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TMI Blog2015 (4) TMI 1296X X X X Extracts X X X X X X X X Extracts X X X X ..... e above ground he set aside and that of the Assessing Officer he restored". 3."The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." Assessee- company engaged in the business of financial services,filed its return of income on 28.09.2009,declaring total income of Rs. 1.55 Crores.The AO completed the assessment u/s.143(3)of the Act on30.11.2011,determining the income of the assessee at Rs. 5.18 Crores. Effective ground of appeal is about disallowance of Mark to Market loss Rs. 4,98,65,834/- in trading of derivates.During the assessment proceedings,the AO disallowed Mark to Market losses on Nifty options on the ground that such loss was notional and contingent in nature.In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in, if any, is received/paid to the broker and finally on the stipulated date the contracts are squared off resulting into actual loss or profit. The contracts in such type of cases can be squared off before the arrival of actual performance date of contract, as the profit and loss are calculated on daily basis and the margins are settled accordingly. Such type of contracts are not purely contingent in nature rather loss or profit is somewhat ascertainable in view of constant watch on daily market value and even the quantum of profit or loss though not actually ascertainable, can be anticipated in view of the trends of the market. The difference between the predetermined price and market price is settled daily on markto-market basis. In suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-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are to be computed in accordance with ordinary principles of commercial accounting, unless, such principles stand superseded or modified by legislative enactments.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 has not been realized actually. Accounts regularly maintained in the course of business are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. Under section 145(2) of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only been recognized but certain standards have also been recognized for recording loss and profit under such type of transactions. While dealing with a similar issue, the co-ordinate Bench of this Tribunal vide order dated 10.11.2010 in ITA No.5324/Mum/2007 for A.Y. 2004-05 in the case of "Edelweiss Capital Ltd.", has observed as under: "We have considered the facts and the rival contentions. In the Scheduled annexed to and forming part of the Balance Sheet and Profit & Loss Account for the year under appeal (page 13 of the Paper Book), the assessee has made the following Note: H. Equity Futures-Index/Stock (a) Initial Margin- Equity Derivative Instruments", representing initial margin paid, and "Margin De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket Margin - Equity Index/Stock Futures Account" is recognized in the Profit and Loss Account. The aforesaid Note gives a fair picture of the nature of the provision. The provision in substance has been made to cover the anticipated loss in the derivates trading. There is no dispute that the assessee holds derivatives as its stock-in-trade and there is also no dispute that it follows the principle "cost or market price, whichever is lower" in valuing the derivatives. When the derivatives are held as stock-in-trade then whatever rules apply to the valuation of stock-in-trade will have to be necessarily apply to their valuation also. It is a well settled position in law that "while anticipated loss is taken into account in valuing the clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved 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, in the light of the judgment of the Supreme Court cited above, cannot be treated as a contingent liability. 8. The learned DR pointed out that the assessee has valued each scrip of the derivatives as at the end of the year. We do not see how this can make any difference to the legal principle. If 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. 9. We, therefore, direct the Assessing Officer to allow the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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