Tribunal rules in favor of Assessee on 'Mark to Market' Loss dispute

The Tribunal upheld the Commissioner of Income Tax (CIT) (Appeals) decision, ruling in favor of the Respondent Assessee in a case challenging the addition of 'Mark to Market' Loss on a foreign exchange forward contract. The Tribunal determined the loss was a revenue loss related to normal business activities and not speculative, dismissing the Revenue's arguments based on a previous case and Accounting Standard 11. The Tribunal found no substantial legal issue in the Revenue's formulated question of law, ultimately dismissing the appeal without costs.

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Issues:
Challenge to order of Income Tax Appellate Tribunal regarding addition of 'Mark to Market' Loss on foreign exchange forward contract.

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 challenges the Income Tax Appellate Tribunal's order dated 14 August 2013 regarding the addition of 'Mark to Market' Loss of Rs. 78,10,000 made by the Assessing Officer on account of disallowance of loss on a foreign exchange forward contract. The Respondent Assessee, engaged in import and export of diamonds, claimed the loss was due to hedging transactions to safeguard against exchange rate variations. The Assessing Officer disallowed the claim, considering it a notional loss, which was added to the total income. The Commissioner of Income Tax (CIT) (Appeals) allowed the appeal, stating the forward contract was not speculative but a business transaction. The Revenue appealed to the Tribunal, which upheld the CIT (Appeals) decision, emphasizing the loss was a revenue loss related to normal business activities. The Tribunal dismissed the Revenue's appeal.

The Revenue argued that the Tribunal's decision ignored a previous case in favor of the Revenue and failed to call for proof that the transaction was not speculative. Additionally, the Revenue relied on Accounting Standard 11 to claim the loss was not allowable. However, the Tribunal found the transaction was not speculative, entered into for hedging purposes in the course of regular business activities. The Tribunal's findings were deemed not perverse, as the Assessing Officer did not consider the transaction speculative. The Revenue did not challenge the nature of the transaction during proceedings, and no submission was made to call for explanations from the Assessee. The reliance on Accounting Standard 11 was dismissed as it did not determine the nature of the transaction. The Tribunal highlighted that decisions in favor of the Revenue in other cases did not automatically apply to the present case, emphasizing the need for specific factual similarities. The Tribunal's decision was based on the regular business nature of the transaction, distinguishing it from speculative activities.

The Tribunal concluded that the Revenue's formulated question of law did not present a substantial legal issue, leading to its dismissal. The appeal was ultimately dismissed, with no order as to costs.

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