TMI Blog2020 (3) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... evailing rate of foreign exchange in respect of those contracts which were not settled at the end of the year and thus recognized the said loss according to the accounting standard- 30 issued by ICAI. The AO has disallowed the said loss as contingent and being unascertained as the settlement of the derivative contracts have not taken place. However, it is undisputed that assessee is dealing in derivatives which has to be valued on prevailing foreign exchange rate at the year end in view of the mercantile system being followed by the assessee. In our opinion the said loss is allowable as the issue is squarely covered by the decision of CIT vs. Woodward Governor India (P.) Ltd. [ 2009 (4) TMI 4 - SUPREME COURT] and also in the case of Edelweiss Capital [ 2012 (10) TMI 223 - ITAT, MUMBAI] and Motilal Oswal Securities Ltd. vs. DCIT [ 2016 (3) TMI 962 - ITAT MUMBAI] . Addition under rule 14A read with rule 8D - suo moto disallowance - non recording of satisfaction - HELD THAT:- In this case the AO has simply applied the provisions of section 14A read with rule 8D and computed the disallowance without recording any satisfaction as to how the suo-moto disallowance made by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see opted for the scheme and was accordingly allotted 10,000 shares of ₹ 10,000/-. Out of the said shares assessee sold 6,386/- shares back to BSE on 17.05.2007 and on the sale of these shares , assessee computed long term capital gain of ₹ 1,79,77,183/-. While computing the long term capital gain the assessee took the cost of acquisition of shares at ₹ 2,60,90,000/- which was calculated by adding together the original cost of acquisition of BSE membership card i.e. ₹ 2,50,90,000/- + price paid for the cost of acquisition of 10,000 shares ₹ 10,000/- with indexation from 2000-01. The AO had taken the cost of acquisition of 10,000 shares as on 31.03.2005 at WDV cost as on that date and accordingly calculated the WDV of 6386 shares at ₹ 38,08,594/-. After indexing the same to inflation index of F.Y. 2017-18, the indexed cost of acquisition was calculated at ₹ 42,22,405/- and the long term capital gain was computed at ₹ 2,89,84,795/- as against ₹ 1,79,77,183/- computed by the assessee. 4. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by observing and holding as under: 2.13 In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of shares allotted to members of BSE pursuant to its corporatisation/ de-mutualisation should be computed as per Section 50 or 55(2)(ab) of the Act in a situation where the assessee had already claimed depreciation on the BSE membership card and whether the indexation benefit will be available to the assessee from the date of acquisition of BSE membership card or from the date of allotment of shares in BSE Ltd. To recapitulate, and as discussed in earlier part of the order, the assessee acquired BSE membership card for ₹ 94.50 Lakhs on which it claimed depreciation. Subsequently, pursuant to its corporatisation/ de-mutualisation, assessee was allotted shares in BSE Ltd and trading rights in BSE Ltd. From the date of allotment of shares in BSE Ltd., assessee stopped claiming any depreciation on the shares allotted to it. Section 55(2)(ab) of the Act was inserted by the Finance Act 2001 with effect from 1-4-2002 to provide that the cost of equity shares allotted to a shareholder of the recognized stock exchange pursuant to the Scheme of Corporatization and Demutualization shall be the cost of acquisition of his original membership of the exchange. The proviso to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the capital asset must be an asset forming part of block of assets; and, depreciation must have been allowed on the said assets under the Act. 26. I shall now test whether the above twin conditions are fulfilled in the present case or not. Firstly, I shall make it clear that the asset which is being transferred and on which capital gains is being computed is the share of BSE Ltd. Neither the Assessing Officer nor the learned Accountant Member has given a finding that the shares of BSE Ltd. was ever forming part of block of assets of the assessee company. Thus, it is undisputed fact that the asset in question, i.e. share of BSE Ltd. never entered the block of assets of the assessee company. Once that is so, the question of depreciation having been allowed on the said shares, in the context of Section 50 of the Act, does not arise. Nevertheless, even Section 32 of the Act, which provides for claim of depreciation, does not have any category to allow depreciation on the shares. As such, even otherwise, the shares which are transferred by the assessee is not at all a depreciable asset and thus, the question of claiming depreciation on the same does not arise. 27. In the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(ab) of the Act were subsequently brought into statute book and specifically provides for cost of acquisition of the shares allotted to the members of the BSE pursuant to the Corporatization and Demutualization. Thus, Section 55(2)(ab) of the Act is a specific provisions dealing with the present situation. It is well-settled law that a specific provision shall prevail over the general provision. Therefore, I find that provisions of Section 55(2)(ab) of the Act, being specific in nature, shall prevail over Section 50 of the Act, which is general in nature. It is also pertinent to note that provisions of Section 50 of the Act are in the statute book from the date of enactment of the Act, whereas provisions of Section 55(2)(ab) of the Act were subsequently brought into the statute book. When the amendments are made in the statute or new law is brought in, it is to be understood that the legislature was well versed with the prevailing law and sections and the amendments brought in by the legislature are after considering the effect of the prevailing section or law. In other words, while inserting the provisions of Section 55(2)(ab) of the Act, Section 50 of the Act was already in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Assessing Officer. The matter travelled upto the Hon ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation (supra) and the Trust s claim of both application of income and depreciation was upheld by the Hon ble Supreme Court, though it had imprints of a double deduction. It also pertinent to refer to the decision of the Hon ble Bombay High Court in the case of A.L.A. Chemicals (P.) Ltd. (supra) wherein the facts were that the assessee-company claimed deduction under Section 35 of the Act in respect of capital expenditure incurred on scientific research and development in the preceding two assessment years, which was allowed. The Assessing Officer excluded the amount of aforesaid expenditure from the capital computation for the purposes of deduction under Section 80J of the Act. On appeal, the AAC, however, allowed this amount to be included in the capital computation for the purpose of Section 80J of the Act. The Tribunal confirmed this decision. On Revenue s appeal to Hon ble High Court, the High Court discussed the applicability of the decision of the Hon ble Supreme Court in the case of Escorts Ltd. (supra). The relevant part of the said discussio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, assets in the present case. In the case of such assets, we have to take into account the actual cost of such assets to the assessee. Since the assets are acquired by the assessee by purchase, the actual cost would certainly include at least the price of those assets to the assessee, though it may also include something more as we have pointed out earlier. This section also includes in addition assets which may be acquired by an assessee otherwise than by purchase which are not entitled to depreciation. These may be assets which may be gifted to the assessee. Their actual cost to the assessee is nil. Yet, their value is also required to be taken into account under clause (iii) of section 80J(1A)(II). In their case, the value of the assets when they become assets of the business, has to be taken into account. Therefore, the question whether the assessee has expended any amount for the acquisition of those assets or whether he has been reimbursed in respect of such expenditure indirectly by reason of any tax benefit which he may have got or whether the assets are gifted to the assessee, is not strictly relevant for the purpose of section 80J except to the extent so specified. What ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion after the asset became property of the newly constituted firm, which was the assessee therein. Applying the same analogy, it is quite pertinent to find herein that the asset, which is the subject-matter of consideration, has not suffered depreciation and therefore Section 50 of the Act cannot be applied. The claim of depreciation on the old asset is of no relevance to address the present controversy. In fact, at this stage, I may refer to the observation of the learned Accountant Member at para 7.6 of his order. As per the learned Accountant Member, adoption of Section 55(2)(ab) of the Act in the present case would lead to allowing claim of double deduction on the same asset . In my considered opinion, the misconception about the same asset leads to an anomalous interpretation. As my discussion in the earlier part of this order show, the subject matter of consideration, i.e. share of BSE Ltd., has not been subject to allowance of any depreciation. Thus, in my view, the view canvassed by the learned Judicial Member is apt under the facts and circumstances of the case. 31. As regards the reliance of the learned DR on the decision of the Hon ble Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant extract from the said book is reproduced hereunder: We now turn to the wider question whether a precedent is deprived of its authoritative force by the fact that it was not argued or not fully argued, by the losing party. If one looks at this question merely with the eye of common sense, the answer to it is clear. One of the chief reasons for the doctrine of precedents that a matter has once been fully argued and decided should not be allowed to be reopened. Where a judgment is given without the losing party having been represented there is no assurance that all the relevant consideration have been brought to the notice of the court, and consequently the decision ought not to be regarded as possessing absolute authority, even if it does not fall within the sub silentio rule. (underlined for emphasis by me) Due to the above reason, I am not inclined to follow the ratio laid down in the said decision. Further, I find that in the concluding para of the said decision, the Bench has partially applied Section 55(2)(ab) of the Act and held that cost of trading rights will be NIL as per Section 55(2)(ab) of the Act, whereas for cost of shares, it applied Section 50 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case are identical to ones as decided by the co-ordinate bench of the Tribunal (supra), we are therefore respectfully following the ratio laid down in the said decision, set aside the order of Ld. CIT(A) and allow the ground raised by the assessee. The AO is directed accordingly. 9. The issue raised in 2nd ground of appeal is against the order of Ld. CIT(A) confirming the disallowance made by the AO of loss of ₹ 16,24,254/- as claimed by the assessee being loss on mark to market basis in respect of trading in derivatives. 10. The facts in brief are that the AO during the course of assessment proceedings observed that assessee has claimed loss of ₹ 42,50,188/- in the P L account out of which ₹ 16,24,254/- was booked on account of market value of unsettled derivative transactions. Accordingly, the AO called upon the assessee to state as to why such loss should not be disallowed and added back to its income which was replied by the assessee vide written submission dated 16.11.2010. The assessee submitted before the AO that during assessment year 2008-09 a total loss of ₹ 53,19,665/- was incurred on trading in derivative instrument which includes loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve contracts have not taken place. However, it is undisputed that assessee is dealing in derivatives which has to be valued on prevailing foreign exchange rate at the year end in view of the mercantile system being followed by the assessee. In our opinion the said loss is allowable as the issue is squarely covered by the decision of the Hon ble Supreme Court in the case of CIT vs. Woodward Governor India (P.) Ltd. (supra) and also in the case of Edelweiss Capital 8 taxmann.com 187 and Motilal Oswal Securities Ltd. vs. DCIT ITA No.7328/M/2011. Taking the facts of the case in entirety and also following the ratio laid down in the above decisions, we are inclined to allow the appeal of the assessee by setting aside the order of Ld. CIT(A). The ground is allowed. 13. The issue raised in ground No.3 is against the confirmation of disallowance of ₹ 1,80,369/- by Ld. CIT(A) as made by the AO under rule 14A read with rule 8D. 14. The facts in brief are that the AO in the assessment proceedings observed that the assessee has earned dividend income of ₹ 6,84,354/- which was claimed as exempt. However, the assessee suo-moto disallowed a sum of ₹ 5000/- as expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical issue in ITA No.1588/M/2012 in assessee s appeal wherein we have decided the issues in favour of the assessee. Consequently the Revenue s appeal becomes infructuous and is dismissed. CO No.77/M/2014 20. The only issue raised in CO is against the confirmation of disallowance of ₹ 95,867/- by Ld. CIT(A) as made by the AO under section 14A read with rule 8D. In the assessment proceedings, the AO noted that the assessee has earned exempt income of ₹ 2,46,345/- and made a suo-moto disallowance of ₹ 5000/- under section 14A. Accordingly, asked the assessee to furnish the working of the disallowance as per rule 8D. Accordingly, the assessee furnished the calculation how the disallowance of ₹ 5000 was arrived at. The AO without pointing any mistake or any fallacy or recording any satisfaction applied the provisions of section 14A read with rule 8D and thus computed the disallowance at ₹ 95,867/- which was also upheld by the Ld. CIT(A). 21. Now the assessee has challenged the said disallowance on the basis that AO has not recorded any satisfaction before invoking the provisions of section 14A read with rule 8D as to how the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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