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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य, राजे�� के अनुसार लेखा सद�य लेखा सद�य राजे�� के अनुसार राजे�� के अनुसार/ PER Rajendra A.M.- राजे�� के अनुसार Challenging the order dated 12/12/2014 of the CIT(A)-9Mumbai,the Assessing Officer (AO) and the assessee have filed cross-appeals for the year under consideration.Assessee-company, engaged in the business of securities trading and broking, filed its return of income on 30/09/ 2009,declaring total income of Rs. 37.38 crores.The AO completed the assessment u/s. 143(3) of the Act,on 04/09/2013,determining its income at Rs.38.65 crores. ITA 1192/MUM/2015 2.The solitary ground of appeal,raised by the AO, is about deleting the disallowance of mark to market (MTM) loss amounting to Rs. 85.18 lakhs.During the assessment proceedings, had booked losses of Rs.85,18,813/- on MTM in respect of open position in option at the end of the year. He directed the assessee to file details of MTM losses and to explain as to why the same should not be disallowed being notional loss.In its reply dated 25/02/2013, the assessee contended that it followed mercantile system of accounting and had anticipated losses at the year end with respect to equity index/stock future in accordance with the provisions of the Act and the Accounting Standards,that loss suffered by the assessee could not be termed as notional/contingent loss. Referring to the case of Woodward Governor India (P) Ltd., the AO held that mark to market transactions had to be given peculiar treatment, that as per the accounting policy, followed by the assessee in respect of the derivative transaction, it was & 1323 /MUM/2015-(A.Y. 2009-10)
debiting the losses in respect of derivative open contract,that it was ignoring the profit if arose due to valuation of such contract on MTM basis, that the treatment given to losses as per the accounting policy had not been followed by it in respect of the gains, that the policy adopted by the assessee was unfair and unreasonable, that the provisions for loss debited on account of future contracts was nothing but a provision of contingent loss, that same could not be allowed as deduction in computing the income for the year under appeal, that future contracts for purchase of derivates were not accounted for as purchases in the books of accounts, that same were not part of stock in trade, that the real income theory would also not be applicable,that the expenditure was not in the nature of an ascertain/liability/expenditure. Accordingly,the provision on account of MTM loses of Rs.85.18 lakhs in open position of future derivative transactions were disallowed.
3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him, the assessee made elaborate submissions.After considering the available material, the FAA referred to the cases of Edelweiss Capital Ltd. (ITA/5324/MUM/2007,dated10/11/2012)and Kotak Mahindra Investment Limited(ITA/ 1502/MUM/2012,dated 03/05/2013) and allowed the claim made by the assessee under the head MTM losses.
4.During the course of hearing before us, the Departmental Representative (DR) supported the order of the AO.The Authorised Representative (AR) relied upon the cases of Centrum Broking Ltd.(70 SOT 389) & Kotak Mahindra Investment Ltd. (59 SOT 4).
5.We find that the issue stands decided in favour of the assessee by the Tribunal in the matters relied upon by the AR.It is found that in the of the Kotak Mahindra Investment Ltd. (supra),the Tribunal has held that M T M losses have be allowed.We do not find any infirmity in the order of the FAA.So,respectfully, following the orders of the Tribunal,we decide issue against the AO.
ITA 1323/MUM/2015 6.First ground of appeal is about confirming the disallowance of Rs.6.43 lakhs,made by the AO, under section 14A of the Act. During the assessment proceedings, the AO found that the assessee had shown dividend income of Rs. 6.47 lakhs,that it had claimed the same as exempt under section 10(34) of the Act,that in the computation of income it had not made any dis - 2 & 1323 /MUM/2015-(A.Y. 2009-10) allowance on account of expenses incurred towards earning such exempt income.He directed the assessee to explain as to why the provisions of section 14A read with Rule 8D of the Income Tax Rules,1962(Rules)should not be applied.Vide its letter 14/02/2013 the assessee stated that it had earned dividend income from the shares that were held stock in trade, that it was engaged predominantly buying & selling of shares and that earning of dividend was of incidental,that the amount of dividend was directly credited to the bank account of the company,that it had not incurred any expenditure related to earning of exempt income,that no interest expenditure had been incurred during the year under appeal,that there was no opening and closing investment in the books of accounts.However,the AO did not agree with the assessee and taking into consideration the average of the investment on the first and last date of the previous year,made an addition of Rs.6.43 lakhs(.5% of the average of the investment).
7.During the appellate proceedings,the assessee made submissions before the FAA and relied upon the cases of Hero Cycles Ltd.(322 ITR 513),Yetish Trading Company Pvt. Ltd. (129 ITD 237)and Ganjam Trading company Ltd (ITA 3724/MUM/2005).After considering the submissions of the assessee and the assessment order, the FAA held that disallowance made by the AO was in order for the reasons mentioned in the assessment order.
8.During the course of hearing before us, the AR relied upon the case of HDFC Bank Ltd. (67 Taxmann.com42 of the Hon’ble Bombay High Court).The DR left the issue to the discretion of the Bench. We have heard the rival submissions and perused the material before us.We find the Judicial Forums have,on more than one occasions,held that no disallowance u/s.14A could be made if the shares are held as stock in trade or the assessee had not claimed any expenditure against the exempt income.In the case before us,the AO/FAA has not proved that stocks were held by the assessee as investment or that it had claimed by any expenditure for earning the tax free income.Therefore, reversing the order of the FAA,we decide the first ground of appeal in favour of the assessee.
9.Second Ground is about disallowing deprecation of Rs.10.63 lakhs.During the assessment proceedings,the AO found that assessee had claimed depreciation on certain assets which were purchased on 02/06/2008 and 24/07/2008,that the assessee had claimed that expenditure was incurred on account of purchase of computer and computer related accessories/software, that purchases were made in the name of a Hong Kong company,that it had claimed that the 3 & 1323 /MUM/2015-(A.Y. 2009-10) foreign company has shipped the goods to India in the name of the assessee.During the course of scrutiny proceedings,the assessee was asked to explain as to how the deprecation was allowable on the said items and as to why same should not be disallowed. Vide its letter dated 07/03/2013,the assessee stated that it had acquired certain assets through its group concern,that a copy of the fixed asset invoice was already filed,that the foreign group - company has made the initial payment on behalf of the assessee, that subsequently a debit note on the assessee was raised,that assets were owned by the assessee and were used during the year under consideration.The AO held that assessee was not the owner of the assets, that it had not produced any documentary evidence to prove the payment was made by it, that it was not eligible for claiming depreciation for the said assets.Finally,he made the disallow - ance of Rs. 10,63,266/-.
10.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,it was argued that assets were initially purchased by the Hong Kong group of company,that same were shipped to India subsequently, that the assessee has added them to the fixed assets in the books of account and had claimed depreciation. After considering the submissions of the assessee and the assessment order, the FAA held that the assessee had not substantiated its basic claim regarding ownership of the assets, that the AO had rightly disallowed claim.
11.During the course of hearing before us,the AR argued that the assets were appearing in the balance sheet as well as block of assets,that books of accounts of the assessee were audited, that AO had not rejected the book results,that the assessee has produced the debit note raised by the Hong Kong Company during the assessment proceedings. He referred to page Nos. 1- 4, 22, 30 of the paper book.The DR relied on the order of the FAA.
12.We have heard the rival submissions and perused the material before us.We find that the group concern of the assessee had purchased computers/computer related accessories in Hong Kong,that the foreign-entity had made the initial payment,that the goods were shipped to India,that assets are appearing in the audited books of accounts of the assessee, that the AO had not doubted the genuineness of the details of the block of assets. After considering the available material,including the debit note raised by the foreign entity,we are of the opinion, the AO/FAA was not justified in denying the depreciation to the assessee.Therefore, revers - ing the order of FAA,we decide ground No.2 in favour of the assessee. 4 & 1323 /MUM/2015-(A.Y. 2009-10)