9911796707
TMI Blog2013 (7) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... brief facts of the case are that the assessee company engaged in the business of granting of loans and advances against shares and securities, also traded in derivative segment by entering into future and option contracts. Some of the future contracts could not be squared up at the end of the financial year. However, the assessee booked the expected loss in such contracts on mark-to-market basis. However, any likely profit was ignored. The assessee thus claimed a loss of Rs.1,38,93,853/- as calculated on mark-to-market basis claiming that he was following this practice continuously year after year and further that the same was as per recognized Accounting Standards. However, the AO during the assessment proceedings rejected the claim of the assessee holding that the loss claimed by the assessee was in relation to future contracts. The future contracts are in the nature of ready forward contracts and profit or loss in such contracts cannot accrue until and unless the contracts are settled. The liability is not crystallized in such contracts till the date of expiry of contract or it be squared off by the assessee in the market. The loss or gain in such contracts is not available and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such Mark to Market Loss is to be allowed, assessee has also relied on other decisions of Hon'ble Supreme Court on the issue of consistency of method of accounting followed and real income theory during the hearing of the case. In view of the above discussion and decision cited, the claim of Mark to Market Loss of the assessee to the extent of Rs.1,38,93,854/- is allowed and the ground of appeal of the assessee is allowed." Aggrieved, the revenue is thus in appeal before us. 3. We have heard the learned representative of the parties and have also gone through the record. The stock future is one of the types of forward contract, which is traded on exchanges. This can be traded in BSE as well as in NSE. In such type of contracts the stock is not actually purchased rather the profit or loss is calculated on the book value in comparison to the actual market rate of the stocks on the date which has been agreed by the parties for the performance of the contract. Certain stocks are booked to be purchased at predetermined particular rate on future date and when such future date of performance of contract becomes due, then the predetermined price is compared with the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciated value of the closing stock is not brought into account, as no prudent trader would care to show increase profits before actual realization. Profits for income-tax purposes are to be computed in accordance with ordinary principles of commercial accounting, unless, such principles stand superseded or modified by legislative enactments. Unrealized profits in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following years account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss has not been realized actually. Accounts regularly maintained in the course of business are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. Under section 145(2) of the IT Act, the Central Government is empowered to notify from time to time the Accounting Standards to be followed by any class of assessee or in respect of any class of income. The learned AR has brought into our notice that the method of accounting made by the assessee is as per Accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; (b) Equity Index/Stock Futures are marked-to- market on a daily basis. Debit or credit balance disclosed under Loans and Advances or Current Liabilities respectively, in the "Mark-to-Market Margin - Equity Index /Stock Futures Account", represents the net amount paid or received on the basis of movement in the prices of Index/Stock Futures till the Balance Sheet date Amount paid to brokers in addition to Mark-to-Market Margins is disclosed as "Margin Deposits" under Loans and Advances. (c) As on the Balance Sheet date, profit/loss on open positions in Index/Stock Futures are accounted for as follows: Credit balance in the "Mark-to-Market Margin - Equity Index/Stock Futures Account", being anticipated 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. & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is decision of the Supreme Court governs the facts of the present case. It is to the assessee's strength that the Institute of Chartered Accountants of India 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, 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." Respectfully following the decision of the Tribunal in the case of Edelweiss Capital Ltd. (supra), which view has further bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
