Dy. CIT v. Edelweiss Commodities Services Ltd.

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The Tax Publishers2019 TaxPub(DT) 7674 (Mum-Trib) : (2021) 186 ITD 0189

INCOME TAX ACT, 1961

Section 37(1)

As decided in case of Edel Commodities Limited v. DCIT [[ITA No. 3426/Mum/2016] for AY 2011-12 : 2018 TaxPub(DT) 1834 (Mum-Trib)], even though the loss had not finally crystallized if as per prudent and regular system of accounting, loss had to be accounted for then the same should be allowed under section 37(1).

Business expenditure - Revenue or capital expenditure - Allowability - Provision for mark to market loss on trading in derivative market

Assessee was engaged in the business of trading, settlement and other activities of commodities exchanges for itself and its clients, trading in physical commodities including derivative instruments and also earned rental and interest income. Assessee had made provision for mark to market loss on trading in derivative instruments and it filed details of statement showing provision for mark to market loss and also submitted a detailed note on mark to market loss on outstanding position. However, AO disallowed the same holding that mark to market loss at best can be an uncertained liability or a provision for loss which may or may not incur at the time of settlement of the contract at a future date and profit or loss could not accrue until and unless the contracts were settled. Held: As decided in case of M/s. Edel Commodities Limited v. DCIT [[ITA No. 3426/Mum/2016] for AY 2011-12 : 2018 TaxPub(DT) 1834 (Mum-Trib)], even though the loss had not finally crystallized if as per prudent and regular system of accounting, loss had to be accounted for then the same should be allowed under section 37(1).

REFERRED : M/s. Sanjeev Woolen Mills v. CIT (Civil Appeal No. 6735-6736/2003 vide Order, dated 24-11-2005), Chainrup Sampatram v. CIT (1953) 24 ITR 481 (SC) : 1953 TaxPub(DT) 0120 (SC), PCIT v. Nirma Credit & Capital Pvt. Ltd. (2017) 85 Taxmann.com 72 (Guj)] : 2017 TaxPub(DT) 4021 (Guj-HC), CIT v. Jubiliant Enterprises Pvt. Ltd. [ITA No. 1512/2014] : 2018 TaxPub(DT) 5738 (Bom-HC), CIT v. Woodward Governor India Pvt. Ltd. (2007) 294 ITR 451 (SC) : 2007 TaxPub(DT) 1205 (Del-HC), M/s. Edel Commodities Ltd. v. Dy. CIT [ITA No. 3426/Mum/2016] for assessment year 2011-12 : 2018 TaxPub(DT) 1834 (Mum-Trib), DCIT v. Edelweiss Capital Ltd. [ITA 7654/M/11] : 2018 TaxPub(DT) 1744 (Mum-Trib)

FAVOUR : In assessee's favour.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 14A