Mark-to-Market losses on principal-protected debentures are deductible as business expenditure when the obligation is crystallized under mercantile accounting.

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....Unrealized mark-to-market loss on principal-protected benchmark-linked debentures was held deductible as a business expenditure under section 37(1) because legally binding BLD contracts existed before the balance-sheet date, rendering the obligation crystallized and only its quantification uncertain. The Tribunal applied mercantile accounting and accounting standards requiring provision for known liabilities and ascertainable anticipated losses, treated the principal-protection as preventing any offsetting gain, and rejected characterization of the loss as merely contingent. Result: the assessing officer's disallowance was deleted and the MTM loss for the relevant year allowed as a business expense.....