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TMI Blog2019 (11) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be squared up at the end of the financial year and, therefore, the assessee booked the expected loss in such contracts on Mark to market basis. Assessee claimed a loss as calculated on Mark to market basis claiming that he was following this practice continuously year after year and according to the assessee, the same was as per recognised accounting standards. Contention of the assessee has been that since the MTM losses arise out of contractual obligation existing as on the reporting date, the same cannot be regarded as contingent or notional loss in nature. As rightly considered by the CIT(A), the question involved in this matter is whether such MTM losses are allowable as expenditure or how to be disallowed on the ground that thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that minimum alternate tax (mat) of ₹ 47,07,305/-was paid under section 115 JB of the Income Tax Act, 1961 (for short the Act ) on book profits. 3. During the course of assessment proceedings, learned Assessing Officer on a perusal of the profit and loss account ( P L account ), noticed that the assessee had claimed deduction of mark to market losses (MTM). It was explained before the Assessing Officer that the assessee being a stockbroker and engaged in the business of trading in derivative segment by entering into future and options contracts, some of the future and options contracts could not be squared up at the end of the financial year and, therefore, the assessee booked the expected loss in such contracts on M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are not accrued as the contracts remain unsettled. He further observed that under the Income-tax Act, 1961, the assessee can claim the deduction for actual business losses or expenses as per different provisions and expected or notional losses/expenses cannot be allowed. Learned Assessing Officer further relied on the CBDT instruction dated 23/3/2010 and ultimately held that the MTM losses claimed by the assessee are not to be disallowed and added back to the income of the assessee. 6. In the appeal preferred by the assessee, Ld. CIT(A) while considering the issue as to whether such MTM losses are allowable as expenditure or the how to be disallowed on the ground that these were notional losses, observed that such an iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 6,73,566/-made by the learned Assessing Officer. 8. Per contra, Ld. DR submits that as rightly observed by the Ld. CIT(A) based on the decision of the Tribunal in Lally Motors (supra), CBDT instructions are binding on the Revenue authorities and since both the authorities below reached a conclusion that the claim of the assessee in respect of the MTM losses is only a notional loss and cannot be allowed, basing on the CBDT circular dated 23/3/2010, the impugned orders cannot be found fault with. 9. We have gone through the record in the light of the submissions made on either side. There is no dispute that the assessee is engaged in stockbroking business. It is also not in dispute that the assessee also en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities Ltd, Mumbai (supra),the Mumbai Bench of the Tribunal considered the issue in question and a observed that,- 10.Next issue is about marked to market losses (MTM). The DR and the AR, agreed that identical issue had arisen in the earlier years and the tribunal had decided the issue in favour of the assessee, that the FAA had followed the order of the tribunal. We are reproducing the order of the tribunal and it reads as under We have heard both the parties and perused the orders of the revenue authorities as well as cited decision of the tribunal and the relevant material placed before us. It is an undisputed fact that the derivatives, which are the subject matter of impugned MTM loss, are commodities of trading accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l loss and, therefore, need be allowed. In this case, it is the contention of the department that such loss is a notional loss was decided against the department on the ground that in case of export and import business hedging of risk in foreign exchange is a normal course of business activity and such loss need to be allowed. In this case, Hon ble Bombay High Court referred to instruction No.03/2010 dated 23.03.2010 to confirm that such loss is business loss allowable under the Act and held that CBDT circular/instruction has no applicability. 14. In view of the above settled position of law, we are of the considered opinion that the MTM losses arising out of contractual obligation existing on the reporting date cannot be r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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