Principal Commissioner Of Income Tax – 3 Mumbai v. Dsp Merill Lynch Capital Ltd

SANTOSHSUBHASHKULKARNIDigitally signed bySANTOSHSUBHASHKULKARNIDate: 2022.03.0811:24:07 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1470 OF 2017 Principal Commissioner of Income Tax – 3 Mumbai ...Appellant Versus DSP Merill Lynch Capital Ltd. ...Respondent Mr. Sham Walve, for the Appellant. None for the Respondent. CORAM:K. R. SHRIRAM &N. J. JAMADAR, JJDATED:4[th] MARCH, 2022 ORDER: 1.Seven questions of law proposed are as under: (A)Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified inholding mark-to-market loss on open equity stockholding mark-to-market loss on open equity stock future contracts as ascertained loss withoutappreciating that it is not the value that is pertinentappreciating that it is not the value that is pertinent and under question but the expiry date of the contract which results in crystalization anddetermination of loss. determination of loss. (B)Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT was justified inupholding valuation mark-to-market loss oncase and in law, the Hon’ble ITAT was justified inupholding valuation mark-to-market loss on 31.03.2008 in respect of future contract held asclosing stock-in-trade without appreciating that thecontracts by themself have not value per-se but onlyon account of differential the income or loss getsgenerated on the expiry date or settlement and31.03.2008 being neither of these there is no value asclosing stock-in-trade without appreciating that thecontracts by themself have not value per-se but onlyon account of differential the income or loss getsgenerated on the expiry date or settlement and31.03.2008 being neither of these there is no value as on said date. (C)Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT was justified inholding mark-to-market loss on interest rate swaps asascertained loss without appreciating that it is notthe value that is pertinent and under question butthe expiry date of the contract which results incrystalization and determination of loss.case and in law, the Hon’ble ITAT was justified inholding mark-to-market loss on interest rate swaps asascertained loss without appreciating that it is notthe value that is pertinent and under question butthe expiry date of the contract which results incrystalization and determination of loss. (D)Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT was justified inholding that Investment in Shares held as stock-in-trade has to be exclusded from ‘Investments’ asrequired to be taken under Rule 8D, withoutappreciating, that stock-in-trade of shares is nothingbut Business Investments.case and in law, the Hon’ble ITAT was justified inholding that Investment in Shares held as stock-in-trade has to be exclusded from ‘Investments’ asrequired to be taken under Rule 8D, withoutappreciating, that stock-in-trade of shares is nothingbut Business Investments. (E)Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified inholding mark-to-market losses on future contracts asnot to be added back to Book-Profits u/s 115JB asthe same are ascertained losses, withoutappreciating, that it is not the value that is pertinentand under question but the expiry date of thecontract which results in crystalization anddetermination of loss. holding mark-to-market losses on future contracts asnot to be added back to Book-Profits u/s 115JB asthe same are ascertained losses, withoutappreciating, that it is not the value that is pertinentand under question but the expiry date of thecontract which results in crystalization anddetermination of loss. (E)Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified inholding mark-to-market losses on future contracts asnot to be added back to Book-Profits u/s 115JB asthe same are ascertained losses, withoutappreciating, that it is not the value that is pertinentand under question but the expiry date of thecontract which results in crystalization anddetermination of loss. holding mark-to-market losses on future contracts asnot to be added back to Book-Profits u/s 115JB asthe same are ascertained losses, withoutappreciating, that it is not the value that is pertinentand under question but the expiry date of thecontract which results in crystalization anddetermination of loss. (F)Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT was justified inholding that no interest is disallowable under Rule8D2(ii) as assessee has more interest free funds thanthe investments, without appreciating, that once Rule8D gets applicable there remains no leeway toconsider disallowance of said interest under onereason or other but simply to follow the working asprescribed in the Rule. case and in law, the Hon’ble ITAT was justified inholding that no interest is disallowable under Rule8D2(ii) as assessee has more interest free funds thanthe investments, without appreciating, that once Rule8D gets applicable there remains no leeway toconsider disallowance of said interest under onereason or other but simply to follow the working asprescribed in the Rule. (G)Whether on the facts and in the circumstances of thecase and in law, the Hon’ble ITAT was justified inholding that no interest is disallowable under Rule8D2(ii) as interest income is more than interestexpenditure, without appreciating, that Rule 8Dcase and in law, the Hon’ble ITAT was justified inholding that no interest is disallowable under Rule8D2(ii) as interest income is more than interestexpenditure, without appreciating, that Rule 8D working only interest expenditure is required to beconsidered, consideration of interest income or netinterest has not been provided for. 2.The first three questions (A to C) of law related to thevaluation of mark-to-market loss as on 31[st] March, 2008. ADivision Bench of this Court in Commissioner of Income Tax – 16, Mumbai vs. D. Chetan & Co.[1] has held that so long as it isnot a case of speculative transaction and the loss incurred wasof forward contract in the regular course of business, the lossincurred as forward contract should be allowed as business loss. 3.So far as the substantial question (D) proposed, theTribunal has followed a judgment of this Court in Commissionerof Income Tax - 9 vs. India Advantage Securities Ltd.[2] to holdthat the provisions of Section 14A read with Rule 8D will not beapplicable to investment of shares and securities held as stockin trade. Nothing is placed to indicate, as to why this judgmentof the Bombay High Court was not applicable to the facts inhand. 4.Then as regards question (E), it emanates from questions(A), (B) and (C) proposed and since we are not impressed that 12016 (75) taxmann.com 300 (Bombay). 2[2017] 79 taxmann.com 370 (Bombay). there is any substantial question of law involved for the proposedquestions (A), (B) and (C), this also cannot be considered as asubstantial question of law to be considered by this Court. 4.Then as regards question (E), it emanates from questions(A), (B) and (C) proposed and since we are not impressed that 12016 (75) taxmann.com 300 (Bombay). 2[2017] 79 taxmann.com 370 (Bombay). there is any substantial question of law involved for the proposedquestions (A), (B) and (C), this also cannot be considered as asubstantial question of law to be considered by this Court. 5.As regards proposed questions (F) and (G), on facts, theITAT has accepted that the assessee has demonstrated that theinterest income earned during the relevant previous years farexceeds the interest expenditure. The ITAT has also relied upona judgment of this Court in Commissioner of Income Tax – 2,MumbaI vs. HDFC Bank Ltd.[3]where the Court held that whereassessee’s own funds and other interest bearing funds weremore than investment in tax free securities, order passed byAssessing Officer disallowing a part of interest demand underSection 14A has to be set aside. There is nothing to indicate whythis judgment is not applicable to the facts and circumstances ofthe case. 6.In our view, the Tribunal has not committed any perversityor applied incorrect principles to the given facts and when thefacts and circumstances are properly analysed and correct test isapplied to decide the issue at hand, then, we do not think thatquestions as pressed raise any substantial question of law. 3[2014] 49 taxmann.com 335 (Bombay). 7.The appeal is devoid of merits and it is dismissed with no order as to costs. [N. J. JAMADAR, J.][K. R. SHRIRAM, J.]