ACIT YASHPAL CHARAN, PIRAMAL CHAMBER, LAL BAUG vs. EDELWEISS MULTI STRATEGY INVESTMENT, SANTACRUS(E)

आयकर अपीलीय अधिकरण, म ुंबई पीठें, म ुंबई INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI BENCH: E BEFORE SMT. BEENA PILLAI, HON’BLE JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, HON’BLE ACCOUNTANT MEMBER ITA 2069/MUM/2026 (निर्धारण वर्ा/Assessment Year: 2013) ACIT YASHPAL CHARAN EDELWEISS MULTI STRATEGY 5TH FLOOR R. N. 511 INVESTMENT PIRAMAL CHAMBERS, LAL BAUG PAREL, MUMBAI, EDELWEISS HOUSE, MUMBAI-400012, 14TH FLOOR, OFF CST Vs. MAHARASHTRA ROAD KALINA SANTACRUZ(E) MUMBAI-400098, MAHARASHTRA अपीलधर्थी Appellant प्रत्यर्थी Respondent

Permanent Account Number of AAATF3792Q Assessee:

अपीलधर्थी द्वारा/Appellant Shri Dheeraj Singh Baghel, JCIT represented by: प्रत्यर्थी द्वारा/Respondent represented Shri Ravikant Pathak, by: AR

सुनवाई की तारीख / Date of conclusion of hearing: 14-Jul-2026 घोषणा की तारीख / Date of pronouncement: 25-09-2026 आदेश / ORDER PER SMT. BEENA PILLAI, JUDICIAL MEMBER:

The present appeal filed by the Revenue is directed against the order dated 11/12/2025 passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”] u/s. 250 of the Income-tax Act, 1961 (“the Act”) for Assessment Year 2013-14, arising out of the assessment order dated 30/03/2016 passed u/s. 143(3) of the Act on following grounds of appeal:

“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of ₹2,29,15,417/- being mark-to-market loss on unsold silver, ignoring the specific finding recorded in the assessment that the said silver was disclosed by the assessee as ‘current investment’ and not as stock-in-trade, and without recording any cogent factual findings to overturn such classification? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of mark-to-market loss on an unrealised/unsold position as an ‘ascertained loss’, and in disregarding the basis of disallowance adopted in assessment, namely, that mark-to- market losses without actual settlement/realisation are not allowable being notional in nature, as per the framework relied upon by the Assessing Officer? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the nomenclature in the balance sheet is not determinative and in applying CBDT Circular No. 4/2007 mechanically, without appreciating that the assessee itself disclosed the commodity as ‘current investment’ and without carrying out the necessary fact-finding exercise on intention, conduct, accounting consistency and the true nature of holding so as to justify treatment as stock-in-trade? 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing deletion of the consequent adjustment made by the Assessing Officer to book profit under section 115JB, when the very premise for granting such relief—namely that the diminution pertains to stock-in-trade—had not been established on facts and when the computation and applicability were not examined with reference to the specific adjustments contemplated under Explanation 1 to section 115JB?

Assessee is a Category III Alternative Investment Fund registered with SEBI and was engaged, inter alia, in transactions involving commodities and derivatives. The assessee filed its return of income for the year under consideration on 30/09/2013 declaring total income of Rs.65,70,864/- under the head “Profits and gains of business or profession”. The case was selected for scrutiny and assessment was completed u/s. 143(3) of the Act on 30/03/2016.

2.1. During the assessment proceedings, the Ld. AO noticed that the assessee debited Rs.2,29,15,417/- towards diminution/mark- to-market loss in respect of physical silver remaining unsold as at the year end. The assessee's case was that the physical silver constituted part of its commodity trading activity and, in accordance with the method followed by it, the same was valued at cost or market value, whichever was lower. The Ld.AO, observed that the physical silver was reflected in the financial statements under the nomenclature “current investment” and not as stock-in- trade. The Ld.AO proceeded on the basis that, in the absence of actual settlement as at the balance-sheet date, the impugned diminution represented a notional loss and, placing reliance on CBDT Instruction No. 03/2010 dated 23/03/2010, disallowed the claim.

Aggrieved, by the order of the Ld.AO, the assessee preferred an appeal before the Ld. CIT(A).

The Ld. CIT(A) further granted relief in respect of the corresponding computation of book profit u/s. 115JB.

Aggrieved by the order passed by Ld.CIT(A), assessee is in appeal before this Tribunal.

In respect of Ground No.4, the Ld. DR submitted that the relief granted by the Ld.CIT(A) in the computation of book profit u/s.115JB was also not justified having regard to Explanation 1 thereto.

4.1. The Ld.AR, on the other hand, supported the order of the Ld.CIT(A). He submitted that the assessee was carrying on transactions in commodities and derivatives and that the purchase of physical silver and the corresponding futures positions constituted parts of an integrated commodity trading/arbitrage strategy. According to the Ld.AR, the physical silver could not be viewed in isolation merely on the basis of its description as “current investment” in the balance sheet. It was further submitted that the corresponding unrealised gains arising from the futures leg of the trading position had been accepted by the Ld. AO and, therefore, the corresponding diminution arising on the physical commodity could not, on the same set of transactions, be rejected merely as notional.

4.2. The Ld.AR further drew our attention to pages 43, 45 and 48 of the paper book. Page 45 contains the Income and Expenditure Account for the subsequent year ended 31/03/2014 and page 48 contains Schedule 7 relating to “Income from Investments”, wherein the resultant figures from sale/redemption of investments as well as futures trading have been reflected. The break-up placed at page 43 contains, inter alia, reversal entries pertaining to the preceding year's unrealised profit/loss and the subsequent realised result on the transactions. It was thus submitted that the impugned year-end valuation adjustment formed part of a continuing accounting treatment and was subsequently reversed/absorbed upon settlement of the trading position.

4.3. The Ld.AR placed reliance upon the decision of Hon'ble Bombay High Court in case of CIT v. Nagri Mills Co. Ltd. reported in (1958) 33 ITR 681, to contend that where a deduction is otherwise allowable and the dispute essentially relates to the year of its allowance, such controversy ought not to be prolonged merely on the question of timing.

We have perused the submissions advanced by both sides in light of the record placed before us.

5.1. It is not in dispute that the assessee was engaged in transactions involving commodities and derivatives. The material placed before us supports the assessee's contention that the physical silver and the corresponding futures positions were components of the trading/arbitrage strategy undertaken during the year. Further it is noted that no material is been brought on record before us by the Revenue to demonstrate that the physical silver was acquired and held as an independent passive investment unrelated to the assessee's commodity transactions.

5.2. We, therefore, find merit in the finding returned by the Ld.CIT(A) that the true character of the holding has to be examined from the surrounding facts and the manner in which the assessee conducted its transactions and cannot be concluded solely on the basis of the description appearing in the financial statements. We may also observe that our conclusion in this regard is based on the fact emerging from the record and does not rest merely upon CBDT Circular No.4/2007.

5.3. We further find an important factual aspect in the treatment accorded to the corresponding futures transactions. The Ld.CIT(A) recorded that the unrealised mark-to-market gains on futures contracts were accepted by the Ld.AO, whereas the corresponding mark-to-market loss on the physical silver was disallowed. Once the physical commodity and the corresponding futures positions are found to form components of the assessee's trading strategy, the gain arising on one component cannot be accepted while the corresponding diminution arising on the other component is rejected merely by treating the latter as notional, without bringing any distinguishing material on record.

5.4. The subsequent accounting treatment also supports the factual position canvassed by the assessee. As noted hereinabove, the subsequent year's Income and Expenditure Account and Schedule 7, read along with the break-up placed at page 43 of the paper book, contain the reversal of the preceding year's unrealised profit/loss and recognition of the subsequent realised result from the transactions. It is further noted that the assessee has been recording accounts to demonstrate continuity of the accounting treatment and subsequent reversal/absorption of the earlier year- end valuation adjustment upon settlement. There is also no material before us to suggest that the assessee claimed the same loss twice.

5.5. The Ld.AR placed reliance on the decision of the Hon'ble Bombay High Court reported in CIT v. Nagri Mills Co. Ltd. (1958) 33 ITR 681. In that case, Hon'ble Court was concerned with a dispute regarding the assessment year in which an otherwise allowable expenditure was to be deducted. The principle emerging therefrom, insofar as relevant to the submission advanced before us, is that where the deductibility of an item is otherwise established and the controversy essentially concerns the year of its recognition, disputes merely concerning timing ought not to assume undue significance.

5.6. Considering the nature of the assessee's business, the corresponding futures transactions, the treatment accorded by the Ld. AO to the unrealised gains arising on such futures positions and the subsequent accounting trail placed before us, we find no reason to interfere with the finding of the Ld. CIT(A) deleting the disallowance of Rs.2,29,15,417/-.

Accordingly, Ground Nos.1 to 3 raised by the Revenue are dismissed.

The Revenue contends that the diminution ought to be considered with reference to the adjustments contemplated under Explanation 1 to section 115JB.

6.1. We have already held hereinabove, that the impugned debit represents the year-end valuation of the physical silver forming part of the assessee's trading operations. In other words, what has been recognised in the Profit and Loss Account is the result of valuation of the trading position as at the balance-sheet date. There is nothing brought before us by the Revenue to demonstrate that the impugned amount represented an independent sum merely set aside as a provision for diminution in the value of an asset, distinct from the valuation of the trading stock itself.

6.2. In these facts, once the impugned debit is found to arise from valuation of the trading position and not from creation of a separate provision, the same cannot be brought within clause (i) of Explanation 1 to section 115JB merely on the basis of the expression “diminution in value”. The subsequent accounting treatment, showing reversal/absorption of the year-end adjustment upon settlement, further supports the factual character of the debit. We therefore find no infirmity in the relief granted by the Ld. CIT(A) on this issue.

Accordingly, Ground No.4 raised by the Revenue is dismissed.

In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 25-09-2026.

Sd/- Sd/- VIKRAM SINGH YADAV BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 25-09-2026 Shamik Sr. P.S.

Copy to: ACIT YASHPAL CHARAN, 5TH FLOOR R. N. 511 PIRAMAL CHAMBERS, LAL BAUG PAREL, 1 MUMBAI, MUMBAI-400012, MAHARASHTRA EDELWEISS MULTI STRATEGY INVESTMENT, EDELWEISS HOUSE, 14TH 2 FLOOR, OFF CST ROAD KALINA SANTACRUZ(E), MUMBAI-400098, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE TRUE COPY

ASSISTANT REGISTRAR / SR. PRIVATE SECRETARY I.T.A.T., MUMBAI