I.T.A. Nos. 1407 and 1522/Mum/2012, (Assessment Year: 2008-09). Case: 1. Aatash Share & Commodities Broking Pvt. Ltd., 2. Dy. CIT, Mumbai Vs 1. Asst. CIT, Mumbai, 2. Aatash Share & Commodities Broking Pvt. Ltd.. ITAT (Income Tax Appellate Tribunal)

Case NumberI.T.A. Nos. 1407 and 1522/Mum/2012, (Assessment Year: 2008-09)
CounselFor Appellant: Shri K. Shivaram and Shri Paras Savla and For Respondents: Mrs. Bhavna Yashroy
JudgesI.P. Bansal, Member (J) and Sanjay Arora, Member (A)
IssueIncome Tax Act, 1961 - Sections 115JB, 143(3), 145(2), 88E
Judgement DateSeptember 25, 2013
CourtITAT (Income Tax Appellate Tribunal)


Sanjay Arora, Member (A), (ITAT Mumbai 'A' Bench)

  1. These are a set of Cross Appeals, i.e., by the Assessee and the Revenue, agitating the Order by the Commissioner of Income Tax (Appeals)-9, Mumbai ('CIT(A)' for short) dated 12.12.2011, partly allowing the assessee's appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2008-09 vide order dated 30.11.2010.

    We shall take up the assessee's appeal, being senior, first. Vide its first ground, the assessee challenges the enhancement of its income by Rs. 4,90,512/- by making an addition in respect of mark to market profit of Rs. 7,92,365/- in respect of derivative transactions outstanding as at the year-end. We tabulate the transactions and the profit and loss involved by marking it to market, so as to highlight the controversy under reference (PB pg. 127):

    While the assessee had claimed loss for Rs. 3,01,853/- on the ground of prudence, it had not, correspondingly, accounted for the profit arising on other such unsettled transactions as at the year-end, i.e., 31.03.2008, which works to Rs. 7.92 lacs. The ld. CIT(A) found the same as inconsistent and, accordingly, after show causing the assessee in respect thereof, inasmuch as the same would lead to an enhancement in the assessed income, added the said profit.

    2.1. The parties were heard at length. The assessee as a part and in the regular course of its business enters into forward contracts for purchase and sale of securities, to be settled on a defined, future date. The contracts are subsequently squared up on the basis of the obtaining rates as on the relevant (maturity) date. Accordingly, no profit is booked when the movement in the share price yields a profit as at the year-end, while at the same time books a loss in case of an adverse movement in the share price. This explains the assessee's conduct in, while booking the loss for Rs. 3.02 lacs, not recognizing the unrealized income on other contracts, which works to Rs. 7.92 lacs. The ld. CIT(A) found this incongruent and, therefore, while not distributing the loss as booked, so that the assessee's ground is incorrect to that extent, directed for the inclusion of the unrealized gain, resulting in an enhancement in income by Rs. 7.92 lacs. Apart from inconsistency, the other factor that guided the decision by the ld. CIT(A) is that the loss of Rs. 3.02 lacs had not crystallized, but was only notional, so...

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