TaxTMI 
TaxTMI 
2023 (3) TMI 34
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....he Assessing Officer be restored. 3. The only issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowance of swap contract loss made by the AO for Rs. 91,91,13,146/- only. 4. The facts in brief are that the assessee is a private company and engaged in the business of energy and power generation. The assessee during the year under consideration to refinance its project availed external commercial borrowing at the rate of LIBOR + 4.4%. The assessee to hedge itself from the fluctuation interest rate entered into derivative contract in the nature of interest rate swap with Standard Chartered Bank on which assessee incurred loss of Rs. 91.91 crores. It was submitted by the assessee that out of said loss, an amount of loss of Rs. 40.62 crores represent realized loss whereas the loss of Rs. 51.30 crore represent mark to market loss as on balance sheet date. The assessee further submitted that it recognized mark to market loss on outstanding interest swap agreement as on balance sheet date as per the principles of prudence and by following the accounting standard -1 being disclosure of accounting policies issued by the ICAI. The swap contract was entere....
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....clined this deduction by observing that "these losses are notional losses and cannot be claimed against income of the year. 'Mark to market' is a concept under which financial instruments are valued at market rate so as to report their actual value on the reporting date. However, these losses are notional losses on account of position as on 31,3.2008". The Assessing Officer then, relying upon the CBDT instruction no. 3/2010 dated 23rd March 2010, disallowed the claim. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) simply relied upon the CBDT instructions and followed the same. The assessee is not satisfied and is in further appeal before us. 13. As learned representatives fairly agree, this issue is now covered, in favour of the assessee, by a coordinate bench decision in the case of Veer Gems Vs ACIT [(2017) 77 taxmann.com 127 (Ahmedabad - Trib.) wherein the coordinate bench inter alia, observed as follows: "18. We have heard rival submissions. Relevant findings perused. The assessee has admittedly made the impugned provision in view of difference in exchange rate as on the dale of booking of its....
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.... in computation of profits and gains of business. JO. In view of the above discussions, we uphold the action of the CIT (A) so far as this relief in respect of deleting the disallowance of Rs. 22,15,55,371 on account of loss, al the end of the year, on foreign exchange contracts. We confirm the same and decline to interfere in the matter. " 15. In view of these binding judicial precedents, with which we are in considered agreement, we uphold the plea of the assesee and direct the Assessing Officer to delete the impugned disallowance of Rs 73,00,000. The assessee gets the relief accordingly. " Considering these facts and relying upon finding given by my predecessor CIT(A) in appellant's own case, it is held as under: (i) SWAP loss disallowed by AO for Rs 91,91,13.146/-also includes realized loss of Rs 40,61,56,577 and such loss cannot be treated as notional loss hence CBDT instruction 3/2010 cannot be applied on such loss. The ARs of the appellant also referred to assessment order passed in case of appellant for AY 2016-17 wherein on identical fads, AO has already allowed realized interest SWAP loss of Rs 43.22 crore in assessment order passed n/s 143(....
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....has submitted that the assessee-company by this way saved interest cost of Rs.61.39 crore during the Assessment Years 2012-13 to 2017-18. He has contended that the assessee-company by following the Principle of Prudence recognized M2M loss as at the end of the year on outstanding SWAP contract as per Accounting Standard-11 and this method was consistently followed by the assessee regarding Forex loss/gain from M2M. He has pointed out that there were substantial gains earned by the assessee in AYs 2015- 16 and 2016-17 amounting to Rs.94.37 crores and the same were duly offered to tax which was accepted by the Department. We find merit in the contention raised by the learned Counsel for the assessee on this issue. Moreover, as pointed out by him, the issue under consideration is squarely covered in favour of the assessee, in addition to the judicial pronouncements referred to and relied upon by the learned CIT(A) in his impugned order, by the latest decision of the Coordinate Bench of this Tribunal rendered in other group case of M/s. Adani Hazira Port Pvt. Ltd, vide its order dated 06.04.2022 in ITA No.1131/Ahd/2019, wherein it is held that M2M loss on SWAP contract was allowable wh....