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Income Tax Appellate Tribunal, “B” Bench, Mumbai
O R D E R Per B.R. Baskaran, AM :-
The appeal filed by the assessee is directed against the order dated 21.12.2011 passed by learned CIT(A)-8, Mumbai and it relates to A.Y. 2008-09.
The assessee is aggrieved by the decision of learned CIT(A) rendered on the following issues :-
(a) Disallowance of marked to market loss on share derivatives contract. (b) Disallowance made u/s. 14A of the Act.
None appeared on behalf of the assessee even though the assessee represented on earlier occasions. Hence we proceed to dispose of the appeal ex parte, without presence of the assessee.
The assessee is a dealer in shares. The assessee had claimed marked to market loss arising in respect of derivatives contract outstanding as at the year end. The assessee took support of the decision rendered by Hon'ble Supreme
2 Narendra C. Shah Court in the case of Woodward Governor India P. Ltd.(312 ITR 254) to contend that the marked to market loss is allowable as deduction. Both tax authorities took the view that decision rendered by Hon'ble Supreme Court will not apply to the facts of the present case and accordingly disallowed the claim.
We have heard learned Departmental Representative on this issue and perused the record. We notice that the Assessing Officer has disallowed the claim by following the decision rendered by Hon'ble Madras High Court in the case of CIT Vs. Indian Overseas Bank (151 ITR 446), wherein Hon'ble Madras High Court held that in the case of derivatives, profit or loss cannot accrue until and unless the contracts are settled. The Assessing Officer also held that the decision rendered in the case of Woodward Governor India P. Ltd. (supra) related to the liabilities arising out of fluctuation of foreign exchange and the ratio of the said decision can not be applied to the derivatives held by the assessee. Learned CIT(A) further held that Hon'ble Supreme Court in the above said case has prescribed six conditions and some of the conditions were not fulfilled by the assessee. We notice that the decision rendered by Hon'ble Madras High Court in the case of Indian Overseas Bank (supra) squarely applies to the facts of the instant case and accordingly we are of the view that learned CIT(A) was justified in confirming this disallowance.
Next issue relates to the disallowance made u/s. 14A of the Act. The assessee received dividend income of ` 2,94,944/- and claimed the same as exempt. However, the assessee contended before the AO that no disallowance u/s 14A is called for, on the reasoning that earning of dividend is incidental to the activity of carrying on trading in shares. The Assessing Officer did not agree with the said contentions and worked out the disallowance u/s. 14A of the Act in accordance with Rule 8D of the I.T. Rules and accordingly disallowed ` 2,80,354. Learned CIT(A) also confirmed the same.
We have heard the learned Departmental Representative and perused the record. We notice from the assessment order that the Assessing Officer has 3 Narendra C. Shah given a finding that the assessee has also held a part of the shares as investment. Further the assessee himself has disallowed a sum of ` 70,048/- on account of interest paid to the bank and further amount towards transaction charges, Demat charges and STT paid on investment. Hence the disallowance made by the AO to the extent of the amount voluntarily disallowed by the assessee is required to be upheld. Though the assessee has contended that the disallowance u/s. 14A shall not apply in respect of shares held as stock in trade, no details relating to the same were furnished before us. Hence we have no other option but to confirm the order passed by learned CIT(A) on this issue.
In the result, appeal filed by the assessee is dismissed.
Order has been pronounced in the Open Court on 14.6.2016.