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TMI Blog2019 (9) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... g Ground no. 1 without speaking order on arguments made on behalf of the appellant. b) That on the facts and in the circumstances of the case, the ld. CIT(A) is unjustified in confirming the action of Assessing Officer who disallowed Rs. 1,45,034/- u/s 14A read with Rule 8D of Income Tax Rules, 1962. 2. a ) That on the facts and in the circumstances of the case, ld. CIT(A) has erred in dismissing ground no 2 without a speaking order on arguments made on behalf of the appellant. b) That on the facts and in the circumstances of the case, ld. CIT(A) is wrong and unjustified in confirming the action of Assessing Officer who disallowed loss of Rs. 19,39,257/- towards F & O derivatives as notional loss. 3. That on the facts and in the circumstances of the case, ld. CIT(A) is wrong in rejecting additional ground raised in course of appeal to contest the disallowance of STT of Rs. 4,50,677/-. 4. That the appellant craves leave to add, modify or amend any ground or grounds on or before the date of hearing. 3. Ground no. 1 raised by the assessee relates to disallowance u/s 14A read with Rule 8D to the tune of Rs. 1,45,034/-. 4. After giving our thoughtful consideration to the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). In the light of the aforesaid judicial pronouncements, we note that assessee has suomoto disallowed direct expenses of Rs. 3,940/- under Rule 8D(2)(i), the saiddisallowance is hereby confirmed. So far Rule 8D(2) (iii) is concerned, we direct the AO to compute the disallowance taking into account dividend bearing securities as held by the Coordinate Bench in the case of REI Agro(supra). Hence, we allow the ground No. 1 raised by the assessee for statistical purposes. 5. Ground No. 2 raised by the assessee relates to addition on account of loss of Rs. 19,39,257/- incurred by the assessee on account of forward and option derivative contract. 6. Brief facts qua the issue are that during the assessment year under consideration the assessee has claimed loss in derivative trading. The assessing officer observed thatin the derivative trading the general practice is that profit or loss booked on Marked to Market Basis, which is profit or loss books on the basis of market rate of a particular sauda. However, the assessee also booked profit or loss on Marked to Market basis for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired as on 31st March,2008. As per the Accounting Standard 30 issued by the Institute of Chartered Accountants of India, the assessee company accounted for the difference between the contract price of these shares and the prevailing market rates as on 31.03.08 in its books of accounts. These contracts were to mature beyond the end of the financial year and therefore the Ld. AO treated such loss as notional in nature and disallowed the same. The term 'Marked to Market' losses' (MTM) refers to losses computed as on a particular date with reference to prevailing market rate in respect of contracts that have not yet matured. We note thatthe assessee company had entered into a binding obligation by contracting to purchase/sell shares at a future date at a predetermined price. Moreover, a liability is said to have accrued when a pending obligation on the balance sheet date was determinable with reasonable certainty. Hence, the loss of Rs. 19,39,257/- on account of unexpired future contracts should be allowed by the Ld. A.O. We note that the assessee company follows method of valuation of stock in trade as 'lower of cost or market price'. This method is consistently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctuation of foreign exchange rates. The company may also enter into an option or cross currency swap to protect the risk of fluctuations in the interest rate and foreign exchange rates in respect of an underlying asset, and liability. In the instant case the company has entered into these forex derivative contracts to hedge the risk of interest in respect of Rupee Loan, therefore the underlying liability in the instant case is Rupee Loan. The Ld. AR for the revenue has relied on the decision of Hon`ble ITAT Kolkata Bench `B` in ITA No. 1241/Kol/2013 wherein the similar identical issues were adjudicated, vide para 25 and 26 of the said decision which are reproduced below: "25. Applying the above observations to the facts and circumstances of present case, we find that the claimed loss under consideration occurred to the assessee on account of five unexpired forex forward contracts i.e a loss incurred on account of revaluation on contract on last day of accounting period before date of maturity of forward contract. The Ld. CIT-A observed that the assessee has been following a consistent accounting policy for determining loss under AS-11 and AS-30 as required under Companies Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of detailed submissions made and case law cited above, it is clear that the business loss of Rs..1,58,94,821/- on account of Mark to Market of Unexpired Forex Derivatives Contracts is allowable and prayed that addition made on this account may be deleted. 6. On the other hand, the ld. Departmental Representative for the Revenue has primarily reiterated the stand taken by the Ld. AO and the Ld. CIT(A) and cited before us the CBDT Circular No.3/2010 dated 23rd March, 2010, wherein the CBDT has instructed to the department that mark to market losses which are in the nature of speculation should not be allowed as a business expenditure. Ld. DR stated that it is a notional loss which will be actually deductible from the income of the assessee on the maturity of the contract. The issue under consideration is in respect of unsettled contracts and moreover there is no any underlying assets and liability to hedge the risk. He further submitted that loss arising from mark to market position of financial instruments is different and cannot be considered allowable as deduction as such loss has not arisen so far in the normal course of business operation of the assessee. The exchange rates a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for statistical purposes, observing the following: " I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the Assessing Officer during the assessment proceedings. The A.R. has submitted that Rs. 3,43,430/- pertains to next year. In view of above, the A.O. is directed to verify the claim of the appellate and take action accordingly. This ground of appeal is allowed for statistical purposes." 13. Aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us. 14. We have heard both the parties and perused the material available on record. We note that the Assessing Officer did not understand the factual position as it was given in certificate 10DB submitted by the assessee. We note that the total amount of Rs. 7,94,107/- pertains to for two years i.e. F.Y. 2007-08 and 2008-09, the details of the same is given below: Financial Year Stock Exchange Amount 2007-08 National Stock Exchange 101949 2007-08 Bombay Stock Exchange 8155 2008-09 Bombay Stock Exchange 44281 2008-09 F & O NSE 628966 2008-09 National Stock E ..... X X X X Extracts X X X X X X X X Extracts X X X X
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