2013 (1) TMI 783

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....ppellant in relation to the disallowance I computed u/s. 14A of the Income Tax Act, 1961 and while doing so he amongst others failed to appreciate that: a. The appellant, in the return of income filed, had computed the disallowance u/s. 14A on a reasonable and scientific basis having regard to the accounts maintained; b. The expenditure disallowed u/s. 14A by the appellant in the return of income filed was after considering the direct & indirect expenditure incurred which had a proximate and immediate connection to the dividend income;" Ground of Appeal in ITA No.7656/Mum/11: 1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 21,21,248/-, made by disallowing the mark-to-market loss claimed on account of trading in derivative transactions, without appreciating the fact that the loss claimed on the basis of value of derivative as on 31st March is merely a notional loss and the actual loss or the profit in respect of such derivative transactions would get crystallized only at the time of settlement of such transaction". Grounds of Appeal in ITA No.6607/Mum/11: "1. The learned Commissioner of Incom....

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....he assessees that in respect of assessment year 2007-08, Rule 8D could not be applied. Ld. CIT(A) accepted such contention of the assessee on the basis of decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, 328 ITR 81 (Bom). The language of the order of Ld. CIT(A) in all these appeals is common and he has directed the AO to work out the disallowance in accordance with the decision of Jurisdictional High Court in the case of Godrej & Boyce Manufacturing Co. Ltd (supra). For the sake of convenience concluding observation of Ld. CIT(A) are reproduced below: "9.5 Thus, I find that the Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Co. Ltd. vs. DCIT (supra) has held that for the purpose of determining the expenditure which is incurred in relation to exempt income, which does not form part of the total income, the Assessing Officer is duty bound to determine such expenditure after affording a reasonable opportunity to the appellant. For the same, the Assessing Officer has to determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income/income from mutual fu....

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....423/M/2007 for A.Y 2004-05, vide order dated 10/11/2010 similar issue has been decided in favour of the assessee. Accordingly Ld. CIT(A) decided this issue in favour of assessee. The department is aggrieved by such deletion and has preferred the appeal as per grounds narrated above. 6. Ld. DR though not disputed that this issue is covered by the aforementioned decision of Tribunal in the case of holding company of the assessee, has submitted before us that in the aforementioned decision Tribunal did not consider Instruction No.3/2010 dated 23/3/2010 issued by CBDT, in which it has been instructed that such loss should be added back for the purpose of computing taxable income of an assessee. The relevant text is as under: "Mark to Market is in substance a methodology of assigning value to a position held in a financial instrument based on its market price on the closing day of the accounting or reporting record. Essentially, market to market is a concept under which financial instruments are valued at market rate so as to report their actual value on the reporting date. This is required from the point of view of transparent accounting practices for the benefit of the share hol....

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....losed under Loans and Advances or Current Liabilities, respectively, in the Mark-to- Market 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 Mark-to-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-to- Market Margin - Equity Index / S....