Manual - ICDS I : Accounting Policies

The marked to market loss or an expected loss shall not be recognised unless the recognition of such loss is in accordance with the provisions of any other ICDS. The reason for such treatment can be inferred from the explanation provided by Accounting Standard Committee. The  Committee was of the opinion that since anticipated profits are not recognised, expected or mark-to-market losses also should not be allowed as
a deduction. The objective is to bring parity between treatment of income and expenses/ losses.

The Supreme Court in the case of CIT v Woodward Governor India (P) Ltd. 2009 (4) TMI 4 - SUPREME COURTheld that loss arising on account of fluctuation in the rate of exchange in respect of loans taken for revenue purposes was allowable as a deduction u/s 37 of the Act.