2015 (10) TMI 1616 - AT - Income Tax

Addition on account of mark to market loss claimed on account of trading in derivative transactions - CIT(A) deleted the addition - Held that - Mark to market losses on account of trading in derivative transactions are allowable deductions. See KOTAK MAHINDRA INVESTMENT LTD. case 2013 (7) TMI 355 - ITAT MUMBAI Hence this issue is accordingly decided in favour of the assessee

Summary

Issues Involved:
1. Appeal against CIT(A)'s order regarding addition of mark to market loss claimed on derivative transactions for assessment year 2009-10.

Analysis:

1. Mark to Market Loss Claim:
The appeal filed by the Revenue challenges the CIT(A)'s deletion of the addition of mark to market loss claimed on derivative transactions. The Revenue argued that the loss claimed based on the value of derivatives as of 31st March is merely notional until the actual settlement of the transaction. The Ld. A.R. contended that a co-ordinate bench of the Tribunal in a similar case ruled in favor of the assessee. The Tribunal in the referenced case highlighted that stock futures are a type of forward contract traded on exchanges, where profit or loss is calculated based on the difference between book value and actual market rate of stocks on the agreed date. The Tribunal emphasized that such contracts are not purely contingent, as daily market rates are considered, making the profit or loss somewhat ascertainable. Citing the Supreme Court's decision in a related matter, the Tribunal concluded that mark to market losses on derivative transactions are allowable deductions. The Ld. D.R. failed to present any contrary evidence or legal precedent to challenge the Tribunal's decision. Consequently, the Tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee and dismissing the Revenue's appeal.

2. Conclusion:
The Tribunal, after considering the arguments and legal precedents, upheld the CIT(A)'s decision to delete the addition of mark to market loss claimed on derivative transactions. The judgment emphasized the nature of derivative transactions and the applicability of mark to market losses as allowable deductions. The lack of contrary evidence or legal basis presented by the Revenue led to the dismissal of their appeal. The decision provides clarity on the treatment of mark to market losses in derivative transactions, aligning with established legal principles and precedents.

This comprehensive analysis outlines the key issues raised in the appeal, the arguments presented by both parties, and the Tribunal's decision based on legal interpretations and precedents.