2018 (9) TMI 1680 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Revenue's Appeal: Mark to Market Loss, Legitimate Transactions, Business Losses

DCIT, Circle-13 (2), New Delhi Versus JPT Securities Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision to dismiss the Revenue's appeal on three issues: disallowance of Mark to Market loss claimed by the assessee, ... Disallowance of Mark to Market loss claimed - AR submitted that the loss was actual component loss and the profit has been accepted by the Assessing Officer and only loss has been disallowed by the Assessing Officer which is not permissible under the Act - Held that:- CIT(A) has given a detailed finding as there was no dispute that the transactions were rendered through recognized registered brokers and notified exchange and each transactions was carried out electronically on screen basis system. This finding was not contradicted by the Ld. DR. Therefore, Ground No. 1 and 2 of the Revenue’s appeal are dismissed. Addition u/s 14A - Held that:- As borrowed money utilised for such investment and therefore, no interest was paid by the assessee. This position was not contradicted by the Ld. DR. Ground No. 3 is dismissed. Therefore, there is no need to interfere with the order of the CIT(A). Hence, appeal of the Revenue is dismissed. Issues:1. Disallowance of Mark to Market loss claimed by the assessee.2. Disallowance of mark to market loss without actual sale or settlement.3. Disallowance under section 14A r/w Rule 8D.Analysis:Issue 1: Disallowance of Mark to Market loss claimed by the assesseeThe Revenue challenged the deletion of the addition of Rs. 5,03,94,883 made by the AO on account of disallowance of Mark to Market loss claimed by the assessee. The CIT(A) extensively reviewed the details provided by the assessee, including bills, contract notes, and transaction records. The CIT(A) noted that the transactions were conducted through recognized brokers and exchanges electronically. The CIT(A) found no evidence to contradict the legitimacy of the transactions. The CIT(A) concluded that the loss claimed by the assessee on derivative transactions should be considered a business loss and not a notional loss. The Revenue's appeal on this issue was dismissed.Issue 2: Disallowance of mark to market loss without actual sale or settlementThe Revenue also contested the deletion of the addition of Rs. 5,03,94,883 without appreciating that mark to market loss is generated through an accounting entry, not actual sale of securities. The CIT(A) considered the submissions and documentation provided by the assessee, highlighting the electronic nature of the transactions through recognized brokers and exchanges. The CIT(A) found no evidence to suggest that the transactions were sham. The CIT(A) concluded that the loss deserved to be treated as a business loss and not a notional loss. The Revenue's appeal on this issue was also dismissed.Issue 3: Disallowance under section 14A r/w Rule 8DRegarding the disallowance of Rs. 13,26,721 under section 14A r/w Rule 8D, the CIT(A) examined the absence of borrowed money utilized for investments, resulting in no interest paid by the assessee. The CIT(A) considered relevant case law and the nature of activities carried out by the company to conclude that the Assessing Officer's action was not justified. The CIT(A) deleted the disallowance under section 14A r/w Rule 8D. The Revenue's appeal on this issue was dismissed.In conclusion, the CIT(A) provided detailed reasoning for dismissing the Revenue's appeals on all three issues. The Tribunal upheld the CIT(A)'s order, resulting in the dismissal of the Revenue's appeal.