The Commissioner of Income Tax vs Pashupati Capital Services Pvt. Ltd.

Having heard both sides, we are of the view that the appeal raises substantial questions of law. It is admitted on the following two substantial questions of law:

"(1) Whether, on the facts and the circumstances of the case, the Hon''ble Tribunal was justified in law in, deleting the addition of tax liability u/s. 115JB of the I.T. Act, 1961 by relying on the decision of Karnataka High Court in the case of CIT and Another Vs. Horizon Capital Ltd., (2011) 245 CTR 601 : (2012) 204 TAXMAN 59 ?

(2) Whether, on the facts and the circumstances of the case and in law, the Hon''ble Tribunal misdirected itself when it gave precedence to section 88E, over clear words of section 115JB which specifically deals with Minimum Alternative Tax payable only in cases where tax otherwise payable is below 10% due to operation of all other provisions of the Act, and such all other Provisions includes section 88E of the I.T. Act, 1961?"

As far as the third question is concerned, the same read as under:

"(3) Whether, on the facts and the circumstances of the case, the Hon''ble Tribunal was justified in law in allowing mark to market loss in Future and Options?"

The Tribunal considered the assessee''s grievance that the Commissioner has erred in confirming disallowance of Rs. 22,77,095/- being mark to market loss on account of close of the year in derivative transactions. The assessing officer noted that the assessee has booked losses on account of mark to market valuation of open positions in respect of futures. The assessing officer''s view was that in the forward contracts, the loss actually is materialised on the date when the stock is squared off and then added back to the amount.

The matter was carried before the Commissioner and who confirmed the same.

After noting the rival contentions in paragraph 13 of the Tribunal''s order at Page 38 and 39 of the paperbook, it has held as under:

"13. We have considered the rival submissions and perused the orders of the lower authorities and also the judicial decisions relied upon by the Ld. CIT(A). The Hon''ble Jurisdictional High Court in the case of Arjan Khimji and Co. (supra) was dealing with a case pertaining to hedging contract entered into by a person not specifically connected with a particular sale. However the facts of the present case are totally distinguishable inasmuch as now the transactions in derivatives market has been taken out of the purview of "speculation transaction". As per guidelines of SEBI, it is imperative to all who have open position, in the F&O segment on the end of the financial year i.e. 31st of march to show mark to market loss in their books of account. On the basis of the directions of the SEBI, the ICAI, which is the highest accounting body of the country, has issued necessary guidelines for the purposes of accounting mark to market losses. In view of this matter, we have no hesitation to hold that the losses booked on the close of the financial year in respect of open positions in futures is a crystalised liability and therefore allowable. We accordingly reverse the findings of the Ld. CIT(A) and direct the AO to allow the loss of Rs. 22,77,095/-. This ground of the assessee is allowed."

After perusing this reasoning of the Tribunal we do not find that the view taken is perverse. The view taken is in consonance with the factual materials and the guidelines so also the directions from the Securities Exchange Board of India (SEBI) and the Institute of Chartered Accountants of India (ICA). In these circumstances, we do not agree with Mr. Kotangale that the appeal raises substantial question of law on question No. 6.3. It is accordingly dismissed to that extent.

Mr. Sanjeev Shah waives service for the respondents.

The Registrar (Judicial) / Registrar, High Court, Original Side, Bombay to ensure that the original record in relation to this Appeal is summoned from the Tribunal and offered for inspection of the parties. This paper book is treated sufficient for the purpose of admission of this Appeal. However, the Registry must further ensure preparation of complete paper book in accordance with the Rules. The Registry in the first instance must send intimation of admission of this Appeal enclosing therewith a copy of this order so as to enable the Tribunal to act accordingly.