2021 (4) TMI 357 - HC - Income Tax

Anticipated loss claimed on account of Equity linked debentures - as per tribunal allowable as a business loss when market to market losses are not ascertained liability which could be set off against taxable income? - whether when market to market loss is a mere provision created in the balance sheet and does not constitute an ascertained liability which is contingent in nature and therefore not an allowable deduction? - whether the assessee has followed the test laid down by the Hon'ble Supreme Court in the case of CIT Vs. Woodward Governor India 2009 (4) TMI 4 - SUPREME COURT - HELD THAT - Commissioner of Income Tax (Appeals)-1, Chennai CIT(A) considered whether the assessee has fulfilled the test prescribed by the Hon'ble Supreme Court for deductibility of market to market losses (MTM) and found that the assessee has fulfilled all the conditions. The correctness of this order was examined by the Tribunal and having been satisfied that the findings rendered by the CIT(A) are correct and that the assessee has fulfilled the test laid down in Woodward Governor India (P.) Ltd., the Tribunal dismissed the appeal filed by the Revenue. No error in the order passed by the Tribunal. - Decided against the Revenue

Summary

Issues:
Appeal against order under Section 260A of the Income Tax Act, 1961 for assessment years 2008-09 and 2009-10. Substantial questions of law raised regarding the allowance of anticipated loss on equity linked debentures and market to market losses.

Analysis:

1. The Revenue appealed under Section 260A of the Income Tax Act, challenging the order of the Income Tax Appellate Tribunal regarding anticipated loss on equity linked debentures. The substantial questions of law raised were whether such anticipated loss can be considered a business loss and whether market to market losses, being a provision in the balance sheet, constitute an allowable deduction against taxable income. The Tribunal upheld the allowance of the anticipated loss based on the test laid down by the Hon'ble Supreme Court in CIT Vs. Woodward Governor India (P.) Ltd. The Commissioner of Income Tax (Appeals) had also found that the assessee fulfilled the conditions for deductibility of market to market losses, leading to the Tribunal dismissing the Revenue's appeal.

2. The key issue for consideration was whether the assessee had followed the test established by the Supreme Court in the Woodward Governor India case. The Tribunal, after examining the order of the Commissioner of Income Tax (Appeals), concluded that the assessee had indeed met the test criteria. The Tribunal found no error in the CIT(A)'s decision and upheld the allowance of the anticipated loss on equity linked debentures. Consequently, the High Court dismissed the Tax Case Appeals, answering the substantial questions of law against the Revenue and closing the connected Miscellaneous Petition without costs.