2015 (7) TMI 1308 - AT - Income Tax

ITAT Mumbai ruling on mark to market loss & section 14A disallowance for AY 2010-11

The DCIT-4 (1), Mumbai Versus M/s. Edelweiss Securities Pvt. Ltd.

The ITAT Mumbai dismissed the Revenue's appeal against the deletion of addition for mark to market loss and directed the AO to delete the addition. The ... Addition made on account of provision for mark to market loss of the derivative transactions - Held that:- As decided in assessee's own case ITAT had been pleased to allow the appeal against disallowance of provisions for loss on mark to market basis in respect of trading in derivatives which included equity index and stock futures observing that the provisions reflected in substance is the loss arising on account of valuation of closing stock Disallowance made u/s. 14A r.w. Rule 8D - Held that:- It is an undisputed fact that assessee’s own funds are more than the investment. Therefore, the decision of the Hon’ble High Court of Bombay in the case of Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] and HDFC Bank (2014 (8) TMI 119 - BOMBAY HIGH COURT) squarely apply. To this extent, no disallowance can be made. In A.Y. 2008-09, the Tribunal has accepted the suo moto disallowance @ 5% of dividend income. We find that in this year, the assessee has given a complete break-up of proportionate expenses allocated by it which is exhibited at page-71 of the Paper book. Except for this, all other facts are identical to the facts of assessment year 2008- 09. Since assessee has given a detailed break-up as mentioned hereinabove, we direct the AO to restrict the disallowance to ₹ 9,49,475/- as made by the assessee. Issues:1. Appeal by the Revenue against deletion of addition on account of provision for mark to market loss.2. Appeal by the Assessee against disallowance made under section 14A read with Rule 8D of the Act.Issue 1: Appeal by the RevenueThe Revenue appealed against the deletion of the addition made by the Assessing Officer (AO) on account of provision for mark to market loss of derivative transactions. The Income Tax Appellate Tribunal (ITAT) noted that the issue had been decided in favor of the assessee in various decisions. The ITAT observed that the CIT(A) had followed the decision of the Tribunal in the case of the assessee's group company for a different assessment year. The ITAT upheld the CIT(A)'s decision based on previous judgments allowing provisions for loss on mark to market as deductible expenditure. As no distinguishing decision was presented, the ITAT dismissed the Revenue's appeal, directing the AO to delete the addition.Issue 2: Appeal by the AssesseeThe Assessee appealed against the disallowance made under section 14A read with Rule 8D of the Act concerning expenses incurred to earn exempt income from dividends. The AO computed a substantial disallowance based on a perceived adhoc allocation of expenses. The CIT(A) upheld the disallowance. The Assessee argued that a similar issue had been considered by the Tribunal in a previous year, where the Tribunal accepted the suo moto disallowances made by the Assessee. The Assessee cited relevant decisions of the Bombay High Court in support of their case. The ITAT, after reviewing the orders and evidence, noted that the Assessee's own funds exceeded the investment, applying the decisions of the Bombay High Court. The ITAT directed the AO to restrict the disallowance to the amount initially made by the Assessee. Consequently, the Revenue's appeal was dismissed, and the Assessee's cross-appeal was allowed.In conclusion, the ITAT Mumbai, comprising Shri A.D. Jain, Judicial Member, and Shri N.K. Billaiya, Accountant Member, delivered a comprehensive judgment addressing the issues raised by both the Revenue and the Assessee. The judgment provided detailed analysis based on legal precedents and factual considerations, resulting in the dismissal of the Revenue's appeal and the allowance of the Assessee's cross-appeal. The ITAT's decision was rendered on 15th July 2015, providing clarity on the matters of provision for mark to market loss and the disallowance under section 14A read with Rule 8D of the Act for the assessment year 2010-11.