TaxTMI 
TaxTMI 
2018 (4) TMI 562
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.... income; hence, the disallowance thereof made by the AO and confirmed by the CIT(A) shall be deleted. 3. The assessee company is engaged in the business of trading in securities, physical commodities and derivative instruments. On perusal of computation of income furnished by the assessee during the course of assessment proceedings the Assessing Officer observed that the assessee company has determined speculative business income of Rs. 4,77,37,754/- against this assessee has claimed set off of brought forward loss of Rs. 1,92,98,587/- and total income has been determined at Rs. 2,84,39,167/-. Thereafter the Assessing Officer noted that in clause 25 the auditor in the report u/s. 44AB have shown details of brought forward losses as under: 25. (a) Details of brought forward loss of depreciation allowance in the following manner, to the extent available: Sr. No. Asst. Year Nature of loss/allowance Amount as returned Amount as assessed (give reference) Remarks (in Rs.) (in Rs.) 1 2009-10 Business Loss 3,46,493 NA 2 2010-11 Business Loss 18,932,....
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....ssed under the head "profits and gains of business or profession". 5.1.3 I am unaware to except this interpretation of section 72 made by the appellant, ft is established judicial principal of Rule of Harmonious Construction that when there is a conflict between a general provision and a special provision it is the special provision that prevails. This tenant has been established in countless pronouncements of the Apex Court including in a recent decision in the case of COMMERCIAL TAX OFFICER, RAJASTHAN v. M/S BINANI CEMENT LTD. & ANR. (Civil Appeal No. 336 of 2003) February 19, 2014. Section 72 is specially meant for loss, "not being a loss sustained in a speculation business" whereas section 73 is specialty meant for losses in speculation business". Thus, non-speculative losses have to be set-off under the special provisions of section 72, which means against profits of any source of business or profession except speculation business, for which there is a special section 73. Therefore, in my view, the stand taken by the A.O. was absolutely correct. These grounds of appeal are therefore dismissed. 7. Against the above order, the assessee is in appeal before us. 8. W....
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....der the head "Salaries", the assessee shall not be entitled to have such loss set off against such income.] (3) Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.] Following sub-section (3A) shall be inserted after sub-section (3) of section 71 by the Finance Act, 2017, w.e.f. 1-4-2018 : (3A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head "Income from house property" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to set off such loss, to the extent the amount of the loss exceeds two lakh rupees, against income under the other head. 79[(4) Where the net result of the computation under the head "Income from house property" is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 19....
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....) of section 35, to be carried forward, effect shall first be given to the provisions of this section. (3) No loss 86[(other than the loss referred to in the proviso to sub-section (1) of this section)] shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. Losses in speculation business. 4 73. (1) Any loss, computed in respect of a speculation business carried on5 by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any5 assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot....
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.... (ii) or to first set-off the current year's losses from non-speculation business and other sources against the current year's speculation profits and then to set-off the carried forward speculation losses of the earlier year against the remaining part, if any, of the current year's speculation profits, whichever is advantageous to the assessee. [Emphasis supplied by us] 12. We further note that the Hon'ble Allahabad High Court decision in the case of Ramshree Steels Pvt. Ltd. (supra) have held that loss of current year and carry forward losses of earlier year from non speculation business can be set off against the profit of speculation business of current year. Furthermore, we note that the Hon'ble Calcutta High Court in the case of New India Investment Corporation Ltd. (supra) while referring to the Hon'ble Bombay High Court decision in the case of Navnitlal Ambalal vs. CIT [1976] 105 ITR 735 (Bom.) and also by referring to the afore-said CBDT Circular have held as under: It is thus clear from this circular that if speculation losses for the earlier years are carried forward and if in the year of account a speculation profit is earned by the as....
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....peculation profit. Hence, in view of the aforesaid case laws including that from the Hon'ble jurisdictional High Court and CBDT Circular mentioned hereinabove, we set aside the order of the authorities below and decide the issue in favour of the assessee. Revenue's appeal: 15. The grounds of appeal read as under: 1. "On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made on account of mismatch of AIR data with income offered by the assessee without appreciating the fact that the assessee had claimed the TDS on the same and had not offered the income for taxation." 2. "On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 5,24,53,455/- made by Assessing Officer on account of mark to market loss claimed by the assessee 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," 3. "The appellant prays th....
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....ngly credited assessee's account. He observed that the assessee was requested to carry out the necessary rectification in Online Accounting System of Income Tax so as to correct the effect of income wrongly shown against its PAN. That the assessee has not carried out the rectification as required. Hence, the Assessing Officer held that an amount of Rs. 23,31,761/- being discrepancy in income offered by assessee vis-a-vis AIR is hereby brought to tax as income of the assessee subject to rectification as and when same gets rectified in the online TDS accounting system of income tax. 19. Before the ld. Commissioner of Income Tax (Appeals) the assessee made the following submissions as under: During the course of assessment proceeding, the Appellant was given AIR to reconcile the entries therein with the books of accounts of the Appellant. The Appellant reconciled all the entries except following three entries tabulated as under: Sr. No Name of parties Nature of income Amount as per AIR (A) Amount as Difference per books (B) (A-B) 1 Edelvalue Partners Warehouse charges 2,68,70,965/- 2,45,39,204/- 23,31,761 2 Divya Strips and Profil....
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....our considered opinion, there is no infirmity in the direction of the ld. Commissioner of Income Tax (Appeals) in this regard. 23. As regards the ld. Commissioner of Income Tax (Appeals)'s direction to delete the addition of Rs. 3,50,236/- and Rs. 1,00,188/-, we find that the same is not appropriate. He has referred to the ITAT decision, where it was held that when the assessee contradicts the AIR information, the Assessing Officer should verify the same. Here we find that though the assessee is contradicting the AIR information by stating that these transactions do not relate to it, the assessee has duly taken credit of the concerned TDS. Thus, the assessee cannot blow hot and cold and shift the onus to the Revenue. The assessee having taken credit of the TDS has to prove that the transaction did not belong to him if it claims that the relevant income do not relate to it. Hence, we remit this issue also to the file of the Assessing Officer. The Assessing Officer is directed to give the assessee an opportunity to prove that the credit for the said TDS has been wrongly taken and these incomes do not belong to it. Needless to add, the assessee should be granted adequate opportunit....
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....ounds of appeal are allowed 26. Against the above order, the Revenue is in appeal before us. 27. We have heard both the counsel and perused the records. The ld. Departmental Representative relied upon the orders of the Assessing Officer. He further contended that there is a specific CBDT Circular No. 3/2010 dated 23.3.2010 in which the CBDT has categorically directed that mark to market losses are notional, and they cannot be allowed to be set off against the taxable income, that the same therefore should be added back for computing the taxable income of the assessee. 28. Per contra, the ld. Counsel of the assessee submitted that in the assessee's own group case, the ITAT has decided the issue in favour of the assessee. Furthermore, the ld. Counsel of the assessee submitted that the assessee has incurred losses on account of valuation of closing stock in commodities/derivative. He submitted that as per the accounting norms, the assessee had valued the stock and accounted for the loss upon valuation in terms of market position. He further placed reliance upon the Hon'ble Apex Court decision in the case of CIT vs. Woodward Governor 294 ITR 451 (SC). 29. Upon careful consi....
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....n made to cover the anticipated loss in the derivates trading. There is no dispute that the assesses holds 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. When the derivatives are held as stock-in-trade then whatever rules apply to the valuation of stock-in-trade will have to be necessarily apply to their valuation also. It is a well settled position in law that 'while anticipated loss is taken into account in valuing the closing stock, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its realization. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy". This is what the Supreme Court held in the case of Chainrup Sampatram vs. Commissioner of Income Tax, West Bengal (1953) 24 ITR 481 (SC), speaking through Hon'ble Justice Patanjali Sastri, the then Chief Justice of India (pa....
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....n'ble Apex Court decisions referred hereinabove. The tribunal in coming to the aforesaid decision has also held that the decision of the Hon'ble Supreme Court covered the facts of the present case and it was to the assessee's strength that the Institute of Chartered Accountants of India in its guidelines have also approved of the rule of prudence which really means that while anticipated losses can be taken note of while valuing the closing stock, anticipated profits cannot be recognized. The tribunal had held that in the light of the judgment of the Supreme Court cited above, the anticipated losses cannot be treated as a contingent liability. 31. Now we examine the present case on the touch stone of the above said decision. We find that the facts are identical. Thus, the same are held to be as stock-in-trade by the assessee and the Revenue does not dispute that. It is also not disputed that these have been valued on the principle of cost or market value, whichever is less. In such scenario, the Revenue's only ground is that the CBDT vide its Instruction No. 3/2014 as noted above has directed that these losses should not be allowed. We agree with the ITAT wherein the ITAT in ass....