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TMI Blog2021 (10) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... ly so, as the said CBDT instruction is in context of reporting of mark-to-market losses on account of forex-derivatives by an assessee, thus, the same cannot be applied to the method of valuation of closing stock of equity shares. - Decided in favour of assessee. - ITA Nos. 5412 & 5413/MUM/2019 - - - Dated:- 29-9-2021 - S. Rifaur Rahman, Member (A) And Ravish Sood, Member (J) For the Appellant : Usha Gaikwad, D.R. For the Respondents : Hiro Rai, A.R. ORDER Per Ravish Sood, JM The present appeals filed by the revenue are directed against the respective orders passed by the Commissioner of Income Tax (Appeals)-10, Mumbai, dated 10.05.2019 for A.Y. 2009-10 and A.Y. 2013-14, which in turn arises from the respective assessment orders passed by the A.O. u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (for short 'Act'), dated 28.03.2016 for A.Y. 2009-10 and u/s. 143(3), dated 22.02.2016 for A.Y. 2013-14. 2. As common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first take up the appeal filed by the revenue for A.Y. 2009-10, wherein the impugned ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that in compliance to the aforesaid directions it had valued the closing stock of shares and securities at lower of the cost or market value, as a result whereof there was a decrease in the value of stock-in-trade by an amount of ₹ 10,68,95,694/-. However, the A.O. was not inclined to accept the aforesaid claim of the assessee. It was observed by the A.O. that as per the 'Explanation' to sub-section (1) of section 73 of the Act, any loss computed in respect of a speculation business carried on by an assessee shall not be set-off except against the profits and gain of a speculation business. The A.O. was of the view that as the business of the assessee consisted of purchase and sale of shares of other companies, therefore, the loss suffered in such business would be covered by the 'Explanation' to Section 73 of the Act. Also, the A.O. while concluding as hereinabove was of the view that the loss emanating from the valuation of the 'closing stock' could not be dissected and would form part of the assessee's business of purchases and sale of shares. In support of his aforesaid conviction the A.O. took support of the judgment of the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated the addition. On a perusal of the order of the CIT(A), we find that he had vacated the impugned addition by observing as under:- 6.3.1 I have considered the submission of the appellant, carefully gone through the order of the AO, perused the material on record, and referred to the case laws relied upon by the appellant and the AO. 6.3.2 After hearing the learned AR and perusing the material on record, I find that this issue has been considered by the Hon'ble ITAT in appellant's own case for AY 2002-03, AY 2003-04, AY 2010-11 and AY 2011-12 and the Hon'ble ITAT held as under: AY 2002-03: 7 We have heard rival submissions and considered them carefully. We noted in the findings of the Ld. CIT(A) the assessee has been following the method of valuation of Closing stock consistently and the same has been accepted by the department itself. We have further noted that this method of valuation has been approved by the Supreme Court in various cases mentioned above and in the case of Sakthi Trading Co. in 250 ITR 871. Therefore, in view of these facts and circumstances we have no hesitation confirming the order of the Ld. CIT(A). Accordingly, we confirm t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the orders of the lower authorities and also filed copy of instruction No. 3/2010 dated 23.3.2010, wherein, tax implication of forward foreign exchange contracts is explained. She particularly referred to the following paragraphs of this circular:- As the revenue implications of such transaction are large, the Assessing Officers need to examine the statements of accounts and the notes to accounts with a view to find out any reference to any loss on account of forex-derivatives. In some cases, these losses may be camouflaged under the 'financial charges' 'foreign exchange loss' or some similar head which may make it difficult to detect them. In such cases, the Assessing Officers should make a specific query asking the assessee to give a break up of any 'Marked to Market' loss on a forex derivatives included in the Profit and Loss Account and examine whether such transactions are 'eligible transaction' in terms of Sec. 43(5)(d). An adjustment to the taxable income may therefore be made, if necessary, keeping in view the provisions of law referred to above'. 5. We have heard the rival contentions and gone through the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese facts and circumstances we have no hesitation in confirming the order of the Ld. CIT(A). Accordingly we confirm the order of the order of the Ld. CIT(A). 5.2.1 In view of the above discussion the ground is allowed. 6.3.4 Since the issue under consideration is identical to that of the case decided by the Hon'ble ITAT in appellant's own case for AY 2002-03, AY 2003-04, AY 2010-11 and AY 2011-12, so also the case decided by my predecessors for AY 2011-12, respectfully following the decisions of Hon'ble ITAT and my predecessors, the disallowances made by the Assessing Officer are reversed. 6.3.5 In view of the above discussion, these grounds of appeals are allowed. 7. As the facts and the issue involved in the present appeal of the assessee before us i.e. the addition made by the A.O. w.r.t. diminution in the value of 'closing stock' of equity shares remains the same as were there before the Tribunal in the assessee's own case for the aforementioned preceding years, therefore, finding no infirmity in the view taken by the CIT(A) who had followed the view taken by the Tribunal we find no reason to dislodge the well reasoned order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was selected for scrutiny assessment u/s. 143(2) of the Act. 13. Assessment was thereafter framed by the A.O. vide his order passed u/s. 143(3), dated 22.03.2016 and the income of the assessee company was assessed at ₹ 1,59,49,130/- after making the following additions:- Sr. No. Particulars Amount 1. Disallowance of Mark-to-Market loss of closing stock-in- trade of equity shares. ₹ 2,79,95,384/- 2. Disallowance of Mark-to-Market margin Equity Stock Futures. ₹ 4,44,461/- 14. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Observing, that the aforementioned issues were squarely covered by the orders passed by the Tribunal in the assessee's own case for the earlier years, the CIT(A) vacated the said additions and allowed the appeal. 15. We have heard the Ld. Authorized Representative for both the parties, perused the orders of the lower authorities and the material available on record. Insofar the challenge to the order of the CIT(A), on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red with RBI and also engaged in the business of buying and selling of shares and securities of listed companies and also making investment in equity shares of listed companies. The AO during the course of assessment proceedings noticed that the assessee has debited mark to market margins on equity shares at Rs, 44,53,452/and according to him, this is contingent liability in nature and disallowed by observing in Para 5 as under:- 5 The assessee has debited for MTM Margin Equity Stock Futures at ₹ 44,53,452/-. This expense is contingent in nature and not known in real as on 31/03/2010. Contingent in nature provision cannot be allowed in P L account and the same amount is disallowed and added to the income of the assessee. 4. ................................... ................................. 5. We have heard the rival contentions and gone through the facts and circumstances of the case. Admittedly, neither the A.O. nor CIT(A) has discussed the facts but we find from the details that the assessee has valued outstanding equity derivative transactions at lower of cost or market value in the balance sheet as on 31.3.2010. Admittedly, the assessee has debite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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