Income Tax Appellate Tribunal - Mumbai
Dcit Cc 1(1), Mumbai, Mumbai vs Ecap Securities And Investment Ltd., ... on 30 September, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "E", MUMBAI
BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER
AND
SHRI RATNESH NANDAN SAHAY, ACCOUNTANT MEMBER
ITA No.2971/M/2024
Assessment Year: 2014-15
DCIT CC 1(1) ECAP Securities and
905, 9th Floor, Investment Ltd.
Partishtha Bhavan, Edelweiss House,
M. K. Road, Off. CST Road,
Mumbai- 400020. Vs. Kalina,
Mumbai
PAN: AABCE8997N
(Appellant) (Respondent)
CO No. 129/M/2024
(Arising out of ITA No.2971/M/2024)
Assessment Year: 2014-15
ECAP Securities and DCIT CC 1(1)
Investment Ltd. 905, 9th Floor,
Edelweiss House, Partishtha Bhavan,
Off. CST Road, M. K. Road,
Kalina, Vs. Mumbai- 400020.
Mumbai
PAN: AABCE8997N
(Appellant) (Respondent)
Present for :
Assessee by : Shri Ajit Kumar Jain, A.R.
Revenue by : Shri Salil Mishra, CIT D.R.
Page | 2
ITA No.2971/MUM/2024 & CO No. 129/M/2024
ECAP Securities and Investment Ltd.; A. Y.2014-15
Date of Hearing : 30 . 07 . 2024
Date of Pronouncement : 30 . 09 . 2024
ORDER
Per: Ratnesh Nandan Sahay, Accountant Member:
1. This appeal has been filed by the revenue and the cross objection by the assessee against the Order of the Ld. CIT (Appeals) passed u/s. 250 of the Income Tax Act [the „Act‟ in short] vide DIN & Order Nos.
ΠΒΑ/ΑΡΙ/Μ/250/2023-24/1063387859(1), ITBA/APL/M/250/2023- 24/1063388107(1), ITBA/APL/M/250/2023-24/1063388257(1), ITBA/APL/M/250/2023-24/1063388738(1), ITBA/APL/M/250/2023- 24/1063388891(1) Dated 26/03/2024 for the Assessment Year 2014-15, 2015-16, 2016-17, 2017-18, 2018-19.
2. Following grounds of appeal have been raised by the appellant :
i. Whether on the facts and circumstance of the case and in law, the Ld. CIT(A), was justified in deleting the addition of Rs.16,85,84,243/- made by Assessing Officer or account of provision for loss on equity, stock futures and commodities, ignoring the facts and the CBDT instruction
03 of 2010 dated 23.03.2010?
ii. Whether on the facts and circumstances and in law the Ld. CIT(A) was justified in allowing the claim of provision for Mark to Market' loss following the guidelines of Institute of Chartered Accountants of India and Accounting Standards and ignoring the fact that such Income is taxable under the provision of Income Tax Act? iii. Whether on the facts and circumstances and in law the Ld. CIT (A) was Justified in not considering that as per the amended provisions of the Finance Act 2022, section Page | 3 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 14A shall apply to a case irrespective of whether exempt income has accrued or received during the previous year relevant to an assessment year and expenditure has been incurred during the said previous year in relation to such exempt income?
iv. Whether on the facts and circumstances and in law the Ld. CIT (A) was justified in not considering that amended provisions of the Finance Act 2022 has nullified several judgements as relied by the assessee wherein it was held that no disallowance u/s 14A of the Act could be made in respect of any expenditure incurred in earning any exempt income, in the absence of any exempt income?"
v. Whether on the facts and circumstance of the case and in law, the Ld. CIT(A), was justified deleting the addition of Rs.2.66.55,617/-made by Assessing Officer u/s 144 r.w.r. 80D(2)ft), without appreciating the facts that there is no evidence furnished by the assessee to prove that the borrowed funds on which interest is paid by it, are not directly attributed to earning of taxable income only?"
vi. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) was deleting the addition made to Book Profit computed u/s 115 JB of the Income Tax Act, 1961, disregarding the clear provisions under Explanation (1)(1) to section 115 JB of the Act, which does not prescribe any parameters for computing expenditure attributable to exempted income?
vii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made on account of trading in commodity forward contract ignoring the fact that the assessee entered into forward contract with related parties with an intention to incur speculative loss to shift profits to its related parties?"
2. The appellant craves leave to add, delete, alter, modify, rectify, substitute or otherwise any or all of the grounds of appeal at or before the tine of hearing of the appeal.
3. The appellant, therefore, prays that on the ground(s) stated above, the order of the Ld. CIT(A), Mumbai, may be set aside and that of the Assessing Officer to be restored.
4. The order of the Ld. CIT(A) was received by the Pr. CIT, Central-1, Mumbai, having jurisdiction over the case on Page | 4 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15
04.04.2024. Therefore limitation for appeal starts from 04.04.2024 and last date for filing appeal is 03.06.2024."
3. Following grounds of appeal have been raised by appellant in the cross objection no. 129/M/2024:
"Disallowance under section 14A of the Income-tax Act, 1961 ('the Act') read with Rule 8D of the Income-tax Rules, 1962 ('the Rules') On the facts and in the circumstances of the case and in the law, the Learned CIT(A) erred in directing the Learned AO to restrict the disallowance under section 14A of the Act instead of deleting the disallowance made by the Learned AO in absence of his non-satisfaction with the suo moto disallowance offered by the Respondent under section 14A of the Act, thereby violating the mandatory provision of section 14A(2) of the Act.
The Respondent craves leave to add to or alter, by deletion, substitution, modification or otherwise or amend or withdraw the cross objections herein and to submit such statements, documents and papers as may be considered necessary either before or during the hearing of the appeal."
4. The facts of the case, in brief, are that the assessee is a Public Limited Company incorporate under Company Act, 1956. The assessee is subsidiary of Edelweiss Financing Services Limited (hereinafter known as „EFSL‟ and formerly known as Edelweiss Capital Limited. The assessee is a registered sub broker of National Stock Exchange and Bombay Stock Exchange. It is engaged in the business of providing broking and advisory services and also trading in shares and securities, currency derivative, equity derivative and interest rate derivative.
Page | 5 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15
5. Ground No. 1 & 2 - Provision for loss on Mark to Market:
5.1. During the year under consideration, the assessee has claimed deduction on account of provision for loss on Currency and equity futures and options to Rs.16,85,84,243/-, During the course of assessment proceedings the assessee was specifically asked by the AO to show-cause vide notice u/s 142(1) dated 07.11.2016 why the said deduction should not be disallowed since, the same being a contingent liabilityand cannot constitute a deductible expenditure for the purpose of Income tax Act. 5.2. In response to the same, the assessee vide its letter dated 22.12.2016, has given a detailed submission which is reproduced as under:
"Details of loss on outstanding position (scrip wise) are enclosed herewith. The summary of Loss (Net) on outstanding position as on Balance sheet is as under-
Particulars Amount (Rs) Amount (Rs)
Unrealized Loss
Currency Future/Options 1,59,99,671
Equity Future/Options 15,25,84,572 16,85,84,243
Less: Unrealized Gain
Currency Future/Options 32,88,045
Equity Future/Options 9,34,73,587 9,67,61,632
Net Unrealized Loss 7,18,22,611
The assessee has recognized the above unrealized loss (Net) by debiting to Profit/(Loss) on trading in currency derivative instruments Page | 6 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 (net) and Profit on trading in equity derivative instruments (net) grouped under "Income from Treasury operation" (refer note 2.19 of Profit and Loss A/c) However while computing the total income, the assessee has reduced unrealized gain of Rs9,67,61,632/- on outstanding position of futures from "Profit or Gain of Business of Profession" as evident from the computation of Total Income (copy enclosed) During the year under consideration, the assessee has entered into transaction for purchase and sale of derivative futures 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 are measured at fair value as al 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 assessee company has accounted for unrealized loss/gain from derivatives following the principles laid down in Accounting Standard 30- "Financial Instruments: Recognition and Measurement (AS 30)"
Page | 7 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 and "Guidance Note on accounting for Equity Index and Equity Stock Futures and Options" issued by the Institute of Chartered Accountants of India (ICAI) [Guidance Note] AS 30 and the Guidance Note provide that in case of future contracts/option contracts as on the balance-sheet date, a provision should be created for anticipated loss on the open contracts. The derivatives are initially recognised at cost. Subsequent to initial recognition, the derivatives are measured at fair value prevailing on the last day of the financial year and any changes therein are accounted in profit and loss account.
Section 145 of the Act requires that accounting standards prescribed by the CBDT are to be followed in computing the business income of an assessee. Accounting Standard 1 prescribed by the CBDT vide notification No. SO 69 (E) dated 25th January, 1996 provides that accounting policies adopted by an assessee should be such that it represents a true and fair view of the state of affairs of the business in the financial statements prepared and presented on the basis of such accounting policies. As per the standard, under consideration of prudence, provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainly and only represents a best estimate in the light of available Page | 8 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 information. On this criterion, provision for such loss on account of fair value of derivatives is in accordance with the standard. The accounting treatment followed by the assessee is in line with AS 1- Disclosure of Accounting Policies issued by the ICAL. Accounting practices giving a true and fair view have always formed the basis of determining taxable profits, unless there is an overriding provision in the tax laws that warrant a different method of computing the income. The assessee relies upon the following case laws:
Madras Industrial Investment Corpn. Ltd. Vs. CIT ((1997) 225 ITR 802 (SC)) Miss Daun Dadabhoy Kapadia vs. CIT {(1967) 63 ITR 651 (SC)) Challapalli Sugars Ltd 's ((1975) 98 ITR 167 (SC)) CIT vs. Woodward Governor India (P) Ltd {(2007) 162 Taxman 60 (Del) CIT v UP State Industrial Development Corporation ((1997) 225 ITR 703 (SC)) affirmed by Supreme Court (312 ITR 254) The assessee wishes to submit that keeping in view the prudence concept as a consideration for the preparation of financial statements, a provision for the anticipated loss in respect of open future of future contracts was made in accordance with the Accounting Standard 1 on Disclosure of Accounting policies Page | 9 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 The assessee relies on the various judicial decisions wherein it was held that if the assessee follows the method of accounting suggested in the Guidance Notes issued by ICAI, the AO cannot reject the said method of accounting on the ground that the same did not disclose true and correct income for income-tax purpose.
The assessee further submits that under the mercantile system of accounting a revenue loss or expenditure incurred as result of devaluation is allowable in the year in which such devaluation takes place and therefore relying on the said ratio, mark-to market margin losses are rational and not contingent in nature and therefore should be allowed as business deduction.
In support of the above contention, the assessee relied upon the following judicial precedents:
Oil and Natural Gas Corpn Ltd vs Dy CIT (2002) 83 ITD 151 (Delhi, SB) CIT vs. Woodward Governor India (P) Ltd. (2007) 162 Taxman 60 (Del) Associated Bearing Co.Ltd. v. CIT (2006) 286 ITR 341 (Bom). S. Silicon Graphies Systems (1) Ltd V. ACIT (2006) 105 TTJ 591 (Del)"
Page | 10 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 It is further submitted that in the present case the assessee is dealing in derivative instruments/forward contracts that represent „Stock in Trade'. The derivative Instrument dealt by the assessee is akin to in the nature of stock in trade. Being stock in trade, they have to be valued at cost or market value whichever is lower. The derivative future have to be valued on a daily basis so that if there is any diminution in the value of the derivative at the end of the day, the same is accounted for in the books of account to reflect the true and fair value.
The assessee to place reliance on Circular No. 599 dated April 24, 1991 issued by the Central Board of Direct Taxes. The said circular state that securities held by the banks would constitute their stock in trade and consequently any loss claimed by the banks on the valuation of the securities would be allowed as a deduction in computing their taxable profit. The assessee submit that the derivative instruments are akin to in the nature of stock in trade and therefore the loss incurred on valuation of the stock in trade has to be allowed as deduction.
In this connection, reliance is placed on the following judicial precedents"
United Commercial Bank V. CIT (1999) 240 ITR 355 (SC) Page | 11 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 CIT vs. Barik of India (1996) 218 ITR 371 (Bom) The assessee also wishes to place reliance on the following judicial precedents:
in the case of Mashreq Bank vs. DCIT (2007) 18 SOT 233 (Tbom) the ITAT (Mumbai) observed as follows:
"15. We have taken note of the fact that the Assessing Officer has preliminary contended that when anticipated profits on unmeasured contract are held to be non-taxable, as in the case of Indian Overseas Bank (Supra) there is no good reason as to why anticipated losses on un measured contracts can be taken into account while computing business income. There is however an inherent fallacy in this approach insurance as anticipated losses and anticipated profit are not treated in the same manner in the computation of business profits. The accountancy principle of conservatism, which has been duly recognized by the Courts, mandates that anticipated losses are to be provided for in the computation of income but it does not permit anticipated profits to be taken in to account till the profits actually arise. That is the underline reason that in the case of unsold stock, when market rate is higher that the purchase price, the market price ignored in computation of value of stock, and as a result, anticipated profit on Page | 12 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 sale of such stock is ignored. However, when the market price of stock is lower than the purchase price, the market price is taken into account and accordingly, anticipated losses taken in to account. These dual standards in recognizing anticipated losses and anticipate profits are accepted accounting norms..............Just because anticipated profits are not assessed to tax, it would not follow, as a corollary thereto, that anticipated losses can not be allowed as deduction in computation of business income"
The assessee also place reliance on the observations of the Supreme Court in ChainrupSampatram vs. CIT [(1953) 24 ITR 48(SC)) which was relied on by the honorable ITAT in the case of Mashreq Bank (Supra) is reproduced below.
"While anticipated loss is taken into account, anticipated profit...is not brought into account as no prudent trader would care to show increased profit before its actual realisation. This is the theory the rule that the closing stock is valued at cost or market price whichever is lower, and it is now generally accepted as an established rule of commercial practice and accountancy.
To strengthen our view on the above matter we place reliance on Judgement of Hon'ble Supreme Court in the decision of Page | 13 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 CIT vs. Woodward Governor India (P) Ltd. (312 ITR 254] wherein Hon'ble Supreme Court held as under-
"For valuing the closing stock at the end of the particular year, the value prevailing on the last date is relevant. This is because profit/loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of closing is not brought into account, as no prudent trader would care to show increase in profit before actual realization. This is the theory underlying the rule that closing stock is to be valued at cost or market value whichever is less"
We submit that the Hon'ble ITAT in assessee's own cased fled then do loss mark to market for Asstt. Year 2009.10 by dismissing the appeal filed by the department against Hon'ble CIT(A)'s order (Copy enclosed) In the view of the above fact we request you to allow the provision for loss on derivative future of Rs.16,85,84 243/- as a deductible business loss.
5.3. The contentions of the assessee have been perused carefully. Before analyzing the assessee's submission(s), it is better to have a background of provision for losses claimed by the assessee. By nature, Financial Page | 14 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 Markets are extremely volatile and involves a high risk factor. To reduce this risk, the concept of derivatives came in to the picture. Derivatives have been around for as long as people have been trading with one another. Merchants entered in to contracts with one another for future delivery of specified amount of commodities at a specified price to reduce the possibility of future loss due to various factors. These were nothing but derivative contracts.
5.4. In recent times, the financial markets have been deregulated, exchange controls have been liberalized communications have improved and information technology has revolutionized financial transactions At the same time interest and currency exchange rates have become increasingly volatile. As a consequence numerous new financial instruments have evolved and continue to evolve, to meet the varying needs of companies and others involved in international financial transactions. These needs include the protecting the interest of traders/ exporters from extremely volatile market situations, assure them of fixed returns and even provide them with a chance to engage in various forms of speculation. Financial instruments, therefore, cover an ever increasing range of transactions 5.5. More so, in the case of fluctuating currency exchange rates, with a shrinking planet, cross border transactions depend upon these financial instruments/ derivatives to ameliorate the risk of currency exchange Page | 15 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 fluctuations. If the factor involved is the fluctuation in the foreign exchange rates and the derivatives are contracted to reduce the possibility of loss due to the same, such derivatives are Foreign Exchange (Forex) Derivatives.
5.6. A derivative is a financial instrument, whose value is derived from the underlying source. In other words, the value fluctuates with the value or performance of the underlying asset on which it is based. Black's Law dictionary also defines derivative as a financial instrument whose value depends on, or is derived from the performance of a secondary source such as an underlying bond, currency or commodity.
5.7. A derivative has following characteristics:
- its value changes in response to the changes in the value of underlying variable on which it is based like changes in interest rate/commodity price/foreign exchange rate/credit rating etc.
- It requires no initial net investment or much smaller initial net investment than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.
- A derivative is settled at a future date.
5.8. Derivatives can be traded either on a recognized stock exchange or over the counter (OTC). In case of former, the exchange places itself between Page | 16 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 all market participants and therefore accepts the risk of a counter party defaulting. In the latter case, the risks involved are higher. 5.9. Derivatives can be of various types like options, futures, swaps or products with more exotic names depending on the nature of the derivatives. The main types of derivatives are:
a. Options: A contract that grants the holder the right, but not the obligation, to buy or sell a security/commodity / or other asset at a specified price within a specified period of time. b. Futures: A futures contract specifies the price at which a specified asset can be bought or sold at a future date. These are standardized and traded on organized exchanges. Futures contracts are marked-to-market daily and generally not meant for delivery. These are less risky as these are generally backed by third party i.e. stock exchanges. The difference between options and futures is that in case of a futures contract, both the parties (buyer and seller) are under obligation to complete the contract on the specified date. However in case of options contract, the buyer (holder) has the right, but no obligation to exercise the Option while the seller (writer) has the obligation but no right to get the contract completed. c. Forward Contracts : A forward contract is an agreement between two parties to buy or sell an asset at a certain time in future at an agreed price. These contracts are generally traded over the counter directly between Page | 17 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 buyer and seller. Forward contracts are meant for delivery, usually in cash These contracts are settled at the expiry of the contract. These are more risky than futures because either party can default on their obligation to take delivery/ deliver.
d. Swag: A swap is an agreement between two parties which involves the exchange of future cash flow between the two parties according to a pre arranged formula. For example a Party A can make periodic interest payments to party B based on a variable interest rate while party B in turn makes periodic interest payments to Party A based on a fixed rate of 3%. The payments are calculated over the notional amount. 5.10. Also, depending on the underlying source, derivatives can again be of various types like commodity derivatives, equity index derivative, foreign exchange derivatives, energy derivatives, insurance derivative, credit derivatives etc. The foreign exchange derivatives have currency as the underlying asset and hence are affected by any change in the value of the foreign exchange rate prevailing between two currencies. Hence taking currency as the underlying asset, the derivative becomes a currency derivative, with forex rate as the variable (hence currency derivative is also called as forex derivative), which in turn can again be of various types like currency options, currency futures, currency swap etc. Page | 18 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 5.11. Thus, currency option becomes a contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time. Currency options are one of the best ways to hedge against adverse movements in exchange rates. Investors can hedge against foreign currency risk by purchasing a currency option put or call.
5.12. In currency forward contracts and currency futures, the contract holders are obligated to buy or sell the specified quantity of specified currency at a specified price, at a specified quantity and on a specified future date in the forex market and locks in the price at which an entity can buy or sell a currency on a future date. While a currency swap involves the exchange of principal and interest in one currency for the same in another currency.
Currency swap maturities are negotiable for at least 10 years, making them a very flexible method of foreign exchange. Losses son account of forex derivative losses are of mainly two types:
a) Marked-to-Market (MTM) losses: It is an accounting methodology of assigning a value to a position held in a financial instrument based on the current market price for the instrument or similar instruments.
For example, the final value of a futures contract that expires in say one year will not be known until it expires. If it is marked to market, for accounting purposes it is assigned the value that it would currently Page | 19 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 fetch in the open market in line with the fair-value-based concept towards accounting for gains and losses, all derivative instruments are valued at fair value on marked to market basis on each reporting date. Accordingly, unrealized losses and gains are recorded on a periodic basis, which are at times offset and reversed over a period upto the time of settlement, when the ultimate gains or losses are realized/ incurred. The periodic unrealized losses are typically notional Such losses have not been actually incurred but there has been variation in the fair value of derivative as on the reporting date, therefore, it has been reported in quarterly or annual result. Actual loss or gain will be ascertained/ determined after the expiry of period of derivative contract or its termination.
b) Losses on account of dealings in forex derivatives which have actually been incurred by way of settling the difference at the end of the expiry of period of derivative contract, or its termination 5.13. The companies were earlier following Schedule VI of the Companies Act and adjusting their MTM losses in their balance sheet without affecting the profitability, ie, not taking the same to Profit & Loss a/c. But Schedule VI of the Companies Act would eventually go, because since 2006, the Company Law Board has made the Accounting Standard 11 Page | 20 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 mandatory to make "marked to market provisions in their Profit & Loss accounts due to fluctuation in foreign exchange rates 5.14. For accounting specifically for derivatives, the Accounting Standard 30 and Accounting Standard 31 are to be followed These Accounting Standards have laid down the detailed principles for accounting with regard to forex derivatives i.e. for reporting losses/gain on derivatives due to foreign exchange rate fluctuation Accounting Standard 30 and Accounting Standard 31, are issued by ICAI, to establish principles for recognizing, measuring and presenting financial instruments Listed below are various guidelines being followed to account for such losses-
1. Schedule VI of Company's Act:
Schedule VI of the Company's Act prescribes the format in which balance sheet and profit and loss account are to be prepared by corporate. Schedule VI of the Companies Act allow the companies to adjust their MTM losses in their balance sheet without affecting the profitability te not taking the same to Profit & Loss a/c Companies prefer Schedule VI for obvious reasons - adhering to AS 11 norms would allow them to declare lower profits at a time when the rupee is losing ground to the dollar. Though there may be a seeming contradiction between AS 11 and Schedule VI, section 211 of the Companies Act makes it very clear that companies are bound to follow AS 11.
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2. Accounting Standard-11:
Accounting Standard 11 was introduced by the Institute of Chartered Accountants of India (ICA)) in 1989, and was revised in 1994. AS-11 has since been revised in 2003 to be effective from April 1, 2004. The underlying objective behind AS-11 is that business enterprises may have branches abroad and may be preparing P&L accounts and balance-sheets, as per local regulation in foreign currency. However, while consolidating the accounts at the head office, the P&L account and balance-sheet expressed in foreign currencies are required to be translated in Indian rupees. AS-11 prescribes the rate at which such transactions are required to be translated in to rupees while finalizing the P&L account and balance-sheet of the entities concerned. The following transactions attract AS 11:
Payment in foreign currency in respect of goods imported and exported;
Borrowings and lending in foreign currency, including the payment of interest in foreign currency.
Any amount deposited or lying in foreign currency with any bank in India or abroad, Page | 22 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 Forward exchange contracts, if any, by the constituent in respect of payment of value of the goods or installment of loans or interest on loan, Any derivative product bought or sold by the constituent to hedge the exchange risk, Assigned capital, if any, sent to the foreign branch of an entity in foreign currency, Any fixed asset purchased abroad either as an investment or for the use of the branch office abroad, and Funds retained abroad out of profit, such as retained profit, statutory reserves, and so on
3. Accounting Standard-1 (Principle of prudence) Section 145 of the Income tax Act requires that accounting standards prescribed by the Central Board of Direct Taxes (C.B.D.T.) are to be followed in computing the business income. Accounting Standard-1 has been prescribed by the C.B.D.T. vide notification no. SO 69(E) dated 25th January 1996. It provides that accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business in the financial statements prepared and presented on the basis of such accounting policies. It further provides that for this purpose, the major considerations governing the selection and Page | 23 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 application of accounting policies are prudence, substance over form and materiality As per this standard, under consideration of prudence, provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information. The unascertained gains may not be provided for.
Many assessees were taking shelter of this principle of prudence while reporting the marked to market derivative losses and not the corresponding gains. But the Accounting Standard-30 which has been made mandatory has changed the same as far as financial instruments/ derivatives are concerned.
4. Accounting Standard 30 & 31:
The Accounting Standards Board of the institute of Chartered Accountant of India, which sets the standard for the country, has formulated two new Standards on Financial Instruments, ie Accounting Standard-30 (Financial Instruments: Recognition and Measurement), and Accounting Standard-31(Financial Instruments: Presentation).
(a) While AS 30 is the equivalent of International Accounting Standard (IAS) 39, Accounting Standard 31 corresponds to International Accounting Standard 32. The AS 30 is a complex standard and its main objective is to establish principles for recognizing and measuring Page | 24 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 financial instruments whose definition encompass most items of financial assets and financial liabilities in an entity's balance sheet
(b) As per the Accounting Standard 30, the company uses foreign currency forward contracts to hedge its risk associated with foreign currency fluctuations. Such contracts are designated as cash flow hedges and "recognition and measurement principles set out in AS 30 are applied to it (since 1 April 2007). As per these principles, foreign currency forward contract derivatives are initially measured at fair value and re-
measured on each reporting date. Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties in an arm's length transaction. The derivatives are recorded in the Balance sheet at their fair value under the head "Hedging Reserve". Any change in their fair value is recognized directly in Reserves while the ineffective portion is transferred to P&L a/c When hedging instrument expires or sold, the net cumulative gain/ loss is transferred to P & La/c. Changes in the value of derivative financial instruments that do not qualify for hedge accounting are recognized in P&L a/c as and when they arise. c) In other words, in case of Hedge Accounting' as per the provisions of Accounting Standard 30, a Company uses derivative instruments such as foreign currency forward contracts and currency options to hedge its risks associated with foreign currency fluctuations Page | 25 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 relating to certain firm commitments and highly probable forecasted transactions. The derivatives that qualify for hedge accounting and designated as cash flow hedges are initially measured at fair value & are re-measured at a subsequent reporting date and the changes in the fair value of the derivatives te gain or loss (net of tax impact) is recognized directly in shareholders' funds under "Hedging reserve" to the extent considered highly effective. Gain or loss on derivative instruments that either do not qualify for hedge accounting or are not designated as cash flow hedges or designated as cash flow hedges to the extent considered ineffective are recognized in the profit and loss account. Hedge accounting is discontinued when the hedging instrument expires, sold, terminated, or exercised, or no longer qualifies for hedge accounting. The cumulative gain or loss on the hedging instrument recognized in shareholder's funds under hedging reserve is retained there until the forecasted transaction occurs (ie. the hedging instrument is sold/ expired/terminated) subsequent to which the same is adjusted against the related transaction in profit and loss account. if a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in shareholder's fund is transferred to profit and loss account in the same period.
Page | 26 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15
(d) AS-30 has been given substantial time for implementation. It is supposed to be applied for financial year 2009-10 on a recommendatory basis, and from financial year 2011-12 on a mandatory basis. However, on March 29, 2008 the ICAI came up with an "announcement" which says that on grounds of prudence, though AS 30 is not mandatory just now, an entity should provide for losses on all derivatives, even for the financial year just ended.
(e) Accounting Standard 31 primarily establishes principles for presenting financial instruments as liabilities or equity and related principles of interest, dividends, losses and gains. The principles in this Standard complement the principles established in AS-30. 5.15. Under the Income-tax Act there is no special provision or treatment for Marked to Market (MTM) method of accounting. It is governed by general principle of taxation based upon various judicial decisions. Under MTM method of accounting loss or gain arises due to revaluation of financial instrument. Nobody can earn or loose out of his own pocket. Loss or into his pocket. Loss or gain arises only when something goes out of his pocket or something goes There is no actual loss on account of dealings in forex derivatives until their final values are known. Though on the given date the liability does not crystallize, it may be a prudent accounting practice that all the derivatives in the books are marked to Page | 27 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 market as on the date of the book closure, and the losses reported, which has been mandated by ICAI. However, if the contracts run to their full course, no losses might arise. Moreover, the reporting of such notional losses to adhere to the accounting guidelines does not by itself make it deductible for Income-tax purposes. The provisions of Income tax act, 1961 does not allow deduction of any such notional loss for which the liability has not crystallized. Therefore, MTM losses on account of revaluation of forex derivative are only notional, and are not deductible as business losses under Income tax provisions.
5.16. In the case of M/s Sanjeev Woolen Mills Vs Commissioner of Income tax (279 ITR 434) the Hon'ble Supreme Court has upheld the principle that notional income cannot be charged to tax and the assessee can also not get benefit of notional loss which he has not incurred. The Hon'ble Apex Court has observed that:
"In A.LA Firm vs CIT [1991] Vol 189 I.TR (SC). the Court said that as against the valuation of the stock at cost or market whichever is lower, valuation of the closing stock at the market value will invariably create problem. For, if the market value is higher than the cost then the accounts will reflect notional profits not actually realized. On the other hand, if the market value is less, the assessee will get the benefit of the notional loss which he has not incurred.
Page | 28 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 ......The market value of the stock has been taken into consideration while arriving at chargeable income although the market value of the stock is more than the cost value of the stock. The profit earned is only notional. There is no transfer of the goods and the closing stock remains the opening stock of the next accounting year. The income which has not been derived at by the assessee cannot be said to be the income chargeable for income and, therefore, the rejection of the accounts maintained by the assessee for the valuation of the closing stock by the assessing officer and confirmed by the High Court is in accordance with law."
5.17. While applying the same principle to the Marked to Market losses in case of derivatives, it would have to be considered that these losses have not accrued but are being reported merely on the ground that the same is required due to the Accounting code to be followed. Apparently, these losses are notional in nature. In fact there is always a possibility that there may be a loss on balance sheet date, but subsequently when the derivative expires, it may yield a gain. Thus the liability/ loss may ultimately cease to exist.
5.18. To underline the same point further, a reference can be made to the case of CIT Vs Oriental Motors Car Co. P. Ltd (124 ITR 74), in which the Hon'ble Allahabad High Court has held that a liability which has not been Page | 29 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 accepted by the assessee in a financial year cannot be claimed in that financial year:
"......It is settled that the mere fact that an assessee keeps his account on the mercantile system does not give him a handle to debit liability of every kind, whatsoever. The ability that can be debited is only that which is certain, and which arises in present in the present case, although M/s. Escorts Lid. had made a claim for infringement commission, the assessee was contesting that rate, and not admitting his liability. He agreed to pay an amount of Rs. 650 per tractor on the 19th May, 1972. i.e, after the relevant previous year had closed. The liability was of a contractual nature and crystallized only when the assessee agreed to the payment of Rs. 650 per tractor, and not at any point of time earlier. Counsel relied on the decision of the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363 and the court in the case of CIT v. Sugar Dealers (1975) 100 ITR 424. The case of decision of this Kedarnath Jute Manufacturing Co. Ltd. [1971] 82 ITR 363 is clearly distinguishable, for, in that case, the liability for sales tax arose by virtue of the statute as soon as the sale was effected. Such is not the case here... The deduction, as such, could not have been allowed as the liability did not arise in the relevant previous year." (Emphasis supplied).
Page | 30 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 5.19. Hence, for the purpose of taxation, marked to market losses should be considered as just notional losses which do not involve any actual outgo, as the assessee is not liable to pay such losses.
5.20. The CBDT has issued an instruction relating to non- allowability of contingent and unascertained losses in case of the banks Instruction No. 17/2008, dated 26.11.2008, clearly lays out the following principles regarding unascertained liabilities:
"....... Section 37 of the Income tax Act envisages that an amount debited in the P&L account in r-espect of an accrued or ascertained liability only is an admissible deduction, while any provision in respect of any unascertained liability or a liability which has not accrued, do not qualify for deduction. However, it has been found that Banks are claiming provisions under different accounts, probably under the RBI guidelines. A contingent liability cannot constitute a deductible expenditure for the purpose of Income tax Act. Thus, putting aside of money which may become an expenditure on happening of an event would normally not constitute an allowable expenditure under the Income tax Act. The A.O.s should verify such claims as to whether these are admissible as per Income tax Act..."
5.21. The CBDT Instruction dated 23.03.2010 clearly hold the marked to market losses are Page 14 notional losses, and are therefore, not Page | 31 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 allowable. For the sake of convenience, the relevant para of the instruction is reproduced as under:
"Marked to Market" is in substance a methodology of assigning value to a position held in a financial instrument based on its market price on the closing day of the accounting or reporting record. Essentially, 'Marked to Market is a concept under which financial instruments are valued at market rate so as to report their actual value on the reporting date. This is required from the 'point of view of transparent accounting practices for the benefit of the shareholders of the company and its other stakeholders. Where companies make such an adjustment through their Trading or Profit/Loss Account, they book a/corresponding loss [i.e. the difference between the purchase price and the value as on the valuation date) in their accounts This loss is a notional loss as no sale/ conclusion/ settlement of contract has taken place and the asset continues to be owned by the company.
A „Marked to Market‟ loss may be given different accounting treatment by different assesses. Some may reflect such loss as a balance sheet item without making any corresponding adjustment in the Profit and Loss Account. Other may book the loss in the Profit and Loss Account which may result in the reduction of book profit. In cases where no sale or settlement has actually taken place and the loss on, Marked to Market Page | 32 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 basis has resulted in reduction of book profits. Such a notional loss would be contingent in nature and cannot be allowed to be set off against the taxable income. The same should therefore be added back for the purpose of computing the taxable income of an assessee." (Emphasis supplied) 5.22. From the above discussion it is clear that a contingent liability cannot constitute a deductible expenditure for the purpose of Income tax Act. In a similar way, in case of Mark to Market losses, simply because they have to be provided for in the accounting as per the Accounting Standards, the same cannot constitute a deductible expenditure for the purpose of Income tax Act.
5.23. The assessee has also placed reliance on the decision of Hon'ble ITAT as given in the case of Edelweiss Capital Ltd for AY 2004-05, wherein the Tribunal has deleted the similar disallowance. It is seen that the decision of Tribunal has not been accepted by the department on merits and on similar issues appeals have been filed before the Hon'ble High Court, which are still pending.
5.24. In view of the above discussion, the provision of Rs.16,85,84,243/- for loss on Currency and equity futures and options, is hereby disallowed, and is added to the Income of the assessee as non-speculation business."
6. Aggrieved by the order of the AO, the assessee company filed appeal before the Ld. CIT (A), who vide impugned order has held as under:-
Page | 33 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 "Decision on Ground No. 2 & 3:
The issue refers to the "disallowance and addition of Rs.1,75,32,929/- on account of provision for Mark to Market loss on trading in currency and equity derivative instruments". As both the grounds are inter-related to each other, the decision on both the grounds are taken combined: 6.1. The AO, vide para 4.22 & 4.24, in his assessment order has mentioned that "A contingent liability cannot constitute a deductible expenditure for the purpose of Income tax Act. In a similar way, in case of Mark to Market losses, the Accounting Standards, the Accounting Standards cannot constitute a deductible expenditure for the purpose of Income tax Act simply because they have to be provided for in the accounting.
In view of the above discussion, the provision of Rs.1,75,32,929/- for loss on Currency and equity futures and options, is hereby disallowed, and is added to the income of the assessee as non-speculation business." 6.2. Further, during the appellate proceedings, the appellant has submitted that during the year under consideration Appellant has recognized loss on Mark to Market on trading in derivative instrument of Rs.1,75,32,929/- and charged the same to the profit and loss account. The Appellant, during the course of assessment proceeding, explained that it has made provision for loss following accepted accounting principles as Page | 34 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 per the Guidance Note on "Accounting for Equity Index and Equity Stock Futures and Options" and Accounting Standards (AS) 30 issued by the Institute of Chartered Accountants of India (ICAI) and claimed the loss as deductible business expenditure. However, AO has not accepted the contention of Appellant and disallowed Rs.1,75,32,929/-by treating the same as a notional loss and added the same to the income of the assessee as non-speculation business."
6.3. In this regard, the identical disallowance has been made by the AO in identically worded assessment orders in the appellant's own case for AY 2013-14 bearing ITA No. 6890/Mum/2018 (order dated 1. 28.09.2021) wherein (CIT(A) deleted the said disallowance and Department's appeal before the Hon'ble ITAT has been dismissed by the Hon'ble ITAT. 6.4. The discussion and the decision of ITAT regarding the aforementioned ground is reproduced hereunder:
"Ground Nos. 1 & 2 raised by the Revenue is with regard to challenging the action of the Id. CIT(A) deleting the disallowance of provision of Rs.2,77,67,241/- for mark to market loss on trading of derivative Instruments by treating it as notional loss both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act.
Page | 35 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 We have heard rival submissions and perused the materials available on record. We find that assessee company is engaged in the business of trading and arbitrage of commodities, securities and derivative instruments and also providing broking advisory services. The assessee is a member of interconnected stock exchange registered with Securities and Exchange Board of India (SEBI). During the year under consideration, the assessee has recognized loss on Mark to Market on trading in derivative instrument of Rs.2,77,67,241/- and charged the same to the profit and loss account. The assessee during the course of assessment proceedings, explained that it has made provision for loss following accepted accounting principles as per the Guidance Note on "Accounting for Equity Index and Equity Stock Futures and Options" and Accounting Standards (AS) 30 issued by the Institute of Chartered Accountants of India (ICAI) and claimed the loss as deductible business expenditure. However, the Id AO did not accept the contention of assessee and disallowed Rs.2,77,67,241/- by treating the same as a notional loss. The reasons assigned by the AO for treating the loss as notional are as under:
(1) There is no actual loss on account of dealing in derivative as the loss or gain arises only when something goes out or comes in the pocket of the assessee.
Page | 36 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15
(ii) Relying on the judgment of Hon'ble Supreme Court in the case of Sanjeev Woolen Mills vs CIT reported in 279 ITR 434 (SC).
(iii) Relying on CBDT's instruction dated 23.03.2010. 3.2. The assessee submits that the bifurcation of loss on account of ...provision for mark to market is tabulated as under:
Particulars Amount (Rs)
Currency Future 79,90,0243
Currency Options 12,03,560
Index Futures 94,29,052
Index Options 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 Page | 37 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 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 understanding position as on Balance Sheet date (ie. 31.3.2013) are shown as margin paid/ received on derivatives and same are grouped under current assets/current liabilities respectively.
3.5. The assessee company has accounted for the loss/ gain from derivatives instruments following the principles laid down in Accounting Standard 30-"Financial Instruments: Recognition and Measurement (AS
30)" and "Guidance Note on accounting for Equity Index and Equity Stock Futures and Options" issued by the Institute of Chartered Accountants of India (ICAI). The assessee submits that AS 30 and the Guidance Note "... provide that in case of future contracts/ option contracts as on the balance-sheet date, a provision should be created for anticipated loss on the open contracts. The derivatives are initially recognized at cost. Subsequent to initial recognition, the derivatives are measured at fair value prevailing on the last day of the financial year and any changes therein are accounted in profit and loss account.
Page | 38 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 3.6. The assessee submitted that accounting practices giving a true and fair view have always formed the basis of determining taxable profits, unless there is an provision in the tax laws that warrant a different method of computing the income. The assessee also placed reliance on the decisions of the Hon'ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd., reported in 312 ITR 254; Oil and Natural Gas Corporation Ltd., (ONGC) vs. CIT reported in 322 IIR 180; United Commercial Bank vs. CIT reported in 240 IIR 355. Apart from this, assessee also placed reliance on the decision of this Tribunal in case of Edelweiss Capital Ltd., vs, ITO in ITA No.5324/Mum/2007, the Edelweiss Securities Ltd., in ITA No.2193/Mum/2009, ITA No.7792/Mum/2012 and ITA No.5939/Mum/2011 among other cases. The assessee also stated before the Id. CIT(A) that very same issue has been decided by the Id. CIT(A) for A.Y.2011-12 vide order dated 16/03/2016 and for A.Y.2012-13 vide order dated 14/07/2017 in favour of the assessee. The assessee also stated before the Id. CIT(A) that the decision of the Hon'ble Supreme Court in the case of Sanjeev Woolen Mills vs. CIT reported in 279 IIR 434 relied upon by the Id. AO actually strengthens the case of the assessee. In the said case, the Hon'ble Supreme Court held that the stock had to be valued at cost or market value whichever is lower. The assessee's case is identical in as much as an item of stock in Page | 39 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 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 Id. 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 Id. CTT(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 that this issue is squarely covered by the order of this Tribunal in assessee's own case in ITA No.6547/Mum/2017 for earlier years. We find that the Id. CIT(A) had followed the decision relied by this Tribunal in the case of Edelweiss Securities Ltd., vs. Addl. CIT in ITA No.2193/Mum/2009 and DCIT vs. ECL Finance Ltd., in IΓΑ Page | 40 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 No.7656/Mum/2011, both being sister concerns of the assessee, wherein similar issue has been decided in favour of the assessee. The relevant portion of the said orders are not reiterated herein for the sake of brevity. Hence, we do not find any infirmity in the order of the Id. CIT(A)following the Tribunal order while granting relief to the assessee. Accordingly, ground Nos. 1 & 2 raised by the Revenue are dismissed". 6.5. I have considered the relevant material and facts on record, in respect of this ground of appeal, as brought out in the submissions made during appeal proceedings. In view of the facts and circumstances of the case and relying on the decision of the Hon'ble ITAT, 'E' Bench, Mumbai in the Appellant's own case for A,Y. 2013-14, the AO is directed to delete the addition of Rs.1,75,32,929/- on account of provision for Mark to Market loss on trading in currency and equity derivative instruments. Accordingly, the grounds of appeal no. 2 & 3 raised by the appellant are allowed."
7. Decisions on Ground No. 1 & 2 We have considered the rival submissions and it is found that the coordinate Bench of the Hon'ble ITAT, 'E' Bench, Mumbai in the Appellant's own case for A.Y. 2013-14, has already decided the issue in favour of the assessee company and has already directed the AO to delete the addition on account of provision for Mark to Market loss on trading in Page | 41 ITA No.2971/MUM/2024 & CO No. 129/M/2024 ECAP Securities and Investment Ltd.; A. Y.2014-15 currency and equity derivative instruments. Accordingly, the grounds of appeal no. 1 & 2 raised by the revenue are dismissed.
8. Decisions on Ground No. 3, 4, 5, 6 & 7:- Disallowance u/s. 14A:
This issue has already been decided in the favour of the assessee and against the revenue in ITA No. 2965/M/2024 for assessment year 2018-
19. Hence, following that the appeal of the revenue is dismissed and the appeal of the assessee is allowed.
9. In the result, the appeal of the revenue is dismissed and the appeal of the assessee is allowed.
Order pronounced in the open court on 30.09.2024 Sd/- Sd/-
NARENDER KUMAR CHOUDHRY RATNESH NANDAN SAHAY
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 30.09.2024.
Snehal C. Ayare, Stenographer
Copy to:The Appellant
The Respondent
The CIT, Concerned, Mumbai
The DR Concerned Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.