Tax Appeal Dismissed: MTM Losses from Forex Fluctuations Allowed as Notional Losses Under Income Tax Act Section 37(1.

The HC dismissed the Tax Appeal, affirming the Tribunal's decision that marked to market losses due to foreign exchange fluctuations are allowable as notional losses under Section 37(1) of the Income Tax Act. The ruling emphasized the necessity for consistent treatment of gains and losses, aligning with the SC's precedent.

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Issues:
Disallowance of marked to market loss as notional loss under Section 37(1) of the Income Tax Act.

Analysis:
The issue in this case pertains to the disallowance of an amount claimed by the assessee as an expenditure on account of Foreign Exchange fluctuation. The Assessing Officer and CIT [A] contended that while the expenditure was allowable, it could only be booked on an actual basis, not a notional one. However, the Tribunal, relying on the judgment of the Supreme Court in the case of Commissioner of Income Tax v. Woodward Governor India Private Limited, held that the losses were notional and contingent in nature, thus allowable under Section 37(1) of the Income Tax Act. The Tribunal highlighted the inconsistency in the Assessing Officer's treatment of gains and losses arising from foreign exchange fluctuations, leading to the reversal of the earlier decisions.

Conclusion:
The High Court, in its judgment, dismissed the Tax Appeal, affirming the Tribunal's decision regarding the disallowance of marked to market loss as notional loss under Section 37(1) of the Income Tax Act. The case underscores the importance of consistent treatment of gains and losses for tax purposes, as highlighted by the Tribunal's reference to the Supreme Court's ruling in a similar context. This judgment provides clarity on the treatment of notional losses in the realm of foreign exchange fluctuations, emphasizing the applicability of relevant provisions of the Income Tax Act.

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