Just a moment...

Report
FeedbackReport
Bars
×

By creating an account you can:

Logo TaxTMI
>
Feedback/Report an Error
Email :
Please provide your email address so we can follow up on your feedback.
Category :
Description :
Min 15 characters0/2000
TMI Blog
Home / RSS

2016 (6) TMI 283

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....f are that the assessee-company, in the business of share broking, trading and investment in shares and securities, was, during the course of assessment proceedings found by the Assessing Officer (A.O.) to have booked losses to the extent of Rs. 11,53,521/- on open derivative contracts, i.e., by marking them to market as at the year-end (31.3.2008). The assessee, in justification, based it's case on the principle of real income, relying on the decisions in the case of Godhra Electricity Co. Ltd. vs. CIT [1997] 225 ITR 746 (SC); CIT vs. Birla Gwalior (P) Ltd. [1973] 89 ITR 266 (SC); R. B. Jodha Mal Kuthiala vs. CIT [1971] 82 ITR 570; Poona Electric Supply Co. Ltd. vs. CIT [1965] 57 ITR 521 (SC); CIT vs. Shoorji Vallabhdas and Co. [1962] 46 I....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ciple of real income is applicable, but then disallowing such notional loss, as being claimed, is only toward the assessment of real income. The same cannot be allowed to be influenced by such notional losses. Further, even assuming that the derivative contract is itself a 'stock-in-trade', it's cost being nil, there was no scope for valuing it below the same. Such a loss is not allowable, and is accordingly not allowed even in the case of foreign exchange derivatives. The loss was, accordingly, disallowed. In appeal, the ld. CIT(A) was of the view that open unsettled derivative contracts held by the assessee as at the close of the year formed part of the current assets, i.e., held on revenue account, or as a trading asset. The same is, in....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ecord. To begin with, we note, even as observed by the Bench during hearing, that the ld. CIT(A) has allowed the assessee's claim for loss (for Rs. 11.54 lacs) and, therefore, the assessee's Ground No. 1 challenging the confirmation of it's disallowance and, again, Ground # 3 toward not observing consistency, would not survive. The only question before us; the Revenue being not in appeal, is if the corresponding gain of Rs. 15.30 lacs is assessable for the current year, having been brought to tax by the ld. CIT(A), and which is the substance of the assessee's Ground # 2 before us challenging the enhancement of Rs. 3.76 lacs. The same has been effected by the ld. CIT(A) ostensibly following the decision in Woodward Governor India (P) Ltd. (....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ame system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; (iii) whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; (iv) whether the assessee has been consistent and definite in making entries in the account books in respect of losses and gains; (v) whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. Applying these factors on the....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....through the notes to the accounts. As afore-said, the controversy before us is limited to whether the unrealized gain, i.e., as may stand to arise on the basis of the market values (of the underlying shares) as at the close of the year on open contracts, prior to the settlement date, could be taken into account for the purpose of closing accounts and recognizing income for the relevant year. The price/s obtaining on the settlement date/s, subsequent to the valuation (balance-sheet) date, may well be different and not in agreement with that as at the year-end, anterior thereto. In fact, even if anticipated, the gain is proscribed for being booked, militate as it clearly does against the accounting principle of prudence, advocating the provi....