TMI Blog2022 (6) TMI 1373X X X X Extracts X X X X X X X X Extracts X X X X ..... case of PCIT vs. IL FS Energy Development Company Ltd ( 2017 (8) TMI 732 - DELHI HIGH COURT] has held that the no disallowance u/s 14A of the Act was called for in case of no exempt income earned by the assessee. Accordingly, we direct the AO to delete the disallowance made u/s 14A of the Act for computing total income under normal provisions of the Act. AO has added the amount of disallowance computed as per Rule 8D r.w.s. 14A of the Act to the net profit while computing book profit u/s 115JB - In the instant case, the assessee has not earned any exempt income. Hence the question of making any addition under clause (f), referred above, does not arise. Accordingly, we direct the AO to delete the addition made to the net profit while computing book profit u/s 115JB. Adjustment made in respect of specified domestic transactions - A.R submitted that the clause (i) of sec. 92BA has been omitted by the Finance Act, 2017 w.e.f. 1st July, 2017 without making any saving clause and hence the said omission shall have retrospective effect as if the said clause was never in existence - HELD THAT:- As relying on TEXPORT OVERSEAS (P.) LTD. [ 2019 (12) TMI 1312 - KARNATAKA HIGH COU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The first issue relates to disallowance of mark to market loss of Rs. 16.26 crore. The facts relating thereto are that the assessee had claimed deduction on account of provisions made for loss of currency, commodities futures amounting to Rs. 16,26,06,114/-. The Assessing Officer treated the same as contingent in nature and accordingly disallowed the same both for computing total income under normal provision of the Act and also for computing book profit under section 115JB of the Act. The Ld DRP confirmed the disallowance made under normal provisions of the Act. It declined to adjudicate the addition made u/s 115JB of the Act holding it as academic in nature. 6. The Learned AR appearing for the assessee submitted that the assessee is holding commodity, currency futures and stock options as its stock-intrade . As per the accounting standard, the assessee is following method of valuing stock-in-trade at cost or market value whichever is less. The loss at Rs. 16.26 crore claimed by the assessee, even though referred as marked to market loss, is in effect represents valuation of stock-in-trade at lower of cost of market value. Instead of reducing the value of closing stock, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's claim for provision for losses future/options (market to market losses) of Rs.5,24,53,455/- on commodities cannot be allowed and, therefore, sum was added back to the total income of the assessee. 25. Upon the assessee's appeal, the ld. Commissioner of Income Tax (Appeals) found the issue in favour of the assessee by several decisions of the ITAT in assessee's own group companies. The ld. Commissioner of Income Tax (Appeals) held as under: I find that this is a covered issue in favour of the appellant in jurisdictional Mumbai ITAT in the following cases relied upon by the appellant: Edelweiss Capital Limited vs ITO [ITA 5324/Mum/2007] Edelweiss Securities Limited vs Addll. CIT [ITA 2193/Mum/2009] DCIT vs ECL Finance Limited [ITA 7656/Mum/2011] DCIT vs Edelweiss Securities Limited [ITA 7792/Mum/2012] DCIT vs Kotak Mahindra Investment Limited [ITA 1502/Mum/2012] Shri Ramesh Kumar Damani vs Addll. CIT [ITA 1443/Mum/2009] M/s. Ekansha Enterprises P. Ltd vs DCIT [ITA 809/M/2012] ACIT vs Suryakant D. Nissar [ITA 2750/Mum/2010] DCIT vs Edelweiss Securities Limited [ITA 5939/Mum/2011] 5.3.2 In view of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Margin-Equity Index/Stock Futures Account', represents the net amount paid or received on the basis of movement in the prices of Index/Stock Futures till the Balance Sheet date. Amount paid to brokers in addition to Markto-Market Margins is disclosed as Margin Deposits' under Loans and Advances. (c) As on the Balance Sheet date, profit/loss on open positions in Index/Stock Futures are accounted for as follows: Credit balance in the Mark-to Market Margin - Equity Index/Stock Futures Account, being anticipated profit, is ignored and no credit for the same is taken in the Profit and Loss Account Debit balance in the Mark-to-Market Margin - Equity Index/Stock Futures Account', being anticipated loss, is adjusted in the Profit and Loss Account. d) On final settlement or squaring-up of contracts for Equity Index/Stock Futures, the profit or loss is calculated as the difference between settlement/squaring-up price and contract price. Accordingly, debit or credit balance pertaining to the settled/squared-up contract in Mark-toMarket Margin - Equity Index/Stock Futures Account is recognized in the Profit and Loss Account. The aforesaid No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as reflecting in substance the loss arising on account of valuation of the closing stock. The ground is allowed. 30. From the above, we note that the ITAT had carefully examined the issue and had come to the decision that the provision is being made to cover the anticipated loss in the derivates trading. There was no dispute that the assessee's hold 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. Thereafter, the Tribunal had opined that when the derivatives are held as stock-in-trade then whatever rules apply to the valuation of stockin-trade will have to be nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Apex Court in the case of M/S. Sanjeev Woolen Mills vs Commissioner Of Income-Tax (in Civil Appeal No. 6735-6736/2003 vide order dated 24.11.2005). In the said decision, the Hon'ble Apex Court has analyzed the entire gamut of decisions on the issue of valuation of the stock. It has categorically held that recognized and settled accounting practice of accounting for the closing stock in the accounts is that it has to be valued on the cost basis or at the market value basis if the market value of the stock is less than the cost value. It was also expounded that the established and well settled practice in this regard should not be disturbed. Similar view was expressed by the Hon'ble Apex Court in the case of CIT vs. Woodward Governor 294 ITR 451 (SC). In this decision, the Hon'ble Apex Court has held that the accounts and the accounting method followed by an assessee continuously for a given period of time needs to be presumed to be correct till the Assessing Officer comes to the conclusion for reasons to be given that the system does not reflect true and correct profits. In the said case, the Hon'ble Apex Court has held that the loss on account of fluctuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder consideration. It had received loss of profit from a partnership firm amounting to Rs.1,62,708/-. Accordingly, the Ld A.R contended that there is no requirement of making any disallowance u/s 14A of the Act and also u/s 115JB of the Act, in the absence of exempt income. 13. We heard Ld D.R on this issue and perused the record. There is no dispute with regard to the fact that the assessee did not earn any exempt income during the year under consideration. The Hon ble Delhi High Court has held in the case of PCIT vs. IL FS Energy Development Company Ltd (250 Taxman 0174) has held that the no disallowance u/s 14A of the Act was called for in case of no exempt income earned by the assessee. Accordingly, following the above said decision of Hon ble Delhi High Court, we direct the AO to delete the disallowance made u/s 14A of the Act for computing total income under normal provisions of the Act. 14. We noticed that the AO has added the amount of disallowance computed as per Rule 8D r.w.s. 14A of the Act to the net profit while computing book profit u/s 115JB of the Act. The Delhi special bench of Tribunal has held in the case of Vireet Investments P Ltd (2017)(188 TTJ 1)(Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from AY 2013- 14. The Finance Act, 2012 introduced Section 92BA giving the meaning of SDT and it provided as follows: SECTION 92BA: MEANING OF SPECIFIED DOMESTIC TRANSACTION. For the purposes of this section and sections 92, 92C, 92D and 92E, specified domestic transaction in case of an assessee means any of the following transactions, not being an international transaction, namely:-- (i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A. (ii) any transaction referred to in section 80A; (iii) any transfer of goods or services referred to in sub- section (8) of section 80-IA; (iv) any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA; (v) any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of sub- section (8) or sub-section (10) of section 80- IA are applicable; or (vi) any other transaction as may be prescribed, and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rule. In the absence of any such provisions in the statute or in the rule, the pending proceeding will lapse under rule under which the notice was issued or proceeding being omitted or deleted. 15. With regard to the contention that there could be no addition u/s.92BA in view of the subsequent deletion of the aforesaid provisions by the Finance Act, 2017, the DRP refused to follow the decision of ITAT in the case of Textport Overseas Pvt.Ltd. (supra). The learned AR reiterated submissions made before the DRP and brought to our notice that the decision of the ITAT in the case of Textport Overseas Pvt.Ltd. (supra) has been confirmed by the Hon'ble Karnataka High Court and hence the order of the DRP is unsustainable. The question is whether the transactions in question can be said to be an SDT. On this issue, as rightly pointed out by the learned counsel for the assessee, the decision of the ITAT in the case of Textport Overseas Pvt.Ltd. (supra) has been confirmed by the Hon'ble Karnataka High Court in the very same case of Texport Overseas Pvt. Ltd in ITA No.392/2018 order dated 12.12.2019, with the following observations:- 5. Having heard learned Advocates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of Section 92BA(i) of the Act. Thus, when clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of Section 92BI and reference made to the order of Transfer Pricing Officer-TOP under Section 92CA could be invalid and bad in law. 7. It is for this precise reason, Tribunal has rightly held that order passed by the TPO and. DRP is unsustainable in the eyes of law. The said finding is based on the authoritative principles enunciated by the Hon'ble Supreme Court in Kolhapur Canesugar Works Ltd referred to herein supra which has been followed by Co-ordinate Bench of this Court in the matter of M/s.GE Thermometrias India Private Ltd., stated supra. As such we are of the considered view that first substantial question of law raised in the appeal by the revenue in respective appeal memorandum could not arise for consid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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