TaxTMI 
TaxTMI 
2014 (2) TMI 836
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....ng the Addl. CIT(LTU), Mumbai to modify the order u/s 143(3) of the Act accordingly. The appellant submits that on the facts and circumstances of the case and in law the "Mark to Market" margin losses incurred in the year under consideration are ascertain and not contingent in nature and therefore should be allowed as claimed". 2. Relevant facts giving rise to this appeal are that the assessment for the assessment year under consideration was completed u/s 143(3) of the Act on 31.8.2010. 3. The Commissioner of Income Tax issued show cause notice u/s 263 of the Act dated 19.7.2011 stating as to why the assessment made u/s 143(3) should not be recalled and fresh assessment be made in view of the fact that the deduction claimed on forex derivative on account of losses arising out of the "Mark to Market" transactions (hereinafter to be referred as MTM) of Rs.43.78 crores, since these losses are notional losses, as no such sale or settlement has taken place and therefore, are contingent in nature. 4. In response thereto, the assessee filed reply giving details and stating that it entered into derivative contract in the nature of currency swaps and si....
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....ely covered by the decision of the Hon'ble Apex Court in the case of CIT v. Woodward Governor India (P.) Ltd. ( 312 ITR 254), wherein Their Lordships have held that "Loss" suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the date of the balance-sheet is an item of expenditure under section 37(1) of the Act". He further submitted that similar issue had also been considered by Mumbai Bench of Tribunal in the case of Dy. CIT v. Kotak Mahindra Investment Ltd. by order dated 3.5.2013 in ITA No.1502/Mum/2012 (AY-2008-09), 2013-TIOL-362-ITAT-MUM to which one of us is a party (AM), wherein it has been held "mark to market loss", arising on derivative contract can be allowed, even though there is no actual loss. That the derivatives contract are not purely contingent in nature where profit or loss is ascertained in view of constant watch on daily market value. The ld. AR also filed a copy of the said order of the Tribunal, placed at pages 91 to 97 of compilation of case laws placed on record. Ld AR also submitted that similar issue was considered by the Hon'ble Apex Court in the case of ONGC Ltd. v. CIT (322 ITR 180), wherein Their Lordships held that....
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....ue items as on the last day of the accounting year. The A.O. held that the liability as on the last date of the previous year was not an ascertained but a contingent liability. Resultantly, the same was added back to the total income. The CIT(A) echoed the assessment order. However, the Tribunal held that the claim of the assessee for deduction of unrealized loss due to foreign exchange fluctuation as on the last date of the previous year was deductible. The said order of the Tribunal was upheld by the Hon'ble High Court. On further appeal by the department, the Hon'ble Supreme Court held that the loss suffered by the assessee is on revenue account towards foreign exchange difference as on the date of balance sheet and is an item of expenditure deductible u/s 37(1). It further observed than an enterprise has to report outstanding liability relating to import of raw material using closing rate of foreign exchange and any difference, loss or gain, arising on conversion of said liability at closing rate should be recognized in profit and loss account for reporting period. From the judgment of the Hon'ble Supreme Court it can be clearly deduced that unrealized loss due to foreign excha....
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....Some of the loans became repayable in the relevant accounting year and the date of payment of some loans fell after the end of the relevant accounting year. The assessee revalued its foreign exchange loans in foreign exchange on revenue account, on capital account and for general purposes outstanding as on 31-3-1991, and claimed the differences between their respective amounts in Indian currency as on 31-3-1990 and 31-3-1991 as revenue loss under section 37(1) in respect of loans used in revenue account. The assessee also treated the similar difference in foreign exchange as an increased liability u/s 43A. The AO allowed the deduction claimed u/s 37(1), taking into consideration the increased foreign exchange liability and repaid in the accounting year for the purpose of depreciation. He did not however, allow the claim for foreign exchange loss on loans both in relation to capital as well as revenue account which were outstanding on the last day of accounting year. On appeal, the CIT(A) affirmed the view of AO in relation to deduction u/s 37 of the interest on loans outstanding on the last day of the accounting year but allowed the benefit of increased liability for computation u/....