M/S. SECURITIES TRADING CORPN. OF INDIA LTD., MUMBAI v. ADDL. CIT. Rg. - 1(3), MUMBAI

1 ITA NOS.449 &973/MUM/2009 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI E EE E BENCH BENCH BENCH BENCH MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI BEFORE SHRI R K PANDA AM BEFORE SHRI R K PANDA AM BEFORE SHRI R K PANDA AM BEFORE SHRI R K PANDA AM & SMT ASHA VIJAYARAGHAVAN JM & SMT ASHA VIJAYARAGHAVAN JM & SMT ASHA VIJAYARAGHAVAN JM & SMT ASHA VIJAYARAGHAVAN JM ITA NO. ITA NO. ITA NO. ITA NO. 449/MUM/2009 449/MUM/2009 449/MUM/2009 449/MUM/2009 (ASST YEA (ASST YEA (ASST YEA (ASST YEAR 2004 R 2004 R 2004 R 2004- -- -05 0505 05) )) ) SECURITIES TRADING CORPN OF INDIA LTD MARTHON EMPEROR MARATHON NEXTGEN COMPLEX OFF: GANPATRAO KADAM MARG LOWER PAREL (W) MUMBAI 12 VS THE ADDL. COMMR OF INCOME TAX RANGE 1(3) MUMBAI 20 ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AAGCS9709K AAGCS9709K AAGCS9709K AAGCS9709K ITA NO. 973/MUM/2009 ITA NO. 973/MUM/2009 ITA NO. 973/MUM/2009 ITA NO. 973/MUM/2009 (ASST YEAR 2004 (ASST YEAR 2004 (ASST YEAR 2004 (ASST YEAR 2004- -- -05) 05) 05) 05) THE ADDL. COMMR OF INCOME TAX RANGE 1(3) MUMBAI 20 VS SECURITIES TRADING CORPN OF INDIA LTD MARTHON EMPEROR MARATHON NEXTGEN COMPLEX OFF: GANPATRAO KADAM MARG LOWER PAREL (W) MUMBAI 12 (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY SHRI DEVDATTA MAINKAR REVENUE BY SHRI D SANGATE PER R K PANDA AM PER R K PANDA AM PER R K PANDA AM PER R K PANDA AM THESE ARE CROSS APPEALS THE FIRST ONE FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AGAINST THE ORDER DATED 21.11.2008 OF THE CIT(A)-XXI MUMBAI RELATING TO ASSESSMENT YEAR 2004-05. FOR THE SAKE OF CONVENIENCE BOTH THE APPEALS WERE HEARD TOGETHER A ND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NOS.449 &973/MUM/2009 ITA NO.449/MUM/2009 ITA NO.449/MUM/2009 ITA NO.449/MUM/2009 ITA NO.449/MUM/2009 (BY THE ASSESSEE) (BY THE ASSESSEE) (BY THE ASSESSEE) (BY THE ASSESSEE) 2 THE GROUNDS OF APPEAL NO.1 BY THE ASSESSEE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF INTEREST AND OTHER EXPENDITURE OF ` 1 16 48 000/- U/S 14A AND FURTHER ERRED IN DI RECTING THE ASSESSING OFFICER TO RECOMPUTED DISALLOWANCE U/S 14A AS PER R ULE 8D OF THE I T RULES. 2.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF DEALING IN GOVERNMENT SECURITIES P SU BONDS COMMERCIAL PAPERS AND OTHER MONEY MARKET INSTRUMENTS. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE A SSESSEE COMPANY HAS EARNED TAX FREE INCOME OF ` 2 83 27 397/- FROM UNITS OF UTI DIVIDEND INCOME OF ` 50 LACS FROM CCIL AND INTEREST OF ` 15 30 137/- FROM TAX FREE BONDS. AFTER REDUCING THIS AMOUNT THE ASSESSEE HAS FILED THE RETURN OF I NCOME DECLARING TOTAL INCOME AT ` 299.95 CRORES. THE ASSESSING OFFICER NOTED TH AT THE ASSESSEE COMPANY HAS DEBITED EXPENDITURE UNDER VARIOUS HEADS INCLUDING I NTEREST AGAINST BORROWED MONEY. THE ASSESSING OFFICER ASKED THE ASSESSEE TO ASCERTAIN THE QUANTUM OF EXPENDITURE INCURRED TO EARN THE TAX FREE INCOME. 2.2 IT WAS EXPLAINED BY THE ASSESSEE THAT AN INVEST MENT OF ` 5 CRORE WAS MADE IN THE SHARES OF THE CCIL ON 24 TH AUG 2001 WHICH WAS IN LINE WITH THE COMPANYS BROADER OBJECTIVE OF DEVELOPING AN ACTIVE SECONDARY DEBT MARKET IN THE COUNTRY. THE NET WORTH OF THE COMPANY AS ON 31 ST MARCH 2001 STOOD AT ` 674.78 CRORE. THE SAID INVESTMENT WAS OF A LONG T ERM NATURE AND THE COMPANY DOES NOT HAVE ANY MATCHING LONG TERM BORROWING. IT WAS THEREFORE FINANCED ENTIRELY OUT OF THE NET WORTH OF THE COMPANY. 3 ITA NOS.449 &973/MUM/2009 2.3 AS REGARDS INVESTMENT IN UNITS OF UTI MIP 1999 IT WAS SUBMITTED THAT AN INVESTMENT OF ` 25 CRORE IN UTI MIP 1999 WAS MADE ON 19.5.1999 WHE N THE NET WORTH OF THE COMPANY STOOD AT ` 605.32 CRORE ON 1.1.1999. THE INVESTMENT WAS MADE ENTIRELY OUT OF THE NET WORTH OF THE COMPANY. 2.4 AS REGARDS THE INVESTMENT OF ` 15 CRORE IN 5% TAX FREE BONDS OF NABARD 2008 IT WAS SUBMITTED THAT THE SAME WAS MADE ON 1. 10.2003 AND THE NET WORTH OF THE COMPANY AS ON 1.4.2003 WAS ` 923.20 CRORE. THIS INVESTMENT WAS MADE ENTIRELY OUT OF THE NET WORTH OF THE COMPANY. IT WAS FURTHER SUBMITTED THAT THE COMPANY HAS NOT CLAIMED ANY INCOME BY WAY OF CAPITA L GAINS DURING THE PREVIOUS YEAR 2003-04 AND THE COMPANY DID NOT HOLD ANY INVESTMENTS OTHER THAN THE SHARES IN THE CCIL DURING THE YEAR. 3 HOWEVER THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATIONS GIVEN BY THE ASSESSEE. HE NOTED THAT THE ASSESSEE F AILED TO ESTABLISH THE NEXUS BETWEEN THE AVAILABILITY OF INTEREST FREE SURPLUS F UNDS ON THE DATE OF INVESTMENT MADE IN THE TAX FREE BONDS SHARES ETC. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND APPLYING PROVISIONS OF SEC. 14A HE DISALLOWED AN AMOUNT OF RS. 116.48 LACS OUT OF THE TOTAL EXPENDITURE OF RS. 15236.18 LACS CLAIMED BY THE ASSESSEE. 4 IN APPEAL THE CIT(A) FOLLOWING THE DECISION OF T HE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT P LTD. DIRECTED THE ASSESSING OFFICER TO RE-COMPUTE THE DISALLOWANCE U/S 14A KEE PING IN VIEW THE PRINCIPLES 4 ITA NOS.449 &973/MUM/2009 LAID DOWN IN RULE 8D OF THE INCOME TAX RULES. AG GRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL HERE BEFORE US. 5 THE LD COUNSEL FOR THE ASSESSEE REFERRING TO THE BALANCE SHEET FOR VARIOUS ASSESSMENT YEARS SUBMITTED THAT AS AGAINST INVESTM ENT OF RS. 45 CRORES THE NET WORTH OF THE ASSESSEE COMPANY IS RS. 1004 CRORE S AND THE ENTIRE INVESTMENT HAS BEEN MADE OUT OF SURPLUS FUNDS. REFERRING TO T HE COPY OF THE ASSESSMENT ORDER FOR AY 2000-01 WHICH IS PLACED AT PAGES 31 T O 34 OF THE PAPER BOOK AND COPY OF THE ASSESSMENT ORDER FOR AY 2001-02 WHICH IS PLACED AT PAGES 35 TO 41 OF THE PAPER BOOK HE SUBMITTED THAT NO INTEREST HA S BEEN DISALLOWED BY THE ASSESSING OFFICER IN THE ORDER PASSED U/S 143(3) OF THE ACT AND ONLY PROPORTIONATE ADMINISTRATIVE EXPENDITURE HAS BEEN D ISALLOWED. HE ACCORDINGLY SUBMITTED THAT NO DISALLOWANCE OF INTEREST U/S 14A SHOULD BE MADE. 5.1 THE LD DR ON THE OTHER HAND SUBMITTED THAT T HE ASSESSEE HAS NOT SATISFACTORY EXPLAINED BEFORE THE ASSESSING OFFICER THAT NO BORROWED FUNDS HAVE BEEN UTILIZED BY THE ASSESSEE COMPANY IN MAKING THE INVESTMENTS IN SHARES AND SECURITIES THE INCOME OF WHICH IS EXEMPT FROM TAX. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) SHOULD BE UPHELD. 6 AFTER HEARING BOTH THE SIDES WE FIND THE ISSUE I NVOLVED IN THE IMPUGNED ASSESSMENT YEAR IS 2004-05. THEREFORE IN VIEW OF T HE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG P LTD VS ACIT REPORTED IN 328 ITR 81 PROVISIONS OF RULES 8D OF IT RULES AR E NOT APPLICABLE FOR THE 5 ITA NOS.449 &973/MUM/2009 IMPUGNED ASSESSMENT YEAR. HOWEVER AS REGARDS THE ALLOCATION OF INTEREST AND OTHER ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO EARNI NG OF TAX FREE INCOME IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE ORDER PASSED BY THE ASSESSING OFFICER IN THE PRECEDING ASSESSMENT Y EAR NO INTEREST SHOULD BE DISALLOWED AND ONLY PROPORTIONATE ADMINISTRATIVE EX PENDITURE SHOULD BE DISALLOWED. ACCORDING TO HIM NO PART OF THE BORRO WING HAS GONE TOWARDS INVESTMENT IN VARIOUS SHARES AND SECURITIES THE IN COME OF WHICH IS EXEMPT FROM TAX. HOWEVER IN OUR OPINION THE SAME NEEDS VERI FICATION AT THE LEVEL OF THE ASSESSING OFFICER ESPECIALLY WHEN IN THE ORDERS PAS SED U/S 143(3) FOR ASSESSMENT YEARS 2000-01 AND 2001-02 NO SUCH DISALLOWANCE HAS BEEN MADE U/S 14A ON ACCOUNT OF INTEREST AND ONLY DISALLOWANCE U/S 14A H AS BEEN MADE ON ACCOUNT OF PROPORTIONATE ADMINISTRATIVE EXPENDITURE. WE THERE FORE DEEM IT PROPER TO RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSI NG OFFICER WITH THE DIRECTION TO DECIDE THE SAME AFRESH AND IN ACCORDANCE WITH LAW A FTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR S TATISTICAL PURPOSE. 7 GROUNDS OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF DEPRECIA TION CLAIM TO THE TUNE OF ` . 11 04 419 ON RESIDENTIAL PREMISES. 7.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE COMPANY HAS PURCHASED 11 FLATS FOR THE OFFICERS OF THE ASSESSEE COMPANY. OUT OF THESE 7 FLATS ARE OF 2 BHK AND 4 ARE 3 BHK. OUT OF THESE 4 FLATS OF 3 BHK 2 FLATS REMAINED VACANT AND WERE NOT UTILIZED. ACCORDINGLY THERE WAS NO RECOVE RY OF RENT FROM THE OFFICERS CONCERNED. THE ASSESSING OFFICER NOTED THAT THE AS SESSEE COMPANY HAS CLAIMED 6 ITA NOS.449 &973/MUM/2009 DEPRECATION IN RESPECT OF ALL THE 11 FLATS. THE ASS ESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DEPRECIATION SHOU LD NOT BE DISALLOWED IN CASE OF THE TWO FLATS OF 3 BHK WHICH REMAINED VACANT THR OUGHOUT THE YEAR. REJECTING THE EXPLANATIONS GIVEN BY THE ASSESSEE AND NOTING T HAT TWO FLATS WERE NOT PUT TO USE AND THERE WAS NO RECOVERY OF RENT THE ASSESSIN G OFFICER DISALLOWED THE CLAIM OF DEPRECATION AMOUNTING TO ` . 11 04 419/- ON ACCOUNT OF DEPRECIATION OF THOSE TWO FLATS. 8 IN APPEAL THE CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR FOR ASSESSMENT YEAR 2003-04 UPHELD THE DISALLOWANCE OF DEPRECIATION OF THE TWO FLATS. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) TH E ASSESSEE IS IN APPEAL HERE BEFORE US. 9 AFTER HEARING BOTH THE PARTIES WE FIND THE TRIBU NAL VIDE ITA NO.2288/MUM/2007 ORDER DATED 22.12.2008 HAS RESTORE D THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. SINC E THE CIT(A) FOLLOWING HIS ORDER FOR AY 2003-04 HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SINCE THE TRIBUNAL FOR THE ASSESSMENT YEAR 20 03-04 HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER; THEREFORE RE SPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE WE RESTORE TH IS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORD ANCE WITH LAW AND AFTER ALLOWING DUE OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS A CCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 7 ITA NOS.449 &973/MUM/2009 973/MUM/200 973/MUM/200 973/MUM/200 973/MUM/2009( BY THE REVENUE) 9( BY THE REVENUE) 9( BY THE REVENUE) 9( BY THE REVENUE) 10 THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE AD DITION OF ` 1 09 69 000/- BEING DISALLOWANCE OF PROVISION FOR OUTSTANDING REPO TRANSACTIONS DEBITED TO PL ACCOUNT SINCE THE EXPEN DITURE WAS ACTUALLY NOT INCURRED AND WAS DEBITED ON PROVISIONAL BASIS. 10.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE COMPANY HAS DEBITED AN AMOUNT OF ` 1 09 69 000/- UNDER THE HEAD PROVISIONS FOR OUTST ANDING REPO. ON BEING QUESTIONED BY THE ASSESSING OFFICER TO JUSTIF Y THE PROVISIONS FOR THE AMOUNT CLAIMED IN THE P&L ACCOUNT THE ASSESSEE VIDE REPLY DATED 14.11.2006 SUBMITTED AS UNDER: IN ACCORDANCE WITH THE RBI GUIDELINES WHENEVER AN Y AMOUNT IS BORROWED UNDER REPO TO STOCK OR INVESTMENT A/C IS CREDITED W ITH THE BOOK VALUE OF THE SECURITY GIVEN UNDER REPO. IF THE REPO PRICE OF THE SECURITY (WHICH IS CLOSE TO THE PREVAILING MARKET PRICE) IS DIFFERENT FROM ITS BOOK VALUE THE DIFFERENCE IS DEBITED OR CREDITED TO REPO PRICE ADJ USTMENT A/C. SIMILARLY THE INTEREST ACCRUED ON THE SECURITY TILL THE DATE OF REPO (BROKEN PERIOD INTEREST IS CREDITED TO THE REPO INTEREST ADJUSTMEN T A/C BY THE SELLER. IN THE CASE OF REPO TRANSACTIONS OUTSTANDING ON THE DATE O F THE BALANCE SHEET IF THE BOOK VALUE OF THE REPOED SECURITY IS HIGHER THA N THE REPO PRICE A PROVISION HAS TO BE MADE FOR THE DIFFERENCE BY DEBI TING THE DIFFERENCE TO THE P&L ACCOUNT. THUS THE CREDIT BALANCE IN THE RE PO PRICE ADJUSTMENT A/C APPEARS IN THE BALANCE SHEET UNDER OTHER ASSET S AND THE SAME AMOUNT APPEARS AS A PROVISION UNDER THE HEAD CURRE NT LIABILITIES AND PROVISIONS. THE CREDIT BALANCE IN THE REPO INTERES T ADJUSTMENT A/C WHICH REPRESENTS INTEREST ACCRUED TILL THE DATE OF REPO APPEARS UNDER THE HEAD CURRENT LIABILITIES AND PROVISIONS. THE CREDIT BAL ANCE IN THE REPO INTEREST ADJUSTMENT A/C WHICH REPRESENTS INTEREST ACCRUED T ILL THE DATE OF REPO APPEARS UNDER THE HEAD OTHER LIABILITIES. THE SA ME AMOUNT IS ACCOUNTED AS ACCRUED INCOME AND CREDITED TO INTEREST RECEIV ED A/C. AT THE BEGINNING OF THE NEXT FINANCIAL YEAR ALL ENTRIES F OR THE ACCRUED INTEREST AND THE PROVISION MADE AT THE END OF THE YEAR ARE R EVERSED. THUS THE PROFIT AND LOSS A/C IS CREDITED WITH THE AMOUNT OF THE PROVISION IF 8 ITA NOS.449 &973/MUM/2009 DISALLOWED AS EXPENDITURE IN THE ASSESSMENT YEAR 20 04-05 WOULD HAVE TO BE ALLOWED AS A DEDUCTION FROM THE PROFIT IN ASSESS MENT YEAR 2005-06. 11 NOT BEING SATISFIED WITH THE EXPLANATION GIVEN B Y THE ASSESSEE AND HOLDING THAT THE ASSESSEE COMPANY HAS ACTUALLY NOT INCURR ED THE EXPENDITURE AND HAS DEBITED THIS AMOUNT ON PROVISIONAL BASIS THE ASSES SING OFFICER HELD THAT THE SAME IS NOT AN ALLOWABLE EXPENDITURE. HE ACCORDINGL Y DISALLOWED THE AMOUNT OF ` 109.69 LACS. 12 BEFORE THE CIT(A) THE ASSESSEE MADE A DETAILED SUBMISSION. THE GUIDELINES ISSUED BY THE RBI WERE BROUGHT TO THE NO TICE OF THE CIT(A). VARIOUS CASE LAWS WERE ALSO CITED. IT WAS SUBMITTED THAT S INCE THE SALE OF SECURITY HAS DEFINITELY TAKEN PLACE DURING THE YEAR THE RESULTA NT LOSS HAS TO BE ALLOWED IN COMPUTING THE BUSINESS INCOME NOTWITHSTANDING THE OBLIGATION TO RE-PURCHASE THE SAME SECURITY IN THE SECOND LEG OF THE TRANSACT ION. IT WAS FURTHER SUBMITTED THAT IF A PROVISION IS MADE FOR AN ACCRUED LIABILIT Y OR LOSS THE SAME CANNOT BE DISALLOWED MERELY FOR THE REASON THAT IT IS CALLED A PROVISION. IT WAS SUBMITTED THAT WHAT IS IMPORTANT IS THAT THE LIABILITY OR THE LOSS MUST HAVE CRYSTALLISED DURING THE YEAR AND IT IS NOT DEPENDENT ON HAPPENIN G OR NOT HAPPENING OF ANY FUTURE UNCERTAIN EVENT. THE SCHEME OF ENTRIES OF RE PO TRANSACTION AND THE DISCLOSURES OF THE RELEVANT ACCOUNT AND BALANCE SHE ET AND PROFIT & LOSS ACCOUNT WERE BROUGHT TO THE NOTICE OF THE CIT(A). IT WAS F URTHER SUBMITTED THAT THE LOSS IN REPO TRANSACTION IS ACTUAL LOSS AND TECHNICALLY CAL LED AS PROVISION AS MANDATED BY THE RBI GUIDELINES. 9 ITA NOS.449 &973/MUM/2009 13 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE CIT(A) DELETED THE DISALLOWANCE BY HOLDING AS UNDER: 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE APPELLANT. THE LD ASSESSING OFFICER HAS MISUNDERSTOOD THE WORD PROVISION FOR OUTSTANDING REPO AND TREATED I T AS CONTINGENT LIABILITY. THE APPELLANT COMPANY HAS TO FOLLOW GUIDELINES FOR ACCOUNTING OF REPO/RESERVE REPO TRANSACTION AS MANDATED BY RBI. T HE GUIDELINES RECOGNIZE REPO TRANSACTION AS OUTRIGHT SALE/PURCHAS E AND EXPLAIN CONSEQUENTIAL EFFECTS THEREOF IN THE ACCOUNTS. THE SELLER IN A REPO TRANSACTION REDUCES SECURITY FROM ITS STOCK ON CONC LUSION OF FIRST LEG OF TRANSACTION AND BOOKS THE LOSS UNDER THE HEAD REPO PRICE ADJUSTMENT ACCOUNT. THE BUYER IS LEGAL OWNER OF THE SECURITY TRANSFERRED TO HIM AND ENTITLED TO INTEREST RECEIVABLE DURING THE REPO PER IOD. THUS ONCE LEGAL CHARACTER OR REPO TRANSACTION IS DEFINED AS SALE OF SECURITY AND ACCEPTED AS SUCH LOSS INCURRED THEREON IS ACTUAL LOSS. THE GUIDELINES FURTHER PRESCRIBE FOR THE DISCLOSURE OF LOSS ON OUTSTANDING REPO TRANSACTION IN THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET. THE LOSS ON OUTSTANDING REPO TRANSACTION AT BALANCE DATE IS TERMED AS PROVISION FOR OUTSTANDING REPO. THE NOMENCLATURE PROVISION HAS NO RELATION TO PR OVISION AS USED IN THE ACCOUNTS FOR BOOKING ESTIMATED LIABILITY. IN THIS C ASE THE LOSS HAS ACTUALLY INCURRED ON SALE AND IT IS NOT NOTIONAL LOSS AND TH EREFORE THE HEAD UNDER WHICH IT IS DEBITED TO PROFIT AND LOSS ACCOUNT IS I RRELEVANT. THE SCHEME OF ENTRIES SUBMITTED BEFORE ME ALSO REVEALS THAT IT IS INCURRED LOSS AND NOT NOTIONAL/ESTIMATED LOSS. 5.4 THEREFORE I FIND MERIT IN THE CONTENTION OF THE APPELLANT THAT AMOUNT DEBITED TO PROFIT AND LOSS ACCOUNT UNDER THE HEAD PROVISIONS IS LOSS ACTUALLY INCURRED. ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF ` 1 09 69 000/-.GROUND NO.2 IS THUS ALLOWED. 14 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL HERE BEFORE US. 15 THE LD DR RELIED ON THE ORDER OF THE ASSESSING O FFICER. THE LD COUNSEL FOR THE ASSESSEE ON THE OTHER HAND WHILE SUPPORTING TO THE ORDER OF THE CIT(A) DREW THE ATTENTION OF THE BENCH TO THE GUIDELINES ISSUE D BY THE RBI COPY OF WHICH IS 10 ITA NOS.449 &973/MUM/2009 PLACED AT PAGE 29 OF THE PAPER BOOK. REFERRING TO THE ANNUAL ACCOUNTS COPY OF WHICH IS PLACED AT PAGES 1 TO 28 OF THE PAPER BOOK HE SUBMITTED THAT THE ASSESSEE IS SHOWING REPO IN THE BOOKS OF ACCOUNT AS SALE AND THERE IS NO STOCK-IN- TRADE. REFERRING TO THE GUIDELINES FOR UNIFORM ACCO UNTING OF REPO AND REVERSE REPO TRANSACTIONS ISSUED BY THE RBI HE SUBMITTED T HAT SECURITIES SOLD/PURCHASED UNDER REPO SHOULD BE ACCOUNTED AS AN OUTRIGHT SALE /PURCHASE. REFERRING TO CLAUSE N HE DREW THE ATTENTION OF THE BENCH TO TH E FOLLOWING: N SINCE THE DEBIT BALANCES IN THE REPO PRICE ADJUSTMENT ACCOUNT AT THE END OF THE ACCOUNTING PERIOD REPRESENT LOSSES N OT PROVIDED FOR IN RESPECT OF SECURITIES OFFERED IN OUTSTANDING REPO T RANSACTIONS IT WILL BE NECESSARY TO MAKE A PROVISION THEREFORE IN THE PROF IT & LOSS ACCOUNT. 14.1 HE SUBMITTED THAT SINCE THE ACCOUNTING METHOD FOLLOWED BY THE ASSESSEE IS IN CONFORMITY WITH THE GUIDELINES ISSUED BY THE RBI AND SINCE THE CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON THE BASIS OF VARIOUS GUIDELINES ISSUED BY THE RBI RELATING TO REPO TRANS ACTIONS; THEREFORE THE SAME IS IN ORDER AND NO INTERFERENCE IS CALLED FOR. HE ACCO RDINGLY SUBMITTED THAT THE GROUND RAISED BY THE REVENUE SHOULD BE DISMISSED. 15 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE GUIDEL INES ISSUED BY THE RBI FOR UNIFORM ACCOUNTING AND REVERSE REPO TRANSACTION DAT ED 20.3.2004 COPY OF WHICH IS PLACED AT PAGES 29 TO 39 OF THE PAPER BOOK. AFT ER GOING THROUGH THE GUIDELINES ISSUED BY THE RBI FOR UNIFORM ACCOUNTING REPO/REVER SE REPO TRANSACTION WE FIND THE ASSESSEE COMPANY HAS FOLLOWED THE GUIDELINES IS SUED BY THE RBI AND ACCORDINGLY DEBITED THE AMOUNT OF ` 109.69 LACS UNDER THE HEAD PROVISION FOR 11 ITA NOS.449 &973/MUM/2009 OUTSTANDING REPO TRANSACTION. WE FIND THE CIT(A) HAS CORRECTLY APPRECIATED THE FACTS OF THE CASE IN THE LIGHT OF THE GUIDELINES IS SUED BY THE RBI AND HAS DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . TH E LD DR COULD NOT POINT OUT ANY DISTINGUISHABLE FEATURES OR MISTAKE IN THE ORDE R OF THE CIT(A). SINCE THE ORDER OF THE LD CIT(A) IS IN CONFORMITY WITH THE GUIDELIN ES ISSUED BY THE RBI AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOT ICE BY THE REVENUE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT(A ) AND UPHOLD THE SAME. GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 16 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL FILED BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THE 11 TH DAY OF FEB 2011. SD/- SD/- ( (( ( ASHA VIJAYARAGHAVAM ASHA VIJAYARAGHAVAM ASHA VIJAYARAGHAVAM ASHA VIJAYARAGHAVAM ) )) ) JUDICIAL MEMBER ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 11 TH FEB 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI