2014 (4) TMI 1230 - HC - Income Tax

Loss/expenditure claimed by assessee on account of fluctuation in the rate of foreign exchange i.e., Market to Market (MTM) loss - whether cannot be considered to be notional as per the CBDT instruction No.3 of 2010, when the said amount was rightly disallowed by the Assessing Officer in terms of proviso D of Section 43(5)? - Held that - Tribunals consistently held that the loss/expenditure claimed by the assessee on account of fluctuation in the rate of foreign exchange couldn t be considered to be notional by following the instruction No.3 of 2010 of CBDT. Therefore, we do not find any element of law to be decided in this appeal. Accordingly, we dismiss the appeal. Miscellaneous petitions pending, if any, shall also stand closed.

Summary

Issues involved:
1. Interpretation of law regarding fluctuation in foreign exchange rates for tax assessment.
2. Whether Market to Market (MTM) loss can be considered notional as per CBDT instruction No.3 of 2010.
3. Correctness of the Tribunal's decision to delete the addition made for MTM loss.

Analysis:

1. Interpretation of law regarding fluctuation in foreign exchange rates for tax assessment:
The appeal in this case was against the judgment and order of the Tribunal related to the assessment year 2008-09. The main issue raised was whether the loss/expenditure claimed by the assessee due to fluctuation in foreign exchange rates, specifically Market to Market (MTM) loss, could be considered notional as per CBDT instruction No.3 of 2010. The Tribunal found that the assessee was not a dealer in foreign exchange but was engaged in the manufacturing and sale of cigarettes, exporting them to foreign countries. The assessee had entered into forward contracts with banks for its export/import activities. The Tribunal consistently held that the fluctuation-related loss/expenditure claimed by the assessee could not be deemed notional as per the CBDT instruction. Therefore, the High Court did not find any legal element to be decided in this appeal.

2. Market to Market (MTM) loss and CBDT instruction No.3 of 2010:
The specific questions of law raised in the appeal were whether the Tribunal was correct in holding that the MTM loss claimed by the assessee could not be considered notional as per CBDT instruction No.3 of 2010. The Tribunal had directed the Assessing Officer to delete the addition made for MTM loss. However, based on the factual position and the nature of the assessee's business activities, the High Court upheld the Tribunal's decision. The High Court noted that the Tribunal had consistently found that the MTM loss claimed by the assessee was not notional, considering the specific circumstances of the case. Therefore, the High Court dismissed the appeal.

3. Correctness of the Tribunal's decision on MTM loss addition:
The High Court, after considering the arguments presented by the parties and reviewing the Tribunal's judgment and order, affirmed the Tribunal's decision regarding the MTM loss claimed by the assessee. Since the Tribunal had based its decision on the factual position that the assessee was not a dealer in foreign exchange and was engaged in manufacturing and exporting cigarettes, the High Court found no legal grounds to interfere with the Tribunal's decision. As a result, the High Court dismissed the appeal, and any pending miscellaneous petitions were also closed without any order as to costs.