Case Law Details
DCIT Vs Edelweiss Commodities Services Ltd. (ITAT Mumbai)
During the assessment proceedings, the assessee 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. Assessee submitted that it had made provisions for loss following accepted accounting principles as per the Guidance Note on ‘Accounting for Equity Index & Equity Stock Futures and Options’ issued by ICAI and claimed the loss as deductable business expenditure.
However, the Assessing Officer (AO) was not convinced to the above explanation of the assessee and held that (i) as the derivative contracts are not accounted for in the books of accounts at the inception thereof at the time of purchase, they do not and cannot form a part of stock-in-trade (ii) any contract to acquire a derivative at a future date is a forward contract to acquire a commodity; this contract as such is not a stock-in-trade and hence it cannot be valued at the time of preparation of balance sheet as stock-in-trade.
ITAT held that 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).
FULL TEXT OF THE ITAT JUDGEMENT
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