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TMI Blog2013 (5) TMI 641X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustments without appreciating that the loss on outstanding REPO transactions are purely in the nature of provisions and such loss neither accrued nor crystalised during the previous year." 2. The brief facts are that the assessee company in its profit and loss account debited an amount of Rs.11,41,98,610 making provision for loss on securities for outstanding repo transactions under the head "Repo Price Adjustment Account". The AO during assessment proceedings u/s. 143(3) of the Act disallowed the said loss observing that the loss in outstanding repo transactions is mere provision and not the actual loss accrued to the assessee during the relevant financial year. The relevant portion of his observations is reproduced as under: "However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions as mandated by RBI. The guidelines recognize repo transactions as outright sale/purchase and explain consequential effects thereof in the accounts. The seller in the repo transaction reduces security from its stock on conclusion of first leg of transaction and books the loss under the repo price adjustment account. The buyer is legal owner of the security transferred to him and entitled to interest receivable during the repo period. Thus, once legal character of repo transaction is defined as sale of security and accepted as such, loss incurred thereon is actual loss. The guidelines further prescribe for the disclosure of loss on outstanding repo transaction in the Profit and Loss A/c. and balance-sheet. The loss on outstanding repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions .... n. Since the debit balances in the Repo Price Adjustment Account at the end of the accounting period represent losses not provided for in respect of securities offered in outstanding repo transactions, it will be necessary to make a provision therefor in the Profit & Loss Account. ...." The learned DR however, has relied upon the assessment order. 4. It may be observed that the anticipated loss in outstanding repo transactions is virtually actual & real and not a notional loss and is not dependant on the happening or non-happening of a future event and, thus, cannot be said to be contingent in nature. Thus, the assessee has rightly debited the actual anticipated loss in its books of account as per RBI Guidelines. Moreove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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