TMI Blog2021 (10) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... wance made u/s.14A of the Act r.w.r.8D(2) - suo-moto disallowance of expenses as expenditure incurred for earning exempt income - HELD THAT:- We find that the Hon'ble Gujarat High Court in the case of Nirma Credit and Capital Pvt. Ltd.[ 2017 (9) TMI 485 - GUJARAT HIGH COURT] had categorically held that only the net interest expenditure should be considered for the purpose of working out the disallowance of interest under Rule 8D(2)(ii) of the Rules. Total investments the assessee is having own funds to the tune of ₹ 67.89 Crores which is evident from the perusal of the financial statements enclosed in the paper book filed before us. Hence, it could be reasonably presumed that investments only to the tune of ₹ 4.23 Crores have been made out of borrowed funds, for which disallowance of interest could be made. Hence, in the light of decision of Reliance Industries Ltd., [ 2019 (1) TMI 757 - SUPREME COURT] and the decision of the Vireet Investments [ 2017 (6) TMI 1124 - ITAT DELHI] , we direct the ld. AO to recompute the disallowance of expenses u/s.14A of the Act as under:- i) To consider only net interest expenditure as per the decision of the Hon'ble Guj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income and assessment orders framed in the hands of those group companies wherein it could be seen that the correct income had been duly taxed at the higher slab rate of 30%, hence, there cannot be any tax avoidance or mala fide intention on the assessee to reduce tax liability - loss incurred by the assessee in the forward contract by buying or selling the aluminium commodity, Nickel, or platinum is only incurred in the normal course of running the business of the assessee and the prices thereof are purely driven by market forces. The transactions carried out with related parties are of no relevance for disallowing the loss incurred by the assessee. Reliance in this regard has been rightly placed by the ld. AR on the decision of Pitty Bros. Pvt. Ltd., [ 1979 (1) TMI 42 - BOMBAY HIGH COURT] - No infirmity in the order of the ld. CIT(A) deleting the disallowance being the loss incurred on account of trading in forward contracts. Deduction on account of education cess - assessee has raised an additional ground - HELD THAT:- We find that this additional ground deserves to be admitted as all the facts necessary for its adjudication are already on record and there is no dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e involved in all these appeals, hence, they are taken up together and disposed of by this common order for the sake of convenience. With the consent of both the parties, Revenue appeal in the case of Edelcap Securities Ltd., for the A.Y.2013-14 in ITA No.6837/Mum/2018 is taken up for adjudication and the decision rendered thereon would apply with equal force for other assessees in respect of identical facts except with variance in figures. 3. Ground Nos. 1 2 raised by the Revenue is with regard to challenging the action of the ld. CIT(A) deleting the disallowance of provision of ₹ 2,77,67,241/- for mark to market loss on trading of derivative instruments by treating it as notional loss both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act. 3.1. We have heard rival submissions and perused the materials available on record. We find that assessee company is engaged in the business of trading and arbitrage of commodities, securities and derivative instruments and also providing broking advisory services. The assessee is a member of interconnected stock exchange registered with Securities and Exchange Board of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures/options are measured at fair value as at the balance sheet date. Fair value is determined using quoted market prices in an actively traded market, for the instrument, wherever available, as the best evidence of fair value. In the absence of quoted market prices in an actively traded market, a valuation technique is used to determine the fair value. The margin money paid/received on derivative contract relating to purchase (long position) and sale (short position) of options in respect of understanding position as on Balance Sheet date (i.e. 31.3.2013) are shown as margin paid / received on derivatives and same are grouped under current assets / current liabilities respectively. 3.5. The assessee company has accounted for the loss/ gain from derivatives instruments following the principles laid down in Accounting Standard 30 - Financial Instruments: Recognition and Measurement (AS 30) and Guidance Note on accounting for Equity Index and Equity Stock Futures and Options issued by the Institute of Chartered Accountants of India (ICAI). The assessee submits that AS 30 and the Guidance Note provide that in case of future contracts/ option contracts as on the balance-sheet d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n had decided the very same issue in favour of the assessee. 3.7. The ld. CIT(A) duly appreciating the entire contentions of the assessee and also taking into account that the issue is already covered in favour of the assessee by various Tribunal decisions and in assessee‟s own case by the order of his predecessor in the preceding two years, deleted the disallowance made on account of provision for mark to market loss. Aggrieved, the revenue is in appeal before us. 3.8. At the outset, we find that this issue is squarely covered by the order of this Tribunal in assessee‟s own case in ITA No.6547/Mum/2017 for earlier years. We find that the ld. CIT(A) had followed the decision relied by this Tribunal in the case of Edelweiss Securities Ltd., vs. Addl. CIT in ITA No.2193/Mum/2009 and DCIT vs. ECL Finance Ltd., in ITA No.7656/Mum/2011, both being sister concerns of the assessee, wherein similar issue has been decided in favour of the assessee. The relevant portion of the said orders are not reiterated herein for the sake of brevity. Hence, we do not find any infirmity in the order of the ld. CIT(A) following the Tribunal order while granting relief to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res (₹ 72.12 Crores ₹ 67.89 Crores). He stated that the total interest expenditure is ₹ 18.23 Crores and assessee had earned interest income of ₹ 11.06 Crores and that the net interest expenditure should be considered while working out the disallowance of interest under Rule 8D(2)(ii) of the Rules. Reliance in this regard was placed on the decision of the Hon'ble Gujarat High Court in the case of PCIT vs. Nirma Credit and Capital Pvt. Ltd., reported in 85 Taxmann.com 72. He further pleaded that only those investments which had actually yielded exempt income should be considered for the purpose of working out the disallowance under Rule 8D(2)(ii) and under Rule 8D(2)(iii) of the Rules. 4.4. We find that the Hon'ble Gujarat High Court in the case of Nirma Credit and Capital Pvt. Ltd., referred to supra had categorically held that only the net interest expenditure should be considered for the purpose of working out the disallowance of interest under Rule 8D(2)(ii) of the Rules. We find that out of the total investments of ₹ 72.12 Crores, the assessee is having own funds to the tune of ₹ 67.89 Crores which is evident from the peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Legal Prof. Fees 123,500 2 Commission Brokerage Exps 35,211,000 3 Warehousing Chgs 13,800 4 Annual Maintenance Chgs - IT 60,833 5 Outside Services - Others 353,040 6 Printing Stationery Exps 3,000 7 Travel Exps - Local - Conveyance 45,000 35,810,173 5.2. The assessee also submitted that out of the total commission and brokerage expenses of ₹ 3,52,11,000/- a sum of ₹ 3,50,00,000/- represents provision made as on 31/03/2013 which was duly written back in subsequent year and credited to profit and loss account and offered to tax by the assessee voluntarily in the return of income in A.Y.2014-15 and that the rate of tax being the same in both A.Y.2013-14 as well as in A.Y.2014-15. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee increases its income and by accounting the actual bills, the assessee reduces the income to the extent of actual expense only. Thus, there is no impact on the taxable income of the assessee considering the practice followed, year on year. This is the practice followed by the assessee, year on year and a disclosure to this effect has also been made in the audited financial statements which reads as under: 1.2 Use of estimates: The preparation of the financial statements in the conformity with the generally accepted accounting principles requires the management to make estimates and assumption that effect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as on the date of the financial statements. Actual result may differ from the estimates. Any revision to the accounting estimates is recognized prospectively in current and future periods 5.6 The above accounting principle followed by the assessee is duly supported by the Accounting Standard (AS) 29 issued by the Institute of Chartered Accountants of India (ICAI). Thus, the provision made by the assessee are on estimate basis which is duly required b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng loss incurred by the assessee of trading in commodity forward contracts. 6.1. We have heard rival submissions and perused the materials available on record. We find that during the course of assessment proceedings, the ld. AO observed that the assessee has booked a loss of ₹ 7,70,59,855/- on account of trading in forward contracts. The assessee was asked to file the details of forward contracts entered by it along with relevant supporting documents to substantiate its claim of loss. The ld. AO on perusal of the same, observed that assessee has entered into forward contracts with other group entities being Edel Commodities Trading Ltd., EC Commodity Ltd., Edelcap Securities Ltd., and booked loss on the same. The contracts were entered of underlying commodity being aluminium, nickel and platinum. The ld. AO observed that the forward contract is meant to cover exposure to the underlying security or as a speculative transaction with an intention to earn profit. He observed that the assessee does not deal with the commodities underlying the said contract and there is no element of hedging in the said transactions. He observed that the assessee had entered forward contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., Nickel 1,55,000 14,92,58,800 14,11,18,200 81,00,000 Edel Commodities Trading Ltd., Platinum 2,70,000 71,82,35,100 73,62,38,700 180,00,000 Styras Commodities Ltd., Aluminium 19,25,000 21,81,21,750 19,92,37,500 (1,88,84,000) Styras Commodities Ltd., Nickel 16,00,000 1,58,90,70,400 1,44,98,08,000 13,92,62,000 Net Income / (Loss) (7,74,36,669) 7.1. It was pleaded by the ld AR that by entering into above forward contracts, assessee has earned the income of ₹ 60,32,23,319/- and incurred loss of ₹ 68,06,59,988/- resulting into net los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the higher slab rate of 30%, hence, there cannot be any tax avoidance or mala fide intention on the assessee to reduce tax liability. The loss incurred by the assessee in the forward contract by buying or selling the aluminium commodity, Nickel, or platinum is only incurred in the normal course of running the business of the assessee and the prices thereof are purely driven by market forces. The transactions carried out with related parties are of no relevance for disallowing the loss incurred by the assessee. Reliance in this regard has been rightly placed by the ld. AR on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Pitty Bros. Pvt. Ltd., reported in 120 ITR 709. 7.3. In view of the aforesaid observations, we do not find any infirmity in the order of the ld. CIT(A) deleting the disallowance of ₹ 7,74,36,669/- being the loss incurred on account of trading in forward contracts. Accordingly, the ground No.7 raised by the Revenue is dismissed. 7.4. In the result, appeal of the Revenue in ITA No.6837/Mum/2018 for A.Y.2013-14 is partly allowed. ITA No. 6889/Mum/2018 (A.Y.2013-14) Assessee Appeal 8. The only issue to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except with variance in figures. Both the parties agreed that the facts and the grounds raised by the assessee are identical in this case also. ITA No.6836/Mum/2018 (Assessment Year :2013-14) Revenue Appeal 13. The appeal of the Revenue in the case of Edelweiss Investments Advisors Ltd., for A.Y.2013-14 in ITA No.6836/Mum/2018 is having identical grounds with that of ITA No.6837/Mum/2018 for A.Y.2013-14. Hence, the decision rendered by us in the case of Edelcap Securities shall apply with equal force for this appeal also in respect of identical facts except with variance in figures. Both the parties agreed that the facts and the grounds raised by the Revenue are identical in this case also. ITA No.6888/Mum/2018 (Assessment Year :2013-14)-Assessee Appeal 14. The appeal of the assessee in the case of Edelweiss Investments Advisors Ltd., for A.Y.2013-14 in ITA No.6888/Mum/2018 is having identical grounds with that of ITA No.6889/Mum/2018 for A.Y.2013-14. Hence, the decision rendered by us in the case of Edelcap Securities shall apply with equal force for this appeal also in respect of identical facts except with variance in figures. Both the parties agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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