TaxTMI 
TaxTMI 
2012 (3) TMI 612
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....led by the assessee and the revenue had been prepared and as to how the AR would tackle the impugned issues / grounds. 3. Grounds no. 1 to 3 are on the issue of disallowance of Rs. 96,810 under section 14A. At the time of hearing, the AR submitted that although the assessee company had suo moto made a disallowance of Rs. 2,85,023 on account of interest on borrowed funds, the AO had made a further disallowance of Rs. 96,810 and allocated the same against 14A under Rule 8D, following Special Bench ITAT (Mumbai) in Daga Capital Management Pvt. Ltd. and by Hon'ble Bombay High Court in Godrej & Boyce Co. Ltd. 4. The AR conceded the disallowance being only 5% of the dividend income. This ground is therefore dismissed. 5. Grounds no. 4 to 4.3 is with regard to disallowance of assessee's claim for provision on "Mark-to-Market" on trading of derivative instruments amounting to Rs. 13,09,233. The facts in this issue is that the assessee had debited an amount of Rs. 13,09,233 on account of provision for loss on mark-tomarket margin on equity index / stock futures. It has been observed by the AO that no written explanation regarding this issue was filed. During the course of assessmen....
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....ade by the AO. Not satisfied, the matter is before the ITAT. 9. Before us, the AR of the assessee company at the outset, drew our attention to the Guidance Note issued by ICAI which provides the accounting treatment to be followed in the cases on Equity Index and Equity Stock Futures & Options. "5.1 The equity derivative instrument in India is traded on the National Stock Exchange and Bombay Stock Exchange. In order to minimize the risk of failure of parties to a contract in fulfilling their respective obligation under the contract, the Clearing Corporation, from time to time, prescribes margin requirement for Clearing / Trading Members. Margins are required to be paid by Clearing / Trading Members, who, in turn, collects margin from their respective clients. Every client is required to pay an initial margin to the Trading Clearing Member at the time of entering into an contract. 5.2 The appellant submits that the provision made on account of mark-to-market margin losses on the derivative positions, at the time of closing of books of account should be allowed as a deduction. In this connection, the appellant places reliance on the Guidance Note on `Accounting for Equity In....
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....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 / Stock Futures Account",, is recognized in the Profit and Loss Account." 11. It was further pointed out by the AR that the provision is made on the last day of the accounting period, i.e. on 31.03, i.e. in the case at hand on 31.03.2005. Therefore, the provision, as such is made only on the last day, which gets settled in three months. It was also pointed out by the AR that in case the market is going up and on final settlement if there is a gain, then that profit is ignored and no credit is taken to the Profit & Loss Account. 12. We have carefully gone through the facts of the case as observed by the AO in the assessment order and also recorded by the CIT(A) in his order and the references made by the AR to the various aspects of the case from the paper book. A....
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....see'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 anticipated loss, in the light of the judgment of the Supreme Court cited above, cannot be treated as a contingent liability. 8. The learned DR pointed out that the assessee has valued each scrip of the derivatives as at the end of the year. We do not see how this can make any difference to the legal principle. If the derivatives have been treated as stock-in-trade then there is nothing unusual in the assessee valuing each derivative by applying the rule cost or market whichever is lower. 9. We, therefore, direct the Assessing Officer to allow the provision as reflecting in substance the loss arising on account of valuation of the closing stock. The ground is allowed." 13. Besides the case of the assessee's sister concern, the AR also cited the cases of Bank of Bahrain & Kuwait, reported in 41 SOT 290 (Mum-SB) and the case of Hon'ble Supreme Court in Woodword Governor India Pvt. Ltd., reported in 312....
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....ne charges at Rs. 9,03,064. 20. The CIT(A) in his order has observed that VSAT and Leaseline charges are reimbursement charges paid by the members of the Stock Exchange in lieu of infrastructure and trading facilities provided by the stock exchange. The DOT has granted license to its stock exchange for installation and setting up of a Close User Group Telecommunications Network based on VSATs and Leased Lines and a Stock Exchange collects the VSAT and lease line charges from the members and pass the same to the service provider. The VSAT and Lease line charges are not payments which come within the domain of `fee for technical services' and they are also not for `any work' done by NSE for the member broker. The TDS is, therefore, not deductible on the same. The CIT(A) further observed that insofar as the deductibility of TDS on transaction charges are concerned, the I.T.A.T, Mumbai in ITA No.1955/Mum/08 for A.Y. 05-06 in case of Kotak Securities vs. Addl.CIT-4(3) order dated 26.08.2008 has held that the Stock Exchange does not provide managerial services and the fees paid by the member to the Stock Exchange is not for any technical services rendered, so TDS is not deductible on ....
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....see is disallowance of provision for loss on "Mark-to-Market". The facts and the accounting treatment remains the same as in the immediately preceding year. The AR prayed that since the disallowance has been made on the same facts, the decision, in any case, shall be binding for this year too. In the synopsis filed, the AR reiterated the facts and the case laws relied upon. The DR on the other hand too submitted that since there are no new facts, detailed arguments need not be made. Assessment Year : 2006-2007 ITA No.2193/Mum/2009 : By the assessee. ITA No.2453/Mum/2009 : By the department. 31. On considering all facts, we will follow the decision that we have taken in the immediate preceding year and allow the ground of appeal, the disallowance is deleted. In the result, the appeal filed by the assessee is allowed. ITA No.2453/Mum/2009 : By the department. 32. The department too is in appeal in this year. The disallowance made has been deleted by the CIT(A) on account of V-SAT charges and Lease line charges. As we have upheld the decision of the CIT(A) in the immediately preceding year, we follow the same and we are not inclined to disturb the CIT(A)'s finding....