ITAT ruling: Deduction issue partly allowed, derivative loss disallowance rejected. Authentic forms crucial.

The ITAT partly allowed the Revenue's appeal regarding the weighted deduction issue for statistical purposes but rejected it concerning the derivative loss disallowance. The judgment emphasized the importance of authentic prescribed forms for deductions and the treatment of derivative losses as accrued liabilities based on legal precedents and accounting standards.

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Issues:
1. Allowability of weighted deduction u/s 35(2AB)
2. Disallowance of derivative loss

Issue 1: Allowability of weighted deduction u/s 35(2AB)

The Revenue appealed against the CIT (A)'s order for the A.Y 2012-13, challenging the allowance of weighted deduction u/s 35(2AB) and deletion of derivative loss disallowance. The AO observed that the assessee did not submit the prescribed form approved by the DSIR to justify the weighted deduction claim. Despite allowing a sum u/s 35(1), the AO disallowed the weighted deduction. The CIT (A) allowed the claim after the assessee submitted Form 3CM from the prescribed authority. The Revenue argued that accepting additional evidence without AO verification violated Rule 46A. The assessee contended that the forms were from a govt. agency, justifying the CIT (A)'s decision. The ITAT found the certificate authentic but remanded the issue to the AO for verification, allowing Ground No. 2 for statistical purposes.

Issue 2: Disallowance of derivative loss

The AO disallowed the MTM loss on forward contracts as a notional loss, adding it to taxable income. The CIT (A) allowed the claim based on the ITAT's decision in the assessee's earlier case, treating the loss as an accrued liability. The Revenue argued against the CIT (A)'s decision, citing CBDT Instruction No.3 of 2010. The ITAT noted the assessee's hedging purpose for the forward contracts and the accounting treatment following ICAI standards. It held that the loss was an expenditure under section 37(1), following the Supreme Court's decision in Woodward Governor of India Pvt. Ltd. and the ITAT Special Bench's ruling in Bank of Bahrain and Kuwait case. As the CIT (A) followed precedent in the assessee's case, the ITAT upheld her decision, rejecting the Revenue's appeal. Grounds of appeal 3 & 4 were dismissed.

In conclusion, the ITAT partly allowed the Revenue's appeal for statistical purposes regarding the weighted deduction issue but rejected it concerning the derivative loss disallowance. The judgment emphasized the authenticity of prescribed forms for deductions and the treatment of derivative losses as accrued liabilities based on legal precedents and accounting standards.

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