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TMI Blog2010 (11) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of the closing stock - HELD THAT:- the assessee has valued each scrip of the derivatives as at the end of the year. We do not see how this can make any difference to the legal principle. If the derivatives have been treated as stock-in-trade then there is nothing unusual in the assessee valuing each derivative by applying the rule cost or market whichever is lower. We, therefore, direct the AO to allow the provision as reflecting in substance the loss arising on account of valuation of the closing stock. The ground is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Ltd. vs. DCIT by judgment dated 12/8/2010 has held that Rule 8D will not apply to assessment years prior to A.Y 2008-09. In respect of assessment years prior to 2008-09 the Assessing Officer has to make the disallowance under section 14A of the Act on a reasonable basis. We are of the view that the basis adopted by the Assessing Officer was reasonable and we, therefore, direct that a sum of Rs. 1.00 lac directed to be disallowed by the AO under section 14A should be restored. We order accordingly. 5. Ground No.2 raised by the assessee reads as follows:- "2. The ld. CIT(Appeals) erred in confirming the action of ld. ADDL. CIT of disallowing Mark to Market Loss of Rs.9,25,911/-." 6. The assessee, while preparing its books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. 8. It is not in dispute that identical issue had come up before consideration before Mumbai Bench of ITAT in the case of Edelweiss Capital Ltd. vs. ITO, ITA No.5324/M/07 and this Tribunal has held as follows: 7. We have considered the facts and the rival contentions. In the Schedule annexed to and forming part of the Balance Sheet and Profit & Loss Account for the year under appeal (page 13 of the Paper Book), the assessee has made the following Note: - "H. Equity Futures - Index / Stock (a) "Initial Margin - Equity Derivative Instruments", representing initial margin paid, and "Margin Deposits", representing additional margin over and above initial margin, for entering into contracts for Equity Index / Stock Futures, which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te gives a fair picture of the nature of the provision. The provision in substance has been made to cover the anticipated loss in the derivates trading. There is no dispute that the assessee holds derivatives as its stock-in-trade and there is also no dispute that it follows the principle "cost or market price, whichever is lower" in valuing the derivatives. When the derivatives are held as stock-in-trade then whatever rules apply to the valuation of stock-in-trade will have to be necessarily apply to their valuation also. It is a well settled position in law that "while anticipated loss is taken into account in valuing the closing stock, anticipated profit in the shape of appreciated value of the closing stock is not brought into the accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the closing stock, anticipated profits cannot be recognized. The anticipated loss, in the light of the judgment of the Supreme Court cited above, cannot be treated as a contingent liability. 8.The learned DR pointed out that the assessee has valued each scrip of the derivatives as at the end of the year. We do not see how this can make any difference to the legal principle. If the derivatives have been treated as stock-in-trade then there is nothing unusual in the assessee valuing each derivative by applying the rule cost or market whichever is lower. 9.We, therefore, direct the Assessing Officer to allow the provision as reflecting in substance the loss arising on account of valuation of the closing stock. The ground is allowed." Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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