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2012 (10) TMI 223 - AT - Income TaxDisallowance of expense incurred on earning exempt income - AO has disallowed 10% of the exempted income – Held that:- Following the decision in case of Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) that Rule 8D which has been notified on 24th March 2008 would apply from the A.Y. 2008-09 only. Since we are concerned with the A.Y. 2004-05, the said Rule cannot be invoked. Respectfully following those guidelines issue remand back to AO. Disallowance of renovation expense – Renovation expense incurred on leased property, and the lease period is remaining for few months, is a capital or revenue in nature - Assessee took space on lease for a period of five years on lease and license basis – Assessee contended that expenditure was incurred wholly and exclusively for the purpose of business - No enduring benefit had accrued to the assessee nor was any capital asset created - Held that:- Since the expenditure was incurred in the month of March 2004 as per the terms of the license agreement and the license period was coming to an end in June 2005. They are routine maintenance and repair expenses which the assessee would have had to incur in the normal carrying on of its business. The nature of the work shows that no additional space or capital advantage was derived by incurring the expenditure. Issue decides in favour of assessee. Mark to Market Loss - Disallowance of the provision for loss on “Mark to Market” basis in respect of trading in derivatives - Assessee holds derivatives as its stock-in-trade - Follows the principle “cost or market price, whichever is lower” in valuing the derivatives – Held that:- As the loss due to a fall in price below cost is allowed even if such loss has not been actually realized. 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. ICAI 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 cannot be treated as a contingent liability. Issue decides in favour of assessee
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