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TMI Blog2012 (10) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... hey are routine maintenance and repair expenses which the assessee would have had to incur in the normal carrying on of its business. The nature of the work shows that no additional space or capital advantage was derived by incurring the expenditure. Issue decides in favour of assessee. Mark to Market Loss - Disallowance of the provision for loss on “Mark to Market” basis in respect of trading in derivatives - Assessee holds derivatives as its stock-in-trade - Follows the principle “cost or market price, whichever is lower” in valuing the derivatives – Held that:- As the loss due to a fall in price below cost is allowed even if such loss has not been actually realized. 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. ICAI in its guidelines have also approved of the rule of prudence which really means that while anticipated losses can be taken note of while valuing the closing stock, anticipated profits cannot be recognized. The anticipated loss cannot be treated as a contingent liability. Issue decides in favour of assessee - I.T.A. No: 5324/Mum/2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee took 5712 sq. ft. of space on lease for a period of five years on leave and license basis from Shalaka Sangh Co-operative Housing Society Limited. A copy of the leave and license agreement is at pages 38 to 44 of the Paper Book. The lease was for a period of five years initially, to be renewed after that period at the option of the licensee. Under clause 4(c) of the agreement, it was the responsibility of the assessee to keep the interior of the said premises in good condition during the period of the license and be responsible for the ordinary routine maintenance of the fittings and fixtures in the premises. Clause 4(f) provided that the assessee should deliver vacant and peaceful possession of the premises in good condition to the licensor on the expiry of the lease. The assessee incurred the expenditure during the relevant accounting year, which was disallowed by the Assessing Officer as capital in nature and his view was upheld by the CIT(A). The contention of the assessee before us is that the expenditure was incurred wholly and exclusively for the purpose of assessee s business and no enduring benefit had accrued to the assessee nor was any capital asset created. It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,256/- made by the assessee on Mark to Market basis in respect of trading in derivatives. The brief facts in this connection are that the aforesaid provision was made in the Profit and Loss Account being anticipated loss on Equity Index / Stock Futures Account. The breakup is ₹ 8,86,912/- and ₹ 49,344/- respectively. When asked to furnish the details and the basis of the claim, the assessee filed a Note stating that the provision was made in accordance with the suggestions of the Institute of Chartered Accountants of India to the effect that a provision should be made at the end of the year by a debit to the Profit and Loss Account for anticipated loss equivalent to the debit balance in the Mark to Market Margin Index / Stock Futures Account. According to the assessee, the loss should be anticipated and provided for, though anticipated profit cannot be taken credit. The assessee further pointed out that there is no difference between valuation of stock and the valuation of the derivates and that in both provision should be made for anticipated losses though anticipated profits cannot be taken note of. 6. The Assessing Officer did not accept the assessee s submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipated profit, is ignored and no credit for the same is taken in the Profit and Loss Account. Debit balance in the Mark-to-Market Margin Equity Index / Stock Futures Account , being anticipated loss, is adjusted in the Profit and Loss Account. (d) On final settlement or squaring-up of contracts for Equity Index / Stock Futures, the profit or loss is calculated as the difference between settlement / squaring-up price and contract price. Accordingly, debit or credit balance pertaining to the settled / squared-up contract in Mark-to-Market Margin Equity Index / Stock Futures Account is recognized in the Profit and Loss Account. The aforesaid Note 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 als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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