TMI Blog2017 (9) TMI 1598X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Disallowance of derivate loss - whether the loss claimed by assessee is only a notional loss and such notional liability would be contingent in nature which is not allowable under any of the provisions of the Act? - Held that:- The loss which is incurred on account of forward contract to sell currency at an agreed price at a future date falling beyond the last date of accounting period is a loss incurred by the assessee on account of the valuation of the contract on the last date of the accounting period and before the date of the maturity of the forward contract and hence is not a contingent liability but an accrued liability and is allowable as an expenditure. We find that the facts of the case before us are similar to the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 338. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has claimed weighted deduction u/s 35(2AB) of the Act. The assessee was therefore, asked to produced the prescribed form as approved by the prescribed authority i.e. Secretary, Department of Scientific Research and Industrial Research (DSIR) in order to justify the claim of weighted deduction on the R D expenditure u/s 35(2AB) of the Act. The AO held that since the assessee has not submitted the prescribed form, the assessee is not eligible for the weighted deduction. However, he allowed a sum of ₹ 25,04,92,882 u/s 35(1) of the Act. 3. Further, from the P L A/c of the assessee, the AO also observed that the assessee has debited an amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Counsel for the assessee, on the other hand, submitted the details before us and stated that the forms submitted by the assessee are issued by a govt. agency i.e. the prescribed authority and therefore, the CIT (A), on verification of the same and being satisfied with the veracity of the same, has allowed the same. Therefore, according to him, there was no violation of Rule 46A. 6. Having regard to the rival contentions and the material on record, we find that the certificate is issued by the prescribed authority i.e. the Secretary to the Govt. of India, Ministry of Science Technology, Department of Scientific Research and Industrial Research (DSIR), New Delhi. The prescribed authority has approved the expenses claimed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and the same has been debited to the profit and loss account. The AO, thereafter considered the CBDT Instruction No.3 of 2010, wherein a clarification was issued regarding allowing or otherwise of the losses on forex derivatives. He observed that vide this instruction, it. was clarified that a 'mark to market loss' is only a notional loss until the contract is settled or matured and if in a particular year, a contract does not mature, then the derivatives loss has to be treated as a contingent liability and has to be added back to the book profit. He further observed that such a loss cannot be allowed to be set off against the taxable income under the normal provisions of the Act also and accordingly disallowed the same under both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debited the loss on account of 'mark to market losses' as on the closing day of the accounts and claimed it as allowable as business loss. We find that Instruction No.3 of 2010 of CBDT has been reproduced by the CIT (A) at Para 7.4 of his order. As per this instruction, where no sale or settlement has actually taken place and the loss oil, contract has not matured, the loss on 'marked to market' basis has resulted in reduction of book profits, such a notional loss would be contingent in nature and cannot be allowed to be set off against the taxable income and should, therefore, be added back for the purpose of computing the taxable income of an assessee. No doubt, this instruction is clearly on the point and is binding on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on account of forward contract to sell currency at an agreed price at a future date falling beyond the last date of accounting period is a loss incurred by the assessee on account of the valuation of the contract on the last date of the accounting period and before the date of the maturity of the forward contract and hence is not a contingent liability but an accrued liability and is allowable as an expenditure. We find that the facts of the case before us are similar to the facts of the case before the Special Bench in the case of Bank of Bahrain and Kuwait (cited Supra) and the CIT(A) has only followed the decision of the Special Bench. 28. The learned DR had not been able to bring to Our notice any other decision to the contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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