2014 (12) TMI 1226 - AT - Income Tax

Loss on account of Mark-to-Market loss - allowance of claim on valuation of forward exchange contracts on the closing date of the accounting year by CIT(A) - Held that - The learned CIT(A) followed the decision of DCIT vs. Bank of Bahrain and Kuwait (2010 (8) TMI 578 - ITAT, MUMBAI) and also the decision of CIT vs. Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT to hold that the liabilities for foreign exchange was incurred during the normal course of assessee s business and in fact the gain earned on such revaluation having been accepted and brought to tax in the respective years, there is no reason to arrive at a different conclusion in this year merely because there is a loss. He accordingly correctly directed the AO to allow the impugned claim of the assessee. - Decided against revenue

Summary

Issues:
1. Allowance of Mark-to-Market loss on valuation of forward exchange contracts as business loss for AY 2009-10.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai concerned the Revenue's challenge against the CIT(A)'s decision allowing the Mark-to-Market loss on valuation of forward exchange contracts as a business loss for the relevant assessment year. The Revenue contested the allowance of the loss despite the assessee's reliance on binding judgments. The CIT(A) had granted relief, citing judicial decisions favoring the appellant on the issue. The Tribunal noted that the CIT(A) correctly relied on the Special Bench decision in the case of Bank of Bahrain and Kuwait as well as the Supreme Court judgment in Woodward Governor India (P) Ltd. The Tribunal emphasized that the appellant's transactions in foreign exchange were part of its regular business operations and consistent with accounting standards. The Tribunal highlighted that the nature of the business, not the type of stock involved, determined the treatment of forward contract transactions. The Tribunal also referenced a previous ITAT Mumbai bench decision supporting the allowance of such losses as business losses. Ultimately, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

In conclusion, the Tribunal affirmed that the Mark-to-Market loss on forward exchange contracts was an allowable business loss for the appellant. The Tribunal found no contradictory judgments presented by the Revenue and deemed the issue settled in favor of the appellant. As a result, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision.