Tribunal rules in favor of assessee, dismissing Revenue's appeal and upholding cross-objection. Correctly interprets law.

The Tribunal allowed the assessee's appeal, setting aside the CIT(A)'s orders on all grounds. The Revenue's appeal was dismissed, and the assessee's cross-objection was allowed. The Tribunal's decisions were based on the correct interpretation of the relevant sections and precedents, ensuring that the assessee's computations and claims were upheld.

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Issues Involved:
1. Computation of Long Term Capital Gain on Sale of BSE Equity Shares
2. Disallowance of Loss on Mark to Market Basis in Respect of Trading in Derivatives
3. Disallowance under Section 14A read with Rule 8D for Expenses Related to Earning Exempt Income

Issue-Wise Detailed Analysis:

1. Computation of Long Term Capital Gain on Sale of BSE Equity Shares:
The primary issue was the computation of long-term capital gain on the sale of BSE equity shares. The assessee, a share broker, reported a long-term capital gain of Rs. 1,79,77,183 on the sale of 6,386 BSE shares. The cost of acquisition was calculated by the assessee as Rs. 2,60,90,000, which included the original cost of the BSE membership card and the cost of shares, indexed from 2000-01. The AO, however, computed the cost of acquisition based on the WDV of the BSE card as of 31.03.2005, resulting in a higher capital gain of Rs. 2,89,84,795.

The CIT(A) upheld the AO's calculation, but the Tribunal referenced a co-ordinate bench decision (ITA No.5938/M/2012) which held that the cost of acquisition should be the original cost of the BSE membership card as per Section 55(2)(ab) of the Act, even if depreciation had been claimed earlier. The Tribunal concluded that the assessee's computation was correct, and the AO's calculation was set aside.

2. Disallowance of Loss on Mark to Market Basis in Respect of Trading in Derivatives:
The second issue involved the disallowance of a loss of Rs. 16,24,254 claimed by the assessee on a mark-to-market basis for trading in derivatives. The AO disallowed this loss, arguing it was an unascertained liability, not crystallized at the time of settlement. The CIT(A) upheld this disallowance.

However, the Tribunal found that the assessee, following the mercantile system of accounting, correctly recognized the mark-to-market loss as per Accounting Standard 30 issued by ICAI. The Tribunal referenced the Supreme Court decision in CIT v. Woodward Governor India (P.) Ltd. and other relevant cases, concluding that the loss was allowable. The CIT(A)'s order was set aside, and the loss was allowed.

3. Disallowance under Section 14A read with Rule 8D for Expenses Related to Earning Exempt Income:
The third issue was the disallowance of Rs. 1,80,369 under Section 14A read with Rule 8D for expenses related to earning exempt income. The assessee had earned Rs. 6,84,354 in dividend income and made a suo-moto disallowance of Rs. 5,000. The AO applied Rule 8D without recording any satisfaction regarding the assessee's calculation.

The CIT(A) upheld the AO's disallowance. However, the Tribunal noted that the AO failed to record satisfaction as required by the Supreme Court in Godrej & Boyce Manufacturing Co. Ltd. v. DCIT. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition.

Separate Judgments:
The Tribunal also addressed the Revenue's appeal and the assessee's cross-objection on similar grounds. The Revenue's appeal was dismissed as it became infructuous following the decision in the assessee's appeal. The cross-objection regarding the disallowance under Section 14A was allowed, with the Tribunal directing the AO to delete the addition due to the lack of recorded satisfaction.

Conclusion:
The Tribunal allowed the assessee's appeal, setting aside the CIT(A)'s orders on all grounds. The Revenue's appeal was dismissed, and the assessee's cross-objection was allowed. The Tribunal's decisions were based on the correct interpretation of the relevant sections and precedents, ensuring that the assessee's computations and claims were upheld.

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