TaxTMI 
TaxTMI 
2026 (9) TMI 1459
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....ead recycling and copper recycling. The assessee filed a return of income for AY 2022-23 on 23.09.2022 declaring total income of Rs. 13,06,06,843/-. For AY 2023-24 the assessee filed the return of income on 27.10.2023 declaring total income of Rs. 105,55,25,440/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The AO during the course of assessment noticed that the assessee has made an adjustment towards MTM gain in the computation of income and accordingly called on the assessee to furnish details pertaining to the same. The assessee submitted before the AO that the MTM gain relates to unrealized notional gain on unsettled derivative contracts and since the real income has not accrued to the assessee the same has not been offered to tax. The assessee further submitted that the gain actually realized on settlement of the derivative contracts is offered as and when the settlement happens and that as per the Accounting Standard-11, the assessee has accounted for the unrealized notional gain in the books of accounts. The assessee also submitted that as per the Income Computation and Declaration Standards (ICDS) the assessee has to recogn....
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....ls of unrealized marked to Market (MTM) gains, losses etc. In this connection, the assessee filed the submissions. The submissions made by the assessee were perused and the matter under consideration is discussed as under:- 5. The assessee company had entered into commodity derivative contracts where there were underlying invoices during A.Y. 2022-23 and as on the year end, the appellant company had accounted the unrealized gains/loss in accordance with the method of accounting prescribed by ICAI. Since the assessee had actually earned the gains/loss on the date of settlement, they have duly accounted the same for taxation in the subsequent year of settlement. On perusal of ITR filed for A.Y. 2023-24, it is seen that the assessee has duly accounted the unrealized gain i.e. Rs. 25,35,17,163/- The computation of income for the A.Y. 2023-24 submitted by the assessee and the relevant portion of ITR for A.Y. 2023-24 is enclosed herewith:- 6. Further, the assessee has stated that it has reduced the unrealized/notional marked to market gains (MTM) and not debited MTM loss in its statement of total income while arriving at the Gross total income for the A.Y. 2022-23. ....
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.... a reasonable and sufficient cause for the delay in filing the appeal before the Tribunal. Therefore following the Hon'ble Supreme Court decision in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC), we condone the delay in filing the appeal and admit the appeal for adjudication. 5. The Ld. Departmental Representative (DR) submitted that the assessee as per the mercantile system of accounting has recognized the MTM gain in the books of account and therefore the same needs to be brought to tax. The Ld. DR further submitted that the CIT(A) has held that only real income could be offered to tax without considering that income which is accounted on accrual basis is to be offered to tax. The Ld. DR also submitted that the assessee by claiming that the income has offered in the year of settlement has postponed the taxable income which is not correct. 6. The Ld. Authorized Representative (AR) of the assessee, on the other hand, held that the assessee has offered the MTM gain to tax as per the provisions of ICDS-VI para 8 (5) according to which the premium or discount are extreme difference on contracts to hedge the foreign currency is shall be recogni....
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....he basis of the accounting treatment adopted in the financial statements, but strictly in accordance with the relevant ICDS. A perusal of ICDS VI relating to the effects of changes in foreign exchange rates shows that the Standard itself makes a distinction between different categories of forward exchange contracts. Paragraph 8 specifically excludes forward exchange contracts intended for trading or speculation purposes, or entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction, from the year-end recognition mechanism applicable to forward contracts relating to existing foreign currency monetary items. The Standard further provides that the premium, discount or exchange difference arising on such excluded forward contracts shall be recognised at the time of settlement. Therefore, the notified ICDS itself postpones recognition of exchange differences in respect of such contracts until the gain or loss crystallises on settlement. 9. In the present case, the CIT(A) has recorded a categorical finding that the impugned MTM gain pertains to forward contracts falling within the above category and, therefore, in terms of ICDS VI re....