Nomura Capital (India) Private Limited Vs DCIT (ITAT Mumbai)
The appeal before the ITAT Mumbai arose from an order of the National Faceless Appeal Centre (NFAC) dated 28.02.2025, which upheld the assessment order passed under Section 143(3) of the Income-tax Act for Assessment Year 2012–13. The sole issue concerned the disallowance of Rs.1,84,97,467 claimed as unrealized loss arising on fair valuation of Benchmark Linked Debentures (BLDs).
The assessee, a non-banking finance company engaged in financing and lending, had issued principal-protected, secured, redeemable, non-convertible BLDs. The return on these debentures was linked to the performance of the NIFTY Index. While the principal amount was guaranteed on maturity, additional return (coupon) was payable if the NIFTY Index crossed 120% of the start level. The assessee followed mercantile accounting and valued the debentures annually on a mark-to-market basis using a scientific model in compliance with ICAI accounting standards.
Where fair value exceeded face value due to index movement, the excess was recognized as liability since it would be payable upon trigger conditions. However, where fair value fell below face value, no gains were recognized because the debentures were principal-protected. The assessee contended that the liability was crystallized on the balance sheet date and quantifiable with reasonable certainty, relying on judicial precedents including CIT v. Woodward Governor India (P) Ltd. and Bharat Earth Movers v. CIT.
