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2017 (2) TMI 409 - AT - Income TaxAddition of marked–to–market loss - AO disallowed claim on open equity stock future contracts primarily for the reason that they are in the nature of contingent liability - 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. See Edelweiss Capital Ltd. [2012 (10) TMI 223 - ITAT, MUMBAI] - Decided in favour of assessee As far as loss claimed on valuation of closing stock–in–trade, undisputedly, it is the actual stock–in–trade of the assessee which as per the accounting principles has to be valued at the year end at market rate or actual cost whichever is lower. The Hon'ble Supreme Court in United Commercial Bank v/s CIT [1999 (9) TMI 4 - SUPREME Court ], approved the aforesaid accounting method followed by the assessee. That being the case, the loss claimed by the assessee cannot be considered as contingent liability. As far as loss on account of provisions for interest rate swap the same is also covered by the decisions of the Tribunal in case of ABN Amro Securities (2011 (8) TMI 1257 - ITAT MUMBAI), wherein, the Tribunal deleted the disallowance made with the observation that allowability of deduction in the current year is subject to verification of corresponding adjustment in the year in which the non–settlement date falls. In view of the aforesaid, we delete the addition with similar observation. Addition made under section 14A r/w rule 8D(2)(ii) and (iii) - Held that:- Provisions of section 14A r/w rule 8D will not be applicable to investment in shares and securities held as stock–in–trade. See Commissioner of Income Tax-9 Versus India Advantage Securities Ltd. [2015 (3) TMI 1239 - BOMBAY HIGH COURT] MAT - marked–to–market loss in stock–in–trade for computing book profit under section 115JB - Held that:- While deciding ground no.2, of the Department in earlier part of the order, we have held that marked–to–market loss on stock in trade cannot be considered as unascertained liability Explanation 1(c) to section 115JB makes it clear that only unascertained liability can be considered for computation of book profit. That being the case, we agree with the decision of the learned Commissioner (Appeals) in deleting the addition while computing book profit of the assessee. Disallowance under section 14A r/w rule 8D - Held that:- As per the decision of Four Dimensions Securities India Ltd. v/s ACIT [2013 (6) TMI 806 - ITAT MUMBAI] for computing disallowance under rule 8D, only the net interest has to be considered which in the present case, is in the negative as the assessee has a positive interest income. Therefore, considering the aforesaid facts, we are of the opinion that no disallowance of interest expenditure under rule 8D(2)(ii) can be made. Therefore, only disallowance which can be made is under rule 8D(iii), i.e., 0.5% of the average value of investment. In this regard, we must make it clear that the shares held as stock–in–trade have to be excluded from the average value of investment while computing the disallowance under rule 8D(2)(iii). We direct the Assessing Officer to compute the disallowance accordingly
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