9911796707
TMI Blog2024 (1) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... 11-12 and 2012-13 respectively and the other appeals/cross objections are directed against the orders passed by Ld CIT(A) against original assessment orders. 2. The assessee is engaged in the business of manufacture and sale of pharmaceutical products. ASSESSMENT YEAR: 2010-11:- 3. We shall first take up the appeal relating to A.Y. 2010-11. However, the common issues, i.e., if both the parties are in appeal before us on very same issues, they are adjudicated together. 4. We shall first take up the appeal of the assessee. The first issue urged by the assessee relates to the disallowance of alleged bogus expenses amounting to Rs.18,15,788/-. According to the assessee, the above said disallowance consisted of general expenses of Rs.14,96,706/- and expenses that were capitalised by the assessee amounting to Rs. 3,19,082/-. 4.1 The facts relating to this issue are that the assessee was subjected to search on 15.3.2012. In the statement taken during the course of search, the assessee admitted that the commission expenses to the extent of Rs.9,05,34,000/- are bogus in nature. However, while filing the return of income the assessee disallowed a sum of Rs. 8,80,97,745/- only as relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , delivery challans etc., to prove receipt of materials. The assessee has also explained the reason as to why these expenses were not added to the total income while computing total income. We notice that the tax authorities have ignored all these aspects on merits, but placed their reliance on the statement made u/s 132(4) of the Act. The provisions of sec.132(4) enables the assessing officer to presume that the admission made in the statement "may be" used in the assessment proceedings. It is well settled proposition of law that it is a rebuttable presumption, meaning thereby, the deponent could show that the admission made by him in the statement was wrong. In the instant case, in our view, the assessee has rebutted the admission by furnishing evidences in support of the expenses. The very same fact that a sum of Rs.9,86,470/- out of the above said expenditure amount of Rs.48,89,052/- represents Capital expenditure (which fact has also been accepted by the AO) would show that there is merit in the submission of the assessee. For booking bogus expenses, it is unlikely that anyone will account for bogus capital expenses. Accordingly, we are of the view that the explanation given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the VAT authorities. Accordingly, it was submitted that the surrender of income towards alleged bogus purchases was made on the basis of incomplete information and further on the reasons that the assessee was not able to prove the genuineness of purchases at that point of time. 7.4 With regard to the statement given by one of the vendors Shri Naresh Kantilal Shah, which was referred to by the AO, the assessee submitted that it has not made any purchases from the concerns belonging to the above said person during the year under consideration. On legal aspects, the assessee has contended that the addition could not be made merely on the basis of statement given on oath. 7.5 The ld D.R, on the contrary, supported the orders passed by tax authorities on this issue. 7.6 We notice that the assessing officer has entirely placed his reliance on the statement given by the employees and directors of the assessee u/s 132(4) of the Act. Besides the above, the AO has also placed reliance on the statement given by Shri Naresh Kantilal Shah, one of the accommodation entry providers and also the statement given by the Vice President (Taxation). However, we notice that the surrender made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance made under section 14A of the Act. The revenue is also contesting the decision rendered by Ld CIT(A) on this issue. (Common issue). Hence this is a common issue in the appeals of both the parties. During the year under consideration the assessee earned exempt dividend income of Rs.1,04,410/- from equity shares and mutual funds. The assessee made suo moto disallowance of Rs.1,50,832/- under section 14A of the Act, which consisted of interest disallowance of Rs.92,255/- and general expenditure disallowance of Rs.50,578/-. However, during the course of assessment proceedings the assessee claimed that it has not incurred any expense for earning exempt income. Accordingly it claimed no disallowance under section 14A of the Act is called for. In the alternative, it was submitted that the disallowance u/s 14A should not exceed exempt income. The Assessing Officer did not accept new claim so put forth by the assessee. He held that the assessee has made new claim without filing revised return of income. In this regard, he took support of the decision rendered by Hon'ble Supreme Court in the case of Goetz (India) Ltd. Vs. CIT (284 ITR 323). 6.1 The learned CIT(A) also did not accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, the Tribunal held that disallowance under section 14A of the Act is called for. Accordingly, in the facts of that year, the Tribunal directed the Assessing Officer to disallow 15% of the exempt income to meet the requirements of section 14A of the Act. In the current year also, we notice that facts are identical, i.e., there is increase in the investments and further there was receipt of dividends. Accordingly, we also hold that disallowance under section 14A for general expense is called for. Accordingly, following the decision rendered in AY 2009-10, we direct the AO to restrict disallowance u/s 14A of the Act to 15% of the exempt income and the same, in our view, would meet the requirements of section 14A of the Act. Accordingly we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to disallow 15% of the exempt income under section 14A of the Act. 7. Next issue urged by the assessee is related to the disallowance of depreciation on goodwill, which arose on account of amalgamation of three companies. It is pertinent to note that the assessee did not claim this depreciation in the return of income. However, it appended a not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of investment is treated as "goodwill" as per the accounting principles. However, the assessee arrived at the value of above said "good will" at Rs.21.81 crores after making some adjustments. 7.4 As noticed earlier, the assessee claimed depreciation on the above said amount of Rs.21.81 crores during the course of assessment proceedings before the AO. However, the said claim was rejected by the AO for the reasons discussed earlier. The Ld CIT(A) also confirmed the disallowance, however, on a different reasoning, i.e., he took the view that the sixth proviso to sec.32(1) would bar such a claim. 7.5 The Learned AR placed his reliance on various case laws to reiterate his contentions that "goodwill" is an intangible asset and it falls in the category of 'any other business or commercial right of similar nature' as given in the Explanation to section 32(1) of the Act and therefore it is eligible for depreciation under section 32(1)(ii) of the Act. He also placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Smifs Securities Pvt. Ltd. (2012) 24 taxman.com 222 in this regard. 7.6 We noticed earlier that the assessee had made investment of Rs. 47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goodwill would fall under the category of business or commercial rights as mentioned in section 32(1)(ii) of the Act, which was interpreted by Hon'ble Supreme Court in the case of Smiffs Securities Ltd (supra). Hence it is imperative for the assessee to show that the good will, being short fall in the value of investments, would also rank at par with the good will which was considered as business or commercial rights as mentioned in sec. 32(1)(ii) of the Act. However, the fact remains that both the tax authorities have not examined this aspect. 7.10 We noticed that the learned CIT(A) has taken support of the sixth proviso to section 32(1) of the Act to reject the claim of depreciation on the good will. However, on a careful perusal of the sixth proviso to sec. 32(1) of the Act, we noticed that the same is applicable only in a situation where the amalgamation takes place in the middle of the year i.e. the said proviso states that the aggregate amount of depreciation claimed by the amalgamating companies and amalgamated company for that year should not exceed eligible amount of depreciation of that year. In the instant case the amalgamation has taken place on 1.4.2009 and not in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rite off of debts" and "Provision created for bad and doubtful debts". The ld D.R submitted that Hon'ble Gujarat High Court has taken the view that the reduction of "Provision for bad and doubtful debts" from 'Sundry Debtors' balance shown in the Assets side of Balance sheet resulted in obliterating such provision from its accounts. The Ld D.R submitted that the meaning of the term "obliterate" has been defined in Cambridge dictionary as "to remove all signs of something, either by destroying it or by covering it so that it cannot be seen". The Ld CIT-DR submitted that, in the instant case, the Provision for bad and doubtful debts does not obliterate the corresponding debt merely for the reason that the same is reduced from the Sundry debtors balance in the Balance Sheet, i.e., it was only a method of presenting the accounts. In the books of accounts, the Provision for bad and doubtful debts account have been maintained separately and no part of debts got obliterated in the books of accounts. Inviting our attention to the Schedule of Sundry debtors given in Schedule 8 of the Annual report, the Ld D.R submitted that the amount reduced towards "provision for doubtful debts" was shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce the "provision for bad and doubtful debts" from Sundry debtors balance in the Assets side of Balance Sheet. 10.6 Clause (i) of Explanation 1 to sec. 115JB states that "the amount or amounts set aside as provision for diminution in the value of any asset" should be added to the Net profit while computing book profit. The case of the revenue is that the "Provision for bad and doubtful debts" falls under this category, since it only represents a provision created for diminution in the value of "sundry debtors". As per the accounting principles, the contentions of the revenue is correct, since "actual write off bad debts" and "provision for bad and doubtful debts" are different, having two different meanings under the Accounting Principles. 10.7 But the question that arises in the context of Income tax Act is whether the meaning or character of "Provision for bad and doubtful debts" would undergo a change, merely a different method of presentation of accounts is made while preparing Balance Sheet, i.e., if it was shown as reduction from the value of "sundry debtors balance" in the assets side of Balance Sheet instead of showing the same in the liability side of Balance She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the provision of Income tax Act and "Book profit" is computed on the basis of financial statements prepared in accordance with the accounting principles and accounting standards. Even though the decision in the case of Vijaya Bank (supra) was rendered by Hon'ble Supreme Court in the context of sec. 36(1)(vii) of the Act relating to computation of income, the Hon'ble High Courts have chosen to extend the said principle laid down by Hon'ble Supreme Court to computation of 'book profit" u/s 115JB of the Act, wherein the accounting principles and accounting standards acquire prime importance. Following the decision rendered by High courts (referred supra), we hold that the amount of "Provision for bad and doubtful debts", if reduced from the amount of "Sundry debtors balance" in the assets side of Balance Sheet, the same would not be hit by clause (i) of Explanation 1 to sec.115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO not to add the amount of Provision for bad and doubtful debts to net profit, while computing book profit u/s 115JB of the Act. 9. The assessee has raised three additional grounds relating to unverified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by duly considering the information and explanations that may be furnished by the assessee. 11. The next ground urged by the revenue relates to the disallowance made u/s 35(2AB) of the Act. 11.1 The assessee incurred a sum of Rs.41.13 crores on clinical trial, bioequivalence study etc. outside its 'approved in-house R&D facility'. The assessee did claim the above said amount u/s 35(2AB) of the Act while computing total income for filing return of income. However, during the course of assessment proceedings, the assessee made a claim for allowing weighted deduction under section 35(2AB) of the Act. Since the claim was made without filing the return of income, the Assessing Officer rejected the same by following the decision rendered by Hon'ble Supreme Court in the case of Goetz (India) ltd. (supra). 11.2 The learned CIT(A) noticed that the Ahmedabad Bench of the Tribunal in the case Cadila Pharmaceuticals Ltd. (25 taxmann.com 519) and Hon'ble Gujarat High Court in very same case reported in 31 taxmann.com 300, has held that the term "in house", which is used in section 35(2AB) must be viewed in the context in which it has been used by the legislature. It was held if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal trials were conducted outside the approved laboratory facility. The Revenue holds a belief that such expenditure not having been incurred in the approved facility cannot form part of the deduction provided under section 35(2AB) of the Act. The Tribunal observed that the term 'in-house' used in section 35(2AB) of the Act must be viewed in the context of which it has been used. If by utilizing the staff or resources of an organization, research is conducted within the organization rather than through utilization of external use of resources or staff, it can be stated to be an in-house research. On such basis, the Tribunal rejected the Revenue's contention that merely because an expenditure which was not incurred in the inhouse facility cannot be discarded for the weighted deduction under section 35(2AB) of the Act. Learned counsel for the Revenue, however, strongly relied on the certificate issued by the Prescribed Authority, which segregated the expenditure in two parts, that incurred in in-house facility and that incurred outside. 14. In our opinion, the Tribunal committed no error. Section 35(2AB) of the Act provides for deduction to a company engaged in busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture on scientific research has to include the expenditure incurred on clinical trials in obtaining approvals from any regulatory authority or in filing an application for grant of patent. The activities of obtaining approval of the authority and filing of an application for patent necessarily shall have to be outside the in-house research facility. Thus the restricted meaning suggested by the Revenue would completely make the explanation quite meaningless. For the scientific research in relation to drugs and pharmaceuticals made for its own peculiar requirements, the Legislature appears to have added such an explanation. 17. In the case Dy. CIT v. Mastek Ltd. [2012] 210 Taxman 432/25 taxmann.com 133 (Guj.) and connected matters, a Division Bench of this Court had touched on the aspect of what can be termed as scientific research. In the context, certain observations made by the Bench may be of some relevance. "25. It can thus be seen that the term scientific research in the context of the deduction allowable under section 35(1) of the Act would include wide variety of activities. It can also be appreciated that every scientific research need not necessarily result into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt was examined and it was observed as under:- "........ As seen from the order of the Supreme Court in Special Leave to Appeal (C) No.770/2015, dated 13.10.2015, the grievance of Revenue with reference to non-framing of three questions were considered by the Hon'ble Supreme Court as those three questions are considered to be 'substantial question of law' and referred to the Hon'ble High Court to hear the aforesaid three questions of law. However, the judgement already passed by the Gujarat High Court has not been set-aside...." The Hyderabad bench of Tribunal also distinguished the decision rendered by the Mumbai bench of Tribunal in the case of Concept Pharmaceuticals Ltd (supra) by observing as under:- "We have considered rival contentions and perused the case law placed on record. In the decision of Concept Pharmaceuticals ltd (supra) the Coordinate bench did not allow the expenditure spent outside the R & D unit but the Bench has not considered the explanation introduced with reference to 'Clinical Trials'. By very nature, the Clinical Trials cannot alone be done within research facility as they require cooperation from the Medical Doctors, Hospitals, Volunteers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be allowed as deduction? Both these questions are answered together. 14.7 The legal sanctity of Form no.3CL was examined by the Pune bench of ITAT in the case of Cummins Ltd vs. DCIT (ITA No.309/Pun/2014 dated 15.5.2018 relating to AY 2009-10). It was held as under:- "45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No. 3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 1-7-2016, wherein separate part has been inserted for certifying the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon. Once a certificate by DSIR is issued, that would be sufficient to hold that the assessee fulfils the conditions laid down in the aforesaid provisions. The Hon'ble Delhi High Court followed the decision of the Hon'ble Gujarat High Court and upheld the decision of the Tribunal. The Hon'ble Delhi High Court quoted the following observations of the Hon'ble Gujarat High Court and agreed with the said view: "7. ... The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of the research and development facility, expenditure so incurred is eligible for weighted deduction. 8. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of : (i) development of facility; (ii) incurring of expenditure by the assessee for development of such facility; (iii) approval of the facility by the prescribed authority, which is DSIR; and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. 9. The provisions nowhere suggest or imply that research and development facility is to be approved from a particular date and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings relating to AY 2009-10. Further, in that year, Learned DR also had contended that the approval given to some of the research facilities were not available in the record. Hence the matter was restored to the file of the Assessing Officer for the limited purposes discussed above. 11.6 The Learned AR submitted that the assessee has furnished the break up the details of expenses incurred in each of the R & D facility before the AO in the current year. Accordingly, he submitted that there is no requirement of remitting the issue back to the file of the Assessing Officer. However, we noticed that the Assessing Officer did not examine the claim of the assessee at all with regard to this expenditure. Hence there was no occasion for the AO to examine the issue. We have already discussed about the legal position relating to the claim made u/s 35(2AB) of the Act. In our view, the basic facts relating to the claim need to be verified at the end of the AO. Accordingly for verification of the basic details, we restore this issue to the file of the Assessing Officer with the direction to examine this issue and decide upon the claim of the assessee in accordance with the legal po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the employee has a definite right to 25% of the shares and the assessee is bound to allow the vesting of 25% of the options. It is well settled in law that if a business liability has arisen in the accounting year, the same is permissible as deduction, even though, liability may have to quantify and discharged at a future date. On exercise of option by an employee, the actual amount of benefit has to be determined is only a quantification of liability, which takes place at a future date. The tribunal has therefore, rightly placed reliance on decisions of the Supreme Court in Bharat Movers supra and Rotork Controls India P. Ltd., supra and has recorded a finding that discount on issue of ESOPs is not a contingent liability but is an ascertained liability. 10. From perusal of section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussion made in respect of "Situation II" explained by way of illustration by the Tribunal. Accordingly, the above said claim of the assessee is allowable as deduction. 15.5We noticed that the assessee has claimed this amount as deduction before the AO during the course of assessment proceedings and it is the case of the AO that the assessee has not accounted for the same in the books of account. It is the submission of the assessee that the first type of discount is required to be accounted in the books of account and the second type of discount is not required to be accounted. We notice that the requirement of accounting second type of discount has been examined by the Special bench in paragraphs 11.2.8 and 11.2.9 of its order. We notice that the Special bench has stated that the SEBI guidelines did not discuss about the accounting of second type of discount. Accordingly, the Special bench held that the deduction of additional discount has to be allowed as per taxation principles. For the sake of convenience, we extract below paragraphs 11.2.8, 11.2.9 and 11.3 of the order passed by the Special bench:- "11.2.8. The plea now raised before us by the ld. AR, relying on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptions or vested options lapsing. The very reference by the Chennai Bench of the Tribunal in SSI Limited (supra) to the SEBI Guidelines is indicative of the fact that it dealt with a year during which the options were vesting with the employees and the company claimed discount during the vesting period. The Hon'ble Madras High Court in the case of PVP Ventures (supra) has upheld the view taken by the Chennai Bench in the case of SSI Limited (supra). The granting of the binding force to the SEBI Guidelines by the Hon'ble Madras High Court should be viewed in the context of the issue before it, which was about the deductibility of discount during one of the vesting years. In the earlier part of this order, we have held that the deductibility of discount during the vesting period, as prescribed under the SEBI Guidelines, matches with the treatment under the mercantile system of accounting. To that extent, we also hold that the SEBI guidelines are applicable in the matter of deduction of discount. Neither there was any issue before the Hon'ble Madras High Court nor it dealt with a situation in which the market price of the shares at the time of exercise of option is more or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ESOP expenditure claimed by the assessee. Accordingly we uphold the order passed by the learned CIT(A) on this issue. 13. Next issue urged by the revenue relates to the disallowance made u/s 14A of the Act. We have adjudicated this issue along with the ground raised by the assessee on the very same issue. Hence this ground of the revenue does not require separate adjudication. 14. The next issue urged by the revenue relates to the disallowance of Rs.27.85 crores relating to Pre-commencement revenue expenses incurred at Pithampur SEZ Plant-I. 14.1 The assessee did not claim this expenditure in the return of income, but claimed the same before the AO during the course of assessment proceedings. The AO rejected the same on the reasoning that the assessee has made new claim without filing revised return of income. The ld CIT(A), however, allowed the claim of the assessee holding that the assessee has already set up the business. He also held that the revenue expenses incurred after setting up of business is allowable as deduction, even if the business is not commenced. The revenue is aggrieved. 14.2 We heard the parties and perused the record. The Ld A.R submitted that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same to the file of AO with similar directions. 18. The next issue contested by the assessee relates to the disallowance of bogus purchases. The facts relating to this disallowance are identical with the identical disallowances made in AY 2009-10 and 2010-11. In paragraphs 5 (supra), we have dealt with identical disallowance made in the assessment year 2010-11 and following the decision rendered in AY 2009-10, this issue was restored to the file of AO for examining it afresh. Consistent with the view taken in AY 2009-10 and 2010-11, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO with similar directions. 19. The next issue urged by the assessee relates to the disallowance made u/s 14A of the Act. The facts relating to the above said disallowance are identical with the identical disallowances made in AY 2009-10 and 2010-11. In paragraphs 6 (supra), we have dealt with identical disallowance made in the assessment year 2010-11. With regard to interest disallowance made u/r 8D(2)(ii) of I T Rules, the AO was directed to delete the voluntary disallowance made by the assessee by following the decision rendered by Hon'ble Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother appeal numbered as ITA No.20/Mum/2021 challenging the rectification order passed by Ld CIT(A) u/s 154 of the Act. 23.1 The facts relating to the above said disallowance are identical with the identical disallowances made in AY 2010-11. In paragraphs11 (supra), we have dealt with identical disallowance made in the assessment year 2010-11 and discussed about the legal principles laid down by High Courts. Since the issue required verification of certain factual aspects, the issue was restored to the file of the AO for the limited purpose of verification of factual aspects and the AO was directed to the issue following the legal principles discussed in the order. Consistent with the view taken in AY 2010-11, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO with similar directions. 24. The next issue urged by the revenue relates to the disallowance of ESOP expenses. The facts relating to the above said disallowance are identical with the identical disallowances made in AY 2009-10 and 2010-11. In paragraphs 12 (supra), we have dealt with identical disallowance made in the assessment year 2010-11 and following the decision rendered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored to the file of AO for examining it afresh. Consistent with the view taken in AY 2009-10 and 2010-11, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO with similar directions. 31. The next issue urged by the assessee relates to the disallowance made u/s 14A of the Act. The facts relating to the above said disallowance are identical with the identical disallowances made in AY 2009-10 and 2010-11. In paragraphs 6 (supra), we have dealt with identical disallowance made in the assessment year 2010-11. With regard to interest disallowance made u/r 8D(2)(ii) of I T Rules, the AO was directed to delete the voluntary disallowance made by the assessee by following the decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd (supra), since the own funds available with the assessee was more than the value of investments. With regard to the disallowance of general expenses, the AO was directed to restrict the disallowance to 15% of exempt income. In view of the above, following the above said decision, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 35. The second issue relates to the disallowance of mark to market loss of Rs.46,87,968/- arising on account of revaluation of forward contracts due to exchange difference on the last date of balance sheet. The AO disallowed the same following the Instruction No.3/2010 issued by CBDT, wherein the CBDT has expressed the view that the such kind of revaluation loss is notional one. The AO also expressed the view that the provisions of sec.43(5) bars such a claim. 35.1 We notice that an identical issue has been examined by the Tribunal in the assessee's own case in AY 2009-10. The relevant discussions made in that year are extracted below:- 13. We shall now take up the appeal filed by the revenue. The first issue contested by the revenue relates to the disallowance of mark to market loss of Rs.3,39,71,181/- made by the AO and deleted by Ld CIT(A). The assessee is supporting the decision rendered by Ld CIT(A) on this issue in the cross objections filed by it. The assessee had revalued the derivative contracts outstanding as at the yearend in respect of foreign exchange receivables. The same resulted in a loss of Rs.3.39 crores and it was claimed by the assessee has deduction. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pearing for the Revenue submits that this appeal had to be admitted as the impugned order has ignored its order in the case of S. Vinodkumar Diamonds (P.) Ltd. v. Addl. CIT [2013] 59 SOT 124/35 taxmann.com 337 (Mum. - Trib.) rendered on 3 May 2013 which on similar facts is in favour of the Revenue. He further submits that the impugned order of the Tribunal is suspect because it accepts the Respondent assessee's claim without calling upon it to prove that the same was not speculative. Lastly, he sought to place reliance upon Accounting Standard-11 to claim that such a loss is not allowable thereunder. 7. The impugned order of the Tribunal has, while upholding the finding of the CIT (Appeals), independently come to the conclusion that the transaction entered into by the Respondent assessee is not in the nature of speculative activities. Further the hedging transactions were entered into so as to cover variation in foreign exchange rate which would impact its business of import and export of diamonds. These concurrent finding of facts are not shown to be perverse in any manner. In fact, the Assessing Officer also in the Assessment Order does not find that the transaction entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be speculative activity but a business activity. 8. In the above view, the question of law, as formulated by the Revenue, does not give rise to any substantial of law. Thus, not entertained." The Ld CIT(A) has followed the decision rendered by Hon'ble jurisdictional High Court and has decided this issue in favour of the assessee. 13.3 We notice from the break-up details of the claim extracted above, the M to M loss on "forward contracts" was Rs.42.53 lakhs. The other two items relate to "ineffective Option Contracts" and "Derivative asset w/off relating to option contracts". The nature of these items is not clear and we notice that no tax authority has examined these items. If these transactions have been entered in the course of carrying on of regular business activities and the underlying assets are trading items, the loss arising on their revaluation at the year end is allowable as deduction. It is to be seen that the underlying assets having foreign currency exposure is also revalued as at the year end. Accordingly, for the limited purpose of verifying these factual aspects, we restore this issue to the file of the AO for examining this issue in the light of prin ..... 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