2014 (7) TMI 1293 - AT - Income Tax

Mark-to-Market Loss on Forward Contracts Allowed as Business Loss for 2009-2010

ACIT-16 (3), Mumbai Versus C.J. Exporters

The Tribunal dismissed the Revenue's appeal and upheld the CIT (A)'s decision that the Mark-to-Market loss on the revaluation of forward contract ... Mark-to-Market loss - allowable ‘business loss’ - re-valuation of forward contract agreements on the closing date of accounting year - whether not a notional loss and therefore allowable? - HELD THAT:- Mark-to-Market gain or loss is held as allowable gain or loss as the case may be. In the instant case, loss arising on re-valuation of forward contract agreements on 31st March, 2009. Thus, the order of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, ground raised by the Revenue is dismissed. Issues:Allowability of Mark-to-Market loss on revaluation of forward contract agreements for the assessment year 2009-2010.Analysis:The appeal filed by the Revenue challenged the order of CIT (A) regarding the allowability of Mark-to-Market loss of &8377;1,06,90,750/- arising on re-valuation of forward contract agreements on the closing date of the accounting year. The Revenue contended that the loss should not be considered as a notional loss and thus not allowable. During the proceedings, no representation was made on behalf of the assessee. The Ld DR mentioned that the issue was adjudicated by CIT (A) in favor of the assessee, citing a previous decision by ITAT, Mumbai, and the Special Bench decision in the case of DCIT vs. Bank of Bahrain.The CIT (A) extensively discussed the issue and held that the loss incurred by the appellant on the restatement of pending forward contract agreements at the year-end is an allowable business loss. The CIT (A) found that the facts of the appellant's case were covered by previous decisions of the Hon'ble Supreme Court and the ITAT Mumbai Bench. The Mark-to-Market loss was considered as an allowable business loss based on precedents and legal interpretations.The Tribunal, after hearing the arguments and examining the orders of the AO and CIT (A), found that the Mark-to-Market loss was allowable as a business loss. The Tribunal noted that the loss of &8377;1,06,90,750/- arising on the revaluation of forward contract agreements was fair and reasonable. Therefore, the Tribunal dismissed the ground raised by the Revenue and upheld the order of the CIT (A) regarding the allowability of the Mark-to-Market loss.In conclusion, the Tribunal dismissed the appeal of the Revenue, affirming the decision of the CIT (A) that the Mark-to-Market loss on the revaluation of forward contract agreements was an allowable business loss for the assessment year 2009-2010. The order was pronounced in the open court on 16th July 2014.