TMI Blog2020 (2) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, needs to be accepted. Now, it is fairly well settled by the ratio laid down in the case of CIT Vs. Woodward Governor India Pvt Ltd [ 2009 (4) TMI 4 - SUPREME COURT ] that mark to market loss as on the balance sheet date is allowable u/s 37(1) of the Act. Further, it has been brought to our notice by learned Authorized Representative that in subsequent assessment years the Assessing Officer has consistently allowed assessee s claim of mark to market loss. In view of the aforesaid, we hold that mark to market loss is not in the nature of speculation loss, hence, has to be allowed. Disallowance u/s 14A - disallowance of interest expenditure under Rule 8(D)(2)(ii) - HELD THAT:- Financial statement available on record clearly indicate that the assessee had sufficient interest free funds available with it. That being the case, it has to be presumed that the interest free funds were utilized in investment in shares. Thus, no part of the interest expenditure can be attributed for earning of exempt income. Therefore, the only disallowance which can be made u/s 14A of the Act is the administrative expenditure as per Rule 8D(2)(iii). Here also, while computing the disallowance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irection of Hon ble Jurisdictional High Court, the appeals have came up for hearing before us. 3. Briefly the facts relating to ground Nos. 1 and 2 are, the assessee, a resident company, is engaged in the business of shares and stock broking, trading in debt securities, mutual funds distribution and other financial services. The assessee has also made investments in shares and debt securities. For the assessment year under dispute, assessee filed its return of income on 29.09.2008 declaring loss of ₹ 11,44,66,190/- under the normal provisions and book profit of ₹ 3,03,45.502/- u/s 115JB of the Act. In course of assessment proceeding, the Assessing Officer noticing that the assessee has debited loss of ₹ 6,62,50,008/- on trading in derivative transactions, called upon the assessee to explain whether such loss includes any provision for loss on outstanding derivative contracts as on 31.03.2008. Further, he directed the assessee to explain why the loss on outstanding derivative contract as on 31.03.2008 should not be disallowed by treating it as notional loss. In response, the assessee submitted the details of loss claimed and also explained that the loss debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of trading in derivatives carried out in a recognized stock exchange are excluded from the definition of speculating transaction. Further, he submitted, the observation of learned Commissioner (Appeals) that the assessee is engaged in trading of over the counter derivative is factually incorrect as the assessee has carried out all its derivative transactions through National Stock Exchange (NSE). He submitted, had learned Commissioner (Appeals) issued a show cause notice before treating the mark to market loss as speculation loss u/s 43(5) of the Act, the assessee would have certainly explained before him that the transaction cannot be treated as speculative transaction u/s 43(5) of the Act. He submitted, even the loss claimed by the assessee is not contingent as it is ascertainable as on the year end. Thus, he submitted, claim of loss amounting to ₹ 5,96,510/- should be allowed. In support of such contention, learned Authorized Representative relied upon the following decisions; 1. CIT Vs. Woodward Governor India P Ltd (2009) 179 Taxman 326 (SC). 2. CIT Vs. Pashupati Capital Services Ltd., ( ITA 1622 of 2013) (Bom) 3. Edelweiss Capital Ltd Vs ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 before learned Commissioner (Appeals), the assessee has specifically stated that it has carried out its transactions in derivatives in future and option segments of National Stock Exchange. From the impugned order if learned Commissioner (Appeals) it is patent obvious that he has completely overlooked the aforesaid factual position while observing that the assessee has entered into over the counter derivative transaction and not in any recognized stock exchanges, while treating it as speculative loss u/s. 43(5) of the Act. Keeping in view, the factual position arising out if the material on record, the contention of the assessee that the derivative transaction in respect of which it has claimed mark to market loss comes within the exception as per Clause (d) of the proviso to Sec. 43(5) of the Act appears to have substantial strength, hence, needs to be accepted. Now, it is fairly well settled by the ratio laid down by the Hon ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt Ltd., [2009] 179 taxman 326 (SC), that mark to market loss as on the balance sheet date is allowable u/s 37(1) of the Act. Further, it has been brought to our notice by learned Authorized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd administrative expenditure of ₹ 22,57,709/- under Rule 8(D)(2)(iii). After adjusting the disallowance of ₹ 1,75,583/- made by the assessee, he made a net disallowance of ₹ 1,22,46,889/-. The assessee challenged the aforesaid disallowance before learned Commissioner (Appeals). 5.2 After taking note of the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) observed that while deciding similar issue in assessee s own case for the assessment year 2007-08, the first appellate authority directed the Assessing Officer to follow the said order, and if no borrowed fund is utilized for making investment in shares no part of interest expenditure should be disallowed. 5.3 The learned Authorized Representative submitted, the entire loan fund was invested in debt securities the income from which is not exempt. Therefore, no part of the interest expenditure can be disallowed under Rule 8D(2)(ii). Further, he submitted, during the year under consideration the assessee had sufficient interest free fund available with it. For that reason also no disallowance can be made out of the interest expenditure. Thus, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord, prima-facie, it appears that the borrowed funds were sanctioned for specific purpose of utilization in debt securities. Unless, the Revenue brings any contrary material to dispute this fact, assessee s claim cannot be rejected. Moreover, the financial statement available on record clearly indicate that the assessee had sufficient interest free funds available with it. That being the case, it has to be presumed that the interest free funds were utilized in investment in shares. Thus, no part of the interest expenditure can be attributed for earning of exempt income. Therefore, the only disallowance which can be made u/s 14A of the Act is the administrative expenditure as per Rule 8D(2)(iii). Here also, while computing the disallowance the Assessing Officer has to consider only those investments which have yielded exempt income during the year, as held by the Income Tax Appellate Tribunal, Delhi (Special Bench) in the case of ACIT Vs Vireet Investments (P) Ltd., [2017] 82 taxmann.com 415. It is relevant to observe, the assessee has furnished a working of disallowance under Rule 8D(2)(iii) quantifying the disallowance at ₹ 13,04,383/-. Admittedly, the aforesaid wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 771/2014. Thus, the order of the Tribunal for assessment year 2007-08 attained finality. However, while disposing of the writ application filed by the assessee for the assessment year 2008-09, in the writ petition No. 1744 of 2014 along with assessee s appeal in income tax appeal No. 807/2014 for the very same assessment year, the Hon ble Jurisdictional High Court in order dated 12.09.2017 restored the issues back to the Tribunal for fresh adjudication. However, while doing so, the Hon ble Jurisdictional High Court inadvertently referred to the order of the Tribunal in ITA No. 225/Mum/2011 pertaining to the assessment year 2007-08, instead of the appeal number relating to assessment year 2008-09. This is evident from paragraph 11 of Hon ble Jurisdictional High Court s order. Whereas, from paragraph 4 of the order, it is very much clear that the writ application and the appeal in consideration before the Hon ble Jurisdictional High Court pertained to assessment year 2008-09. In view of the aforesaid, the order dated 12.06.2013 passed by the Tribunal in ITA No. 225/Mum/2011 and ITA No. 229/Mum/2011 pertaining to assessment year 2007-08 would remain intact. In fact, learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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