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TMI Blog2018 (4) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by the CIT(A) shall be deleted. 3. The assessee company is engaged in the business of trading in securities, physical commodities and derivative instruments. On perusal of computation of income furnished by the assessee during the course of assessment proceedings the Assessing Officer observed that the assessee company has determined speculative business income of Rs. 4,77,37,754/- against this assessee has claimed set off of brought forward loss of Rs. 1,92,98,587/- and total income has been determined at Rs. 2,84,39,167/-. Thereafter the Assessing Officer noted that in clause 25 the auditor in the report u/s. 44AB have shown details of brought forward losses as under: 25. (a) Details of brought forward loss of depreciation allowance in the following manner, to the extent available: Sr. No. Asst. Year Nature of loss/allowance Amount as returned Amount as assessed (give reference) Remarks (in Rs.) (in Rs.) 1 2009-10 Business Loss 3,46,493 NA 2 2010-11 Business Loss 18,932,125 NA 3 2010-11 Unabsorbed Depreciation 19,969 NA 4. By examination of the above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant, ft is established judicial principal of Rule of Harmonious Construction that when there is a conflict between a general provision and a special provision it is the special provision that prevails. This tenant has been established in countless pronouncements of the Apex Court including in a recent decision in the case of COMMERCIAL TAX OFFICER, RAJASTHAN v. M/S BINANI CEMENT LTD. & ANR. (Civil Appeal No. 336 of 2003) February 19, 2014. Section 72 is specially meant for loss, "not being a loss sustained in a speculation business" whereas section 73 is specialty meant for losses in speculation business". Thus, non-speculative losses have to be set-off under the special provisions of section 72, which means against profits of any source of business or profession except speculation business, for which there is a special section 73. Therefore, in my view, the stand taken by the A.O. was absolutely correct. These grounds of appeal are therefore dismissed. 7. Against the above order, the assessee is in appeal before us. 8. We have heard both the counsel and perused the records. The ld. Counsel of the assessee placed reliance upon the provisions of sections 71 and 72 of the Act rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d "Capital gains" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.] Following sub-section (3A) shall be inserted after sub-section (3) of section 71 by the Finance Act, 2017, w.e.f. 1-4-2018 : (3A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head "Income from house property" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to set off such loss, to the extent the amount of the loss exceeds two lakh rupees, against income under the other head. 79[(4) Where the net result of the computation under the head "Income from house property" is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in section 71A shall be set off in the relevant assessment year in accordance with the provisions of that section.] Carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs immediately succeeding the assessment year for which the loss was first computed. Losses in speculation business. 4 73. (1) Any loss, computed in respect of a speculation business carried on5 by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any5 assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is supplied by us] 12. We further note that the Hon'ble Allahabad High Court decision in the case of Ramshree Steels Pvt. Ltd. (supra) have held that loss of current year and carry forward losses of earlier year from non speculation business can be set off against the profit of speculation business of current year. Furthermore, we note that the Hon'ble Calcutta High Court in the case of New India Investment Corporation Ltd. (supra) while referring to the Hon'ble Bombay High Court decision in the case of Navnitlal Ambalal vs. CIT [1976] 105 ITR 735 (Bom.) and also by referring to the afore-said CBDT Circular have held as under: It is thus clear from this circular that if speculation losses for the earlier years are carried forward and if in the year of account a speculation profit is earned by the assessee then the circular provides that such speculation profits for the accounting year should be adjusted against the carried forward speculation loss of the previous year before allowing any other loss to be adjusted against those profits. 13. The Hon'ble Bombay High Court in the case of Navnitlal Ambalal (supra) has held as under: That it was unnecessary to construe the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting the addition made on account of mismatch of AIR data with income offered by the assessee without appreciating the fact that the assessee had claimed the TDS on the same and had not offered the income for taxation." 2. "On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 5,24,53,455/- made by Assessing Officer on account of mark to market loss claimed by the assessee in derivative transactions without appreciating the fact that the loss claimed on the basis of value of derivative as on 31st March is merely a notional loss and the actual loss or the profit in respect of such derivative transactions would get crystallized only at the time of settlement of such transaction," 3. "The appellant prays that the order of CIT (A) on the above ground be set aside and that of Assessing Officer be restored." Apropos ground no. 1: 16. On this issue, the Assessing Officer noted that there were discrepancies between AIR data and 26AS information. The assessee was asked to provide the reconciliation between the same. The assessee furnished the reconciliation statement and stated that the payments of interest of Rs. 3,50,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AIR is hereby brought to tax as income of the assessee subject to rectification as and when same gets rectified in the online TDS accounting system of income tax. 19. Before the ld. Commissioner of Income Tax (Appeals) the assessee made the following submissions as under: During the course of assessment proceeding, the Appellant was given AIR to reconcile the entries therein with the books of accounts of the Appellant. The Appellant reconciled all the entries except following three entries tabulated as under: Sr. No Name of parties Nature of income Amount as per AIR (A) Amount as Difference per books (B) (A-B) 1 Edelvalue Partners Warehouse charges 2,68,70,965/- 2,45,39,204/- 23,31,761 2 Divya Strips and Profile Pvt Ltd. Interest 3,50,236/- 3,50,236/- 3 Divya Strips and Profile Pvt. Ltd. Rent 1,00,188/- - -1,00,0188/- Total -2,73,21,389/- 2,45,39,204/- 27,82,185/- During the assessment proceeding, the Appellant submitted that it has not earned any amount in excess of what is recorded in its books of account. The discrepancy/variation is due to error in TDS return filed by the parties wrongly mentioning the Appellants PAN in TDS retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontradicting the AIR information by stating that these transactions do not relate to it, the assessee has duly taken credit of the concerned TDS. Thus, the assessee cannot blow hot and cold and shift the onus to the Revenue. The assessee having taken credit of the TDS has to prove that the transaction did not belong to him if it claims that the relevant income do not relate to it. Hence, we remit this issue also to the file of the Assessing Officer. The Assessing Officer is directed to give the assessee an opportunity to prove that the credit for the said TDS has been wrongly taken and these incomes do not belong to it. Needless to add, the assessee should be granted adequate opportunity of being heard. Apropos ground no.2: 24. On this issue, the Assessing Officer observed that the assessee was also carrying trading activities in stock and commodities. From the assessee's details, the Assessing Officer observed that it has recognized the unrealistic loss of Rs. 5,24,53,455/- by debiting to loss on trading in currency derivative instruments (net) and profit in trading commodity derivative instrument (net) under the income head 'income from treasury operation' as per Schedule XVII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Per contra, the ld. Counsel of the assessee submitted that in the assessee's own group case, the ITAT has decided the issue in favour of the assessee. Furthermore, the ld. Counsel of the assessee submitted that the assessee has incurred losses on account of valuation of closing stock in commodities/derivative. He submitted that as per the accounting norms, the assessee had valued the stock and accounted for the loss upon valuation in terms of market position. He further placed reliance upon the Hon'ble Apex Court decision in the case of CIT vs. Woodward Governor 294 ITR 451 (SC). 29. Upon careful consideration, before proceeding further we note that the ITAT in the case of Edelweiss Capital Limited vs ITO (in ITA 5324/Mum/2007 vide order dated 10.11.2010) has considered this issue and held as under: "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 "Marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the account, as no prudent trader would care to show increased profit before its realization. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy". This is what the Supreme Court held in the case of Chainrup Sampatram vs. Commissioner of Income Tax, West Bengal (1953) 24 ITR 481 (SC), speaking through Hon'ble Justice Patanjali Sastri, the then Chief Justice of India (page 485 - 486 of the Report). At page 486 the Supreme Court further observed that "loss due to a fall in price below cost is allowed even if such loss has not been actually realized". Quoting from the case of Whimster & Co. vs. Commissioners of Inland Revenue (1926) 12 Tax Cases 813, the Supreme Court observed that the profits that are chargeable to tax are those realized in the year and that an exception is recognized where a trader purchased and still holds goods which are fallen in value in which case though no loss has been realized nor it has occurred, nevertheless at the close of the year he is permitted to treat these goods as of their mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine the present case on the touch stone of the above said decision. We find that the facts are identical. Thus, the same are held to be as stock-in-trade by the assessee and the Revenue does not dispute that. It is also not disputed that these have been valued on the principle of cost or market value, whichever is less. In such scenario, the Revenue's only ground is that the CBDT vide its Instruction No. 3/2014 as noted above has directed that these losses should not be allowed. We agree with the ITAT wherein the ITAT in assessee's group cases in ITA No. 6612/Mum/2012 vide order dated 30.01.2013 had opined that the CBDT Instructions though may be binding upon the Revenue authority but are not binding upon the appellate authority. We find ourselves in agreement with the co-ordinate Bench that these instructions are not binding in light of the ratios emanating from the Hon'ble Apex Court decision on the issue of the valuation of stock. 32. When it is held that these derivatives held are stock-in-trade then there cannot be any reservation in valuation thereof as per the well settled practice of valuation of closing stock at market value or cost whichever is lower. No case has been m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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