TMI Blog2018 (11) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the issue is squarely covered by following the case of CIT vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT]. Respectfully following the Bombay High Court decision and considering the facts of the case, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. AO can verify the investment giving exempt and investments which are kept as stock in trade can be disallowed. Apart from that the assessee has recomputed the disallowance which may be accepted. We find that the plea of the assessee is quite reasonable and hence, accordingly we restore this issue back to the file of the AO who will determine the investment held in stock in trade and he will disallow the interest only on the investments kept as stock in trade but only qua the investment giving exempt income. Accordingly, this issue of Revenue’s appeal is partly allowed for statistical purposes. - ITA No. 2635/Mum/2017, ITA No. 2638/Mum/2017, ITA No. 2636/Mum/2017 And ITA No. 2637/Mum/2017 - - - Dated:- 28-9-2018 - Sri Mahavir Singh, JM And Sri Rajesh Kumar, AM For the Appellant : Shri DG Pansari, DR For the Respondent : Shri Ravikant S. Pathak, AR ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to market profit/ loss it had incurred while trading in commodities especially future options. The assessee filed complete details and stated that it had incurred mark to market loss while trading in commodities i.e. future and equities and the same has been debited in the accounts of the assessee. According to AO, this mark to market loss are notional loss and therefore not allowable as deduction in view of CBDT instruction dated 23.03.2010 and also relied on Sanjeev Woolen Mills vs. CIT 279 ITR 434 (SC). The AO has not doubted the genuineness of transactions but only that this is unascertained liability and merely provision and hence cannot be allowed. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) after going through the facts of the case and various decision of the ITAT in assessee s own case allowed the claim of assessee by observing in Para 5.2 as under: - 5.2. Ground No. 2 5.2.1 This ground relates to disallowance of provision for loss of ₹ 17,43,88,592/- being mark market loss on trading in INDEX OPTION, EQUITY FUTURES AND CURRENCY FUTURES as nonascertainable liability under section. 115JB Explanation 1 clause (c). The Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt assets / current liabilities respectively. The assesee company has accounted for the loss/ gain from derivatives instruments following the principles laid down in Accounting Standard 30 - Financial Instruments Recognition and Measurement (AS 30) and Guidance Note on accounting for Equity Index and Equity Stock Futures and Options issued by the Institute of Chartered Accountants of India (ICAI). Subsequent to initial recognition, the derivatives are measured at fair value prevailing on the last day of the financial year and any changes therein are accounted in profit and loss account. In view of these facts and the Tribunal taking a consistent view in assessee s own cases that this derivative loss is to be allowed, we are of the view that this issue is squarely covered in favour of assessee. 6. We also find that this issue is squarely covered by the decision of Hon ble Supreme Court in the case of CIT vs. woodward Governor India (P) Ltd. 312 ITR 254 (SC), wherein Hon ble Supreme Court has decided the issue as under: - 14. In the case of M.P. Financial Corporation v. CIT [1987] 165 ITR 765 the Madhya Pradesh High Court has held that the expression expenditure as use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess profits arising during the year needs to be computed. This is one more reason for reading section 37(1) with section 145. For valuing the closing stock at the end of a particular year, the value prevailing on the last date is relevant. This is because profits/loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase profits before actual realization. This is the theory underlying the Rule that closing stock is to be valued at cost or market price, whichever is the lower. As profits for income-tax purposes are to be computed in accordance with ordinary principles of commercial accounting, unless, such principles stand superseded or modified by legislative enactments, unrealized profits in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following years account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of assessment proceedings before the AO. 9. Brief facts of the case are that the AO during the assessment proceedings noticed that the assessee has earned dividend income of ₹ 50,62,962/- on shares and ₹ 7,75,804/- on mutual funds and claimed the same as exempt income under section 10(34) and 10(35) of the Act respectively. The assessee suo moto disallowed a sum of ₹ 73,281/- being expenses incurred for earing of exempt income under section 14A read with Rule 8D of the Rules. The AO noted that the disallowance made by the assessee is not in term of the provisions of the Act and therefore, he recomputed the disallowance under Rule 8D(2) (ii) at ₹ 2,91,50,899/- and under Rule 8D(2)(iii) being an average value of investment at 0.5% amounting to ₹ 27,93,971/-. Thereby, the AO recomputed the disallowable expenses at ₹ 3,19,44,870/- and after considering the suo moto disallowance of ₹ 73,281/-, he made actual disallowance of ₹ 3,18,71,589/-. Aggrieved, assessee preferred the appeal before CIT(A), the CIT(A) restricted the disallowance at ₹ 72,281/- i.e. suo moto disallowance made by assessee. Aggrieved now Revenue is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espectfully following the Bombay High Court decision and considering the facts of the case, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. 12. As regards to the disallowance of administrative expense under Rule 8D(2)(iii) of the Income Tax Rules, the assessee has filed the details of investment and dividend income earned qua that and requested that disallowance be restricted at ₹ 3,33,885/-. The assessee filed the details as under: - C) Disallowance as per Rue 8D(2)(iii) of the Rules considering the stock in trade on which the assessee has actually earned the exempt income. Particulars Dividend income Investment/stock in trade as on 31/03/2012 Investment/stock in trade as on 31/03/2011 Edelweiss Absolute Return 1,124,22 9,266,122 Fund-Dividend- Reinvestment Edelweiss Income 775,805 22,800,447 Advantage FundDividend- Reinvestment Claris Lifesciences Ltd. 1,500,000 ..... 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