TaxTMI 
TaxTMI 
2021 (10) TMI 445
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....018 & 6838/Mum/2018 for A.Yrs. 2013-14 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-8, Mumbai in appeal No.CIT(A)-8/IT-220/2016-17 dated 17/09/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2016 by the ld. Asst. Commissioner of Income Tax, Circle-3(1)(2), Mumbai (hereinafter referred to as ld. AO). ITA No.6888/Mum/2018 (A.Y.2013-14) & 6836/Mum/2018 (A.Y.2013-14) These cross appeals in ITA No.6888/Mum/2018 & 6836/Mum/2018 for A.Yrs. 2013-14 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-8, Mumbai in appeal No.CIT(A)-8/IT-219/2016-17 dated 17/09/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2016 by the ld. Asst. Commissioner of Income Tax, Circle-3(1)(2), Mumbai (hereinafter referred to as ld. AO). 2. Identical issues are involved in all these appeals, hence, they are taken up together and disposed of by this common order for the sake of convenience. With the consent of both the parties, Revenue appeal in the case of Edelcap Sec....
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....tions 91,44,386 Total 2,77,67,241 3.3. The assessee submitted that it has recognized the above loss (Net) by debiting loss on trading in commodity derivative instruments (net)" and " Loss on trading in currency derivative instruments (net)" grouped under "Income from Treasury operation". 3.4. During the year under consideration, the assessee has entered into transaction for purchase and sale of derivative futures/option on stock exchanges. The transactions which are settled during the year and the difference between contract price and settled price being profit/loss are recognized in the books of accounts maintained by the assessee. Outstanding derivative contracts in the nature of futures/options are measured at fair value as at the balance sheet date. Fair value is determined using quoted market prices in an actively traded market, for the instrument, wherever available, as the best evidence of fair value. In the absence of quoted market prices in an actively traded market, a valuation technique is used to determine the fair value. The margin money paid/received on derivative contract relating to purchase (long position) and sale (short position) of options in respect of u....
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....alue whichever is lower. The assessee‟s case is identical in as much as an item of stock in trade in the form of opening position of derivative contract need to be valued at cost or market rate whichever is lower and accordingly, assessee had recorded the loss in its books of accounts. The assessee also submitted that the ld. AO had placed reliance on CBDT Instruction No.3/2010 dated 23/03/2010 which mandated disallowance of provision for loss of mark to market, by submitting that the said CBDT instruction had been duly considered by the Mumbai Tribunal in the case of DCIT vs. ECL Finance Limited in ITA No. 7656/Mum/2011 wherein the Tribunal after considering the CBDT instruction had decided the very same issue in favour of the assessee. 3.7. The ld. CIT(A) duly appreciating the entire contentions of the assessee and also taking into account that the issue is already covered in favour of the assessee by various Tribunal decisions and in assessee‟s own case by the order of his predecessor in the preceding two years, deleted the disallowance made on account of provision for mark to market loss. Aggrieved, the revenue is in appeal before us. 3.8. At the outset, we find t....
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....not be considered for the purpose of disallowance u/s.14A of the Act. Accordingly, he pleaded that the interest disallowance under Rule 8D(2)(ii) of the Rules should be made only for the remaining investments of Rs. 4.23 Crores (Rs. 72.12 Crores - Rs. 67.89 Crores). He stated that the total interest expenditure is Rs. 18.23 Crores and assessee had earned interest income of Rs. 11.06 Crores and that the net interest expenditure should be considered while working out the disallowance of interest under Rule 8D(2)(ii) of the Rules. Reliance in this regard was placed on the decision of the Hon'ble Gujarat High Court in the case of PCIT vs. Nirma Credit and Capital Pvt. Ltd., reported in 85 Taxmann.com 72. He further pleaded that only those investments which had actually yielded exempt income should be considered for the purpose of working out the disallowance under Rule 8D(2)(ii) and under Rule 8D(2)(iii) of the Rules. 4.4. We find that the Hon'ble Gujarat High Court in the case of Nirma Credit and Capital Pvt. Ltd., referred to supra had categorically held that only the net interest expenditure should be considered for the purpose of working out the disallowance of interest un....
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....s of provision for expenses as under:- Sr. No. Ledger Head Provision as on 31.03.2013 1 Legal & Prof. Fees 123,500 2 Commission & Brokerage Exps 35,211,000 3 Warehousing Chgs 13,800 4 Annual Maintenance Chgs - IT 60,833 5 Outside Services - Others 353,040 6 Printing & Stationery Exps 3,000 7 Travel Exps - Local - Conveyance 45,000 35,810,173 5.2. The assessee also submitted that out of the total commission and brokerage expenses of Rs. 3,52,11,000/- a sum of Rs. 3,50,00,000/- represents provision made as on 31/03/2013 which was duly written back in subsequent year and credited to profit and loss account and offered to tax by the assessee voluntarily in the return of income in A.Y.2014-15 and that the rate of tax being the same in both A.Y.2013-14 as well as in A.Y.2014-15. The ld. CIT(A) deleted the disallowance made by the ld. AO both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act. 5.3. Before us, the ld. DR vehemently argued that the assessee had made a provision on an estimated basis and the said expenditure had not crystalized into an ascertained liability during th....
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....udited financial statements which reads as under: "1.2 Use of estimates: The preparation of the financial statements in the conformity with the generally accepted accounting principles requires the management to make estimates and assumption that effect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as on the date of the financial statements. Actual result may differ from the estimates. Any revision to the accounting estimates is recognized prospectively in current and future periods" 5.6 The above accounting principle followed by the assessee is duly supported by the Accounting Standard (AS) 29 issued by the Institute of Chartered Accountants of India (ICAI). Thus, the provision made by the assessee are on estimate basis which is duly required by the AS issued by the ICAI which by virtue of section 211 of the Companies Act, 1956 mandatorily have to be followed by the Companies. Therefore, the ld AR submitted that the expenses booked by the assessee on the basis of estimation are duly allowable; hence, the disallowance thereof made by the AO shall be deleted. 5.7. We also find that this manner of making provision for....
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....rd contracts entered by it along with relevant supporting documents to substantiate its claim of loss. The ld. AO on perusal of the same, observed that assessee has entered into forward contracts with other group entities being Edel Commodities Trading Ltd., EC Commodity Ltd., Edelcap Securities Ltd., and booked loss on the same. The contracts were entered of underlying commodity being aluminium, nickel and platinum. The ld. AO observed that the forward contract is meant to cover exposure to the underlying security or as a speculative transaction with an intention to earn profit. He observed that the assessee does not deal with the commodities underlying the said contract and there is no element of hedging in the said transactions. He observed that the assessee had entered forward contract with its related party with an intention to make loss and make the group company earn profits. The ld. AO observed that by entering into forward contract with related parties, there was no intention to hedge or to earn profit, accordingly, he treated the loss of Rs. 7,70,59,855/- as a speculative loss on account of trading in forward contract and disallowed the same as it was carried out with an ....
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....stand when the loss occurs in respect of transactions with related parties. The entire genuinity of the transactions cannot be doubted in as much as all the transactions have been duly reflected in the books of accounts of the assessee and are also reflected in the books of accounts of the group entities which fact has been taken cognizance by the ld. CIT(A). Admittedly, the ld. AO assessing the other group entities has accepted the corresponding transaction in their books as genuine. We also find that the ld. CIT(A) has taken due cognizance of the fact that the prices at which these contracts were entered were purely driven by market forces on the relevant date of transaction. We hold that entering into forward contract with group companies are not banned either by SEBI or Reserve Bank of India or any other regulatory authority who are governing forward markets. Merely because there is a doubt in the mind of the ld. AO that the transaction with related party could be used as tool to shift profits to group entities, it cannot automatically result in any addition that could be made in the hands of the assessee. At best it can only result in "reason to suspect", which may warrant fur....
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....ess. 9.1. We have heard rival submissions and perused the materials available on record. We find that assessee has raised an additional ground before us claiming deduction on account of education cess. We find that this additional ground deserves to be admitted as all the facts necessary for its adjudication are already on record and there is no dispute that assessee had indeed paid the education cess. Hence, respectfully following the decision of the Hon'ble Jurisdictional High Court in the case of Sesa Goa Ltd., vs. JCIT reported in 423 ITR 426, we direct the ld. AO to grant deduction on account of education cess paid by the assessee as an allowable business expenditure. Accordingly, the additional ground raised by the assessee is allowed. 10. In the result, appeal of the assessee is partly allowed. ITA No.6838/Mum/2018 (Assessment Year :2013-14) Revenue Appeal 11. The appeal of the Revenue in the case of Ecap Equities Ltd., for A.Y.2013-14 in ITA No.6838/Mum/2018 is having identical grounds with that of ITA No.6837/Mum/2018 for A.Y.2013-14. Hence, the decision rendered by us in the case of Edelcap Securities shall apply with equal force for this appeal also in respect of....