2013 (9) TMI 1112 - AT - Income Tax

Addition on account of mark to market loss - revaluation of the pending forward contracts for foreign exchange - Disallowance deleted . See OIL & NATURAL GAS CORPORATION LTD. Versus COMMISSIONER OF INCOME TAX 2010 (3) TMI 81 - SUPREME COURT

Summary

Issues:
1. Deletion of additions made by the AO on account of mark to market loss.
2. Interpretation of AS-11 for recognizing mark to market gain or loss.
3. Application of decisions by Special Bench of Mumbai ITAT and Hon'ble Supreme Court in similar cases.

Analysis:

1. The appeal by the Revenue challenged the deletion of additions made by the AO regarding mark to market loss claimed by the assessee on revaluation of pending forward contracts for foreign exchange. The Revenue contended that the CIT(A) erred in deleting the said additions amounting to Rs. 59.50 lakhs.

2. The assessee, engaged in the business of diamond manufacturing, export, import, and power generation, explained that it entered into forward exchange contracts to hedge against foreign currency fluctuation risks. The assessee followed AS-11 issued by ICAI for revaluing export receivables and recognized mark to market gain or loss on outstanding forward exchange contracts. The CIT(A) accepted the assessee's explanation, citing the decision of the Special Bench of Mumbai ITAT and the Hon'ble Supreme Court in similar cases.

3. The Tribunal, after considering the submissions and orders of lower authorities, upheld the CIT(A)'s decision based on precedents set by the Special Bench of the Tribunal and the Hon'ble Supreme Court. The Tribunal found no distinguishing decision presented by the Revenue and dismissed the appeal, citing consistency with previous judgments and lack of grounds for interference.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the deletion of additions related to mark to market loss by the CIT(A) based on the application of relevant legal interpretations and precedents established by the Special Bench of Mumbai ITAT and the Hon'ble Supreme Court in similar cases.