2015 (8) TMI 1471 - AT - Income Tax

Tribunal Allows Business Loss Claim on Forward Contracts, Dismisses Revenue Appeals

ACIT-16 (3), Mumbai Versus M/s. Polar Star

The Tribunal upheld the CIT (A)'s decision, allowing the assessee to claim Mark-to-Market loss on forward exchange contracts as a business loss. Citing ... 'Mark to Market' loss - valuation of forward exchange contracts on the closing date of accounting year is not a notional loss as allowable - notional loss on account of valuation of foreign exchange forward contracts - HELD THAT:- Mark-to-Market gain or loss is held as allowable business 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 CIT (A)'s order on this issue, for both the assessment years under consideration, is fair and reasonable and it does not call for any interference. Accordingly, Grounds raised by the Revenue in both the appeals are dismissed. Issues involved:- Allowability of Mark-to-Market loss on valuation of forward exchange contracts- Consideration of precedents and decisions in similar casesAnalysis:1. Allowability of Mark-to-Market loss on valuation of forward exchange contracts:- The appeals filed by the Revenue against the CIT (A)'s order for the assessment years 2009-2010 and 2010-2011 raised the issue of whether the Mark-to-Market loss of Rs. 6,11,76,098/- on the valuation of forward exchange contracts is a notional loss and therefore allowable. The CIT (A) held that the assessee is eligible for incurring business losses through 'mark to market' losses on forward contracts and partly allowed the appeal. The Revenue, aggrieved by this decision, brought the matter before the Tribunal.- The Counsel for the assessee argued that the issue at hand pertains to the allowability of Mark-to-Market loss on revaluation of outstanding forward contracts on a notional basis. They cited previous decisions by the ITAT, Mumbai in similar cases where the loss was allowed as a business loss. The Counsel urged the Tribunal to decide in favor of the assessee based on the consistency of decisions in such matters.- The Tribunal examined the orders of the Revenue Authorities, the cited decisions of the ITAT, and other precedents. It noted that in a previous case involving similar issues, the Tribunal had decided in favor of the assessee, allowing the Mark-to-Market loss as a business loss. The Tribunal found the CIT (A)'s order fair and reasonable, leading to the dismissal of the Revenue's grounds in both appeals.2. Consideration of precedents and decisions in similar cases:- The Tribunal referenced a previous case where the Mark-to-Market gain or loss was considered allowable based on the specific circumstances. In the instant case, a loss of Rs. 6,11,76,088/- was incurred on the revaluation of forward contract agreements. The Tribunal found the CIT (A)'s order on this issue fair and reasonable, leading to the dismissal of the Revenue's grounds in both appeals.- Ultimately, the Tribunal dismissed both appeals of the Revenue, upholding the decision of the CIT (A) regarding the allowability of Mark-to-Market loss on the valuation of forward exchange contracts. The judgment was pronounced in open court on 5th August 2015.