-14, the A.O. disallowed ?4,44,461/- as Provision for MTM margin Equity Stock Future, treating it as a contingent liability. The CIT(A) vacated this disallowance, relying on Tribunal orders for A.Y. 2010-11 and A.Y. 2011-12, where similar disallowances were overturned. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court ruling in CIT vs. Woodward Governor India P. Ltd. (2009) 312 ITR 254 (SC), which supports the recognition of MTM losses on the balance sheet date as allowable expenses under Section 37(1) of the Act. Conclusion: The appeals filed by the revenue for both A.Y. 2009-10 and A.Y. 2013-14 were dismissed. The Tribunal confirmed the CIT(A)'s decisions allowing the MTM losses on closing stock of equity shares and the provision for MTM margin Equity Stock Future, based on consistent application of valuation methods and established judicial precedents.
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