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TMI Blog2018 (11) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The first common issue in all these four appeals of Revenue of different assessee is against the order of CIT(A) deleting the disallowance made by AO on loss claimed on mark to market on account of trading of derivative instruments by treating the same as notional loss and treating the same as contingent liability. For all these four appeals, Revenue has raised identical grounds, facts are also identical in all the four appeals and hence, we will take up the facts from ITA No. 2636/Mum/2017 in the case of ECAP equities Ltd. The relevant ground No.1 reads as under: - "1. Whether ld. CIT(A) is erred in allowing the provision for mark to market on trading of derivative instruments by treating it as notional loss without appreciating the fact that the contingent liability cannot be deductible under income tax act." 3. Briefly stated facts are that the assessee is engaged in the business of share broking and trading, advisory, investing. During the course of assessment proceedings, the AO noticed that the assessee has claimed loss on account of provision made for mark to market loss as under: - Particulars Amount (Rs) Index Future 8,043 Currency Future 16,29,431 Equity fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/- made on this account is deleted. This ground of appeal is allowed. 5.2.2. In consonance with my decisions above and respectfully following the decision of jurisdictional courts, disallowance of Rs. 17,43,88,592/- is deleted. This ground is allowed." Aggrieved, now Revenue is in appeal before us. 5. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee entered into transaction for purchase and sale of derivative futures/ option on stock exchanges. The transactions which are settled during the year and the difference between contract price and settled price being profit/loss are recognized in the books of accounts maintained by the assessee. Outstanding derivative contracts in the nature of futures/options are measured at fair value as at the balance sheet date. Fair value is determined using quoted market prices in an actively traded market, for the instrument, wherever available, as the best evidence of fair value. In the absence of quoted market prices in an actively traded market, a valuation technique is used to determine the fair value. The margin money paid/received on derivat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he quantum of allowances permitted to be deducted under diverse heads under sections 30 to 43C from the income, profits and gains of a business would differ according to the system adopted. This is made clear by defining the word "paid" in section 43(2), which is used in several sections 30 to 43C, as meaning actually paid or incurred according to the method of accounting upon the basis on which profits or gains are computed under section 28/29. That is why in deciding the question as to whether the word "expenditure" in section 37(1) includes the word "loss" one has to read section 37(1) with section 28, section 29 and section 145(1). One more principle needs to be kept in mind. 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. One more aspect needs to be highlighted. Under section 28(i), one needs to decide the profits and gains of any business which is carried on by the assessee during the previous year. Therefore, one has to take into account stockin-trade for determination of profits. The 1961 Act makes no provi- sion with regard to valuation of stock. But th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. Equally, there is no finding given by the Assessing Officer stating that the assessee has not complied with the accounting standards." 7. In view of the above discussion and the fact that the assessee is booking profits on derivatives as and when it is valued at the end of the year and as and when the loss is arising, the same is claimed as deduction. This practice is followed by assessee regularly and Tribunal in assessee's own case in immediate preceding year i.e. AY 2011-12 as allowed the claimed of the assessee, respectfully following the same, we allow the claim of the assessee. This issue is exactly identical in these four appeals of Revenue, hence, taking a consistent view, we dismiss this issue of Revenue's appeals. 8. The second issue only in ITA No. 2636/Mum/2017 in the case of ECAP equities Ltd. is as regards to the order of CIT(A) deleting the disallowance of expenses relatable to exempt income by the AO by invoking the provisions of Section 14A of the Act read with Rule 8D(2)(ii) & (iii) of the Rules. For this Revenue has raised the following ground No 2: - "2. Whether ld. CIT(A) is erred in deleting the disallowance made under section 14A of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment/ stock in trade Non-Current investment 11,402,000 Current Investment 690,162 Stock in trade Equity Shares 2,437,584 Mutual Funds 9,766,122 12,203,706 Total(B) 24,295,868 Own fund in excess of investment and stock in trade (A-B) 1,921,768,797 11. We find that the CIT(A) has deleted the interest disallowance for the reason that the assessee's own funds in the form of share capital and reserve are more than the investment in giving tax free income. Once this is the position, the issue is squarely covered by following the decision of Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). Respectfully following the Bombay High Court decision and considering the facts of the case, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. 12. As regards to the disallowance of administrative expense under Rule 8D(2)(iii) of the Income Tax Rules, the assessee has filed the details of investment and dividend income earned qua that and requested that disallowance be restricted at Rs. 3,33,885/-. The assessee filed the details as under: - C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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