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2015 (5) TMI 38 - AT - Income TaxDisallowance of "Mark to Market” loss arising on valuation of forward exchange contracts - Losses on account of outstanding / open foreign exchange forward contracts - Business loss or Notional loss - Held that:- We find that this issue has also been decided by the Special Bench of the Tribunal, Mumbai Bench, in Bank of Bahrain [2010 (8) TMI 578 - ITAT, MUMBAI] wherein the Tribunal, while holding that Mark to Market losses in respect of forward foreign exchange contract debited to Profit & Loss account is an allowable deduction. The reasons given to allow this loss are :- A binding obligation accrued against the Appellant t the minutes it entered into forward foreign exchange contracts - A consistent method of accounting followed by the Appellant cannot be disregarded - Liability is said to have crystallized when a pending obligation on the balance sheet date is determinable with reasonable certainty - As per AS-11, when the transaction is not settled in the same accounting period as that in which it occurred, the exchange difference arises over more than one accounting period - In view of the decision of the Supreme Court in the case of Woodward Governor India (I) P. Ltd. [2009 (4) TMI 4 - SUPREME COURT ], the Appellant's claim is allowable - In the ultimate analysis, there is no revenue effect and it is only the timing of taxation of loss/profit. Thus, in view of the above, we uphold the findings of the learned Commissioner (Appeals) for allowing loss incurred by the assessee on re-statement of pending forward contract agreement at the year end as allowable business loss. - Decided against the revenue.
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