TMI Blog2019 (9) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... is said to have accrued when a pending obligation on the balance sheet date was determinable with reasonable certainty. Hence, the loss on account of unexpired future contracts should be allowed by the A.O. We note that the assessee company follows method of valuation of stock in trade as 'lower of cost or market price'. This method is consistently followed by the company. Futures and options in the share trading business are derivatives in the nature of stock-in-trade which are required to be valued at the method of valuation adopted by the Company by using accounting standards and therefore accordingly loss arising from 'Marked to Market' valuation is allowable as deduction. Such loss is not considered as notional as per accounting standard-30 (Now, as per Ind AS 109 which is applicable to big companies in India). DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. As relying on M/S. NAGREEKA EXPORTS LTD. [ 2016 (9) TMI 638 - ITAT KOLKATA] we allow the ground raised by the assessee. Disallowance of STT - AO noticed that as per Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case, ld. CIT(A) has erred in dismissing ground no 2 without a speaking order on arguments made on behalf of the appellant. b) That on the facts and in the circumstances of the case, ld. CIT(A) is wrong and unjustified in confirming the action of Assessing Officer who disallowed loss of ₹ 19,39,257/- towards F O derivatives as notional loss. 3. That on the facts and in the circumstances of the case, ld. CIT(A) is wrong in rejecting additional ground raised in course of appeal to contest the disallowance of STT of ₹ 4,50,677/-. 4. That the appellant craves leave to add, modify or amend any ground or grounds on or before the date of hearing. 3. Ground no. 1 raised by the assessee relates to disallowance u/s 14A read with Rule 8D to the tune of ₹ 1,45,034/-. 4. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. AR, we find that the issue involved in the present appeal is no longer res integra.We note that where the assessee was having a common fund consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of the aforesaid judicial pronouncements, we note that assessee has suomoto disallowed direct expenses of ₹ 3,940/- under Rule 8D(2)(i), the saiddisallowance is hereby confirmed. So far Rule 8D(2) (iii) is concerned, we direct the AO to compute the disallowance taking into account dividend bearing securities as held by the Coordinate Bench in the case of REI Agro(supra). Hence, we allow the ground No. 1 raised by the assessee for statistical purposes. 5. Ground No. 2 raised by the assessee relates to addition on account of loss of ₹ 19,39,257/- incurred by the assessee on account of forward and option derivative contract. 6. Brief facts qua the issue are that during the assessment year under consideration the assessee has claimed loss in derivative trading. The assessing officer observed thatin the derivative trading the general practice is that profit or loss booked on Marked to Market Basis, which is profit or loss books on the basis of market rate of a particular sauda. However, the assessee also booked profit or loss on Marked to Market basis for the sauda which has remained unexpired/outstanding at the end of the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March,2008. As per the Accounting Standard 30 issued by the Institute of Chartered Accountants of India, the assessee company accounted for the difference between the contract price of these shares and the prevailing market rates as on 31.03.08 in its books of accounts. These contracts were to mature beyond the end of the financial year and therefore the Ld. AO treated such loss as notional in nature and disallowed the same. The term 'Marked to Market' losses' (MTM) refers to losses computed as on a particular date with reference to prevailing market rate in respect of contracts that have not yet matured. We note thatthe assessee company had entered into a binding obligation by contracting to purchase/sell shares at a future date at a predetermined price. Moreover, a liability is said to have accrued when a pending obligation on the balance sheet date was determinable with reasonable certainty. Hence, the loss of ₹ 19,39,257/- on account of unexpired future contracts should be allowed by the Ld. A.O. We note that the assessee company follows method of valuation of stock in trade as 'lower of cost or market price'. This me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in the import and export of goods takes a forward contract to lock the prices against fluctuation of foreign exchange rates. The company may also enter into an option or cross currency swap to protect the risk of fluctuations in the interest rate and foreign exchange rates in respect of an underlying asset, and liability. In the instant case the company has entered into these forex derivative contracts to hedge the risk of interest in respect of Rupee Loan, therefore the underlying liability in the instant case is Rupee Loan. The Ld. AR for the revenue has relied on the decision of Hon`ble ITAT Kolkata Bench `B` in ITA No. 1241/Kol/2013 wherein the similar identical issues were adjudicated, vide para 25 and 26 of the said decision which are reproduced below: 25. Applying the above observations to the facts and circumstances of present case, we find that the claimed loss under consideration occurred to the assessee on account of five unexpired forex forward contracts i.e a loss incurred on account of revaluation on contract on last day of accounting period before date of maturity of forward contract. The Ld. CIT-A observed that the assessee has been foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracts on the last day of accounting period is an allowable business loss. 2. Woodward Governor India (P) Ltd. (2009) 312 ITR 254 (SC). 5.2 The Ld. AR for the assessee stated that in view of detailed submissions made and case law cited above, it is clear that the business loss of Rs..1,58,94,821/- on account of Mark to Market of Unexpired Forex Derivatives Contracts is allowable and prayed that addition made on this account may be deleted. 6. On the other hand, the ld. Departmental Representative for the Revenue has primarily reiterated the stand taken by the Ld. AO and the Ld. CIT(A) and cited before us the CBDT Circular No.3/2010 dated 23rd March, 2010, wherein the CBDT has instructed to the department that mark to market losses which are in the nature of speculation should not be allowed as a business expenditure. Ld. DR stated that it is a notional loss which will be actually deductible from the income of the assessee on the maturity of the contract. The issue under consideration is in respect of unsettled contracts and moreover there is no any underlying assets and liability to hedge the risk. He further submitted that l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STT of ₹ 3,43,430/-(₹ 7,94,107- ₹ 4,50,677) has not been debited / provided. Therefore, AO treated the balance sum of ₹ 3,43,430/- as income of the assessee from undisclosed sources and hence he disallowed the same. 12. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has allowed the ground raised by the assessee for statistical purposes, observing the following: I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the Assessing Officer during the assessment proceedings. The A.R. has submitted that ₹ 3,43,430/- pertains to next year. In view of above, the A.O. is directed to verify the claim of the appellate and take action accordingly. This ground of appeal is allowed for statistical purposes. 13. Aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us. 14. We have heard both the parties and perused the material available on record. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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