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TMI Blog2022 (6) TMI 1373X X X X Extracts X X X X X X X X Extracts X X X X ..... RP, we notice that the assessee is engaged in various activites, viz., (a) dealing in immovable properties as owner, lessors, licensors, developers, builders and caretaker; (b) business of procuring import of precious metals and distributing it to its clients; (c) broking and arbitrage trading in metals, agricultural products and other commodities; (d) acting as sourcing agent for a range of agricultural commodities. 4. The Assessing Officer passed draft assessment order making various additions. The assessee has filed objections before learned DRP. After passing of the order by learned DRP, the Assessing Officer passed final assessment order on 30.10.2017. The assessee is aggrieved by the additions made by the Assessing Officer and accordingly preferred this appeal. 5. The first issue relates to disallowance of mark to market loss of Rs. 16.26 crore. The facts relating thereto are that the assessee had claimed deduction on account of provisions made for loss of currency, commodities futures amounting to Rs. 16,26,06,114/-. The Assessing Officer treated the same as contingent in nature and accordingly disallowed the same both for computing total income under normal provision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55/- 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 of the profit and loss account. The assessee gave detailed submissions in this regard. After elaborating and discussing the issue, the Assessing Officer held that mark to market losses account cannot constitute deductible expenditure for the purpose of income tax act, simply because they have to be provided for in the accounting as per the accounting standard. He held that the assessee had made provision for such losses which cannot be allowed at all as they are contingent in nature. Hence, the Assessing Officer concluded that the assessee's claim for provision for losses future/options (market to market losses) of Rs.5,24,53,455/- on commodities cannot be allowed and, therefore, sum was added back to the total income of the assessee. 25. Upon the assessee's appeal, the ld. Commissioner of Income Tax (Appeals) found the issue in favour of the assessee by several decisions of the ITAT in assessee's own group companies. The ld. Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 "Margin Deposits", representing additional margin over and above initial margin, for entering into contracts for Equity Index/Stock Futures, which are released on final settlement/squaringup of underlying contracts, are disclosed under Loans and Advances. (b) Equity Index/Stock Futures are marked-to-market on a daily basis. Debit or credit balance disclosed under Loans and Advances or Current Liabilities, respectively, in the Mark-to- Market Margin-Equity Index/Stock Futures Account', represents the net amount paid or received on the basis of movement in the prices of Index/Stock Futures till the Balance Sheet date. Amount paid to brokers in addition to Markto-Market Margins is disclosed as "Margin Deposits' under Loans and Advances. (c) As on the Balance Sheet date, profit/loss on open positions in Index/Stock Futures are accounted for as follows: * Credit balance in the "Mark-to Market Margin - Equity Index ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized 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 market value. This decision of the Supreme Court governs the facts of the present case. It is to the assessee's strength that the Institute of Chartered Accountants of India in its guidelines have also approved of the rule of prudence which really means that while anticipated losses can be taken note of while valuing the closing stock, anticipated profits cannot be recognized. The anticipated loss, in the light of the judgment of the Supreme Court cited above, cannot be treated as a contingent liability. 8. The learned DR pointed out that the assessee has valued each scrip of the derivatives as at the end of the year. We do not see how this can make any difference to the legal principle. If the derivatives have been treated as stock-in- trade then there is nothing unusual in the assessee valuing each derivative by applying the rule cost or market whichever is lower. 9. We, therefore, direct the Assessing Officer to allow the provision as refle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 made out by the Revenue that the valuation done is not correct or not properly explained. In these situations, the decisions of the Hon'ble Apex Court relied upon hereinabove in the case of Chainrup Sampatram vs. Commissioner of Income Tax, West Bengal (1953) 24 ITR 481 (SC), is quite germane. Furthermore, we find the Assessing Officer has totally erred in placing reliance upon the decision of the Hon'ble Apex Court in the case of M/S. Sanjeev Woolen Mills vs Commissioner Of Income-Tax (in Civil Appeal No. 6735-6736/2003 vide order dated 24.11.2005). In the said decision, the Hon'ble Apex Court has analyzed the entire gamut of decisions on the issue of valuation of the stock. It has categorically held that recognized and settled accounting practice of accounting for the closing stock in the accounts is that it has to be valued on the cost basis or at the market value basis if the market value of the sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the year. He further noticed that the assessee has not made any disallowance u/s 14A of the Act. Hence the AO computed the disallowance as per Rule 8D, which worked out to Rs.4,71,81,176/- and added the same to the total income of the assessee. The AO added the very same amount for computing book profit u/s 115JB of the Act. The Ld DRP confirmed the disallowance made for computing total income under normal provisions of the Act. With regard to the computation of book profit u/s115JB of the Act, the Ld DRP did not adjudicate the same holding it as academic in nature. 12. The Ld A.R submitted that the assessee did not earn any exempt income during the year under consideration. It had received loss of profit from a partnership firm amounting to Rs.1,62,708/-. Accordingly, the Ld A.R contended that there is no requirement of making any disallowance u/s 14A of the Act and also u/s 115JB of the Act, in the absence of exempt income. 13. We heard Ld D.R on this issue and perused the record. There is no dispute with regard to the fact that the assessee did not earn any exempt income during the year under consideration. The Hon'ble Delhi High Court has held in the case of PCIT vs. IL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal contentions following the decision rendered by Hon'ble Karnataka High Court in the case of PCIT vs. Texport Overseas (P) Ltd (2020)(313 CTR (Kar) 485). However, the Tribunal restored the issue to the file of the AO for examining the claim in terms of sec. 40A(2)(a) of the Act. For the sake of convenience, we extract below the decision rendered by the Bangalore bench of Tribunal in the above cited case:- 13. We have carefully considered the rival submissions. The Finance Act, 2012 extended its scope to cover certain domestic transactions with related parties within India, defined as 'Specified Domestic Transactions' (SDT) with effect from AY 2013- 14. The Finance Act, 2012 introduced Section 92BA giving the meaning of SDT and it provided as follows: "SECTION 92BA: MEANING OF SPECIFIED DOMESTIC TRANSACTION. For the purposes of this section and sections 92, 92C, 92D and 92E, "specified domestic transaction" in case of an assessee means any of the following transactions, not being an international transaction, namely:-- (i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, in such a case, the court is to look to the provisions in the rule which has been introduced after omission of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by Section 6 of the General Clauses Act or there is a pari-materia provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. In the absence of any such provisions in the statute or in the rule, the pending proceeding will lapse under rule under which the notice was issued or proceeding being omitted or deleted. 15. With regard to the contention that there could be no addition u/s.92BA in view of the subsequent deletion of the aforesaid provisions by the Finance Act, 2017, the DRP refused to follow the decision of ITAT in the case of Textport Overseas Pvt.Ltd. (supra). The learned AR reiterated submissions made before the DRP and brought to our notice that the decision of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision." 6. In fact coordinate bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 10B of the Act w.e.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment IT(TP)A No.361/Bang/2021 by omitting sub-section (9) of Section 10B. In the matter of GENERAL FINANCE CO. vs. ACIT, which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of Section 92BA(i) of the Act. Thus, when clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of Section 92BI and reference made to the order of Transfer Pricing Officer-TOP under Section 92CA could be invalid and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of expenditure mentioned above in terms of the provisions of section 40A(2) of the Act. In view of the above conclusion, we refrain from adjudicating other issues raised by the assessee in the grounds of appeal with regard to correctness of determination of ALP of the SDT." 18. We notice that the co-ordinate Mumbai bench has also taken an identical view in the case of Mahindra Two Wheelers Ltd (supra). Accordingly, following the above said decisions, we hold that the reference made to TPO under clause (i) of sec.92BA is not valid and consequently, the transfer pricing adjustment made in respect of Specified Domestic Transaction is liable to be deleted. Accordingly, we direct the AO to delete the transfer pricing adjustment. 19. However, as held in the above said cases, the issue is required to be examined afresh in terms of sec. 40A(2)(a) of the Act. Accordingly, we restore this issue to the file of the AO with the direction to examine the claim of expenditure mentioned above in terms of the provisions of section 40A(2) of the Act. 20. The next issue urged by the assessee relates to the validity of the assessment order on the ground that it is time barred. Since we have decid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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