Loss arising on year-end valuation of an interest rate swap allowable as a deduction – ITAT Mumbai

ABN Amro Securities India Pvt. Ltd. Vs. ITO (ITAT Mumbai)- When anticipated profits on unmatured contracts are held, to be non-taxable, there is no good reason as to why anticipated losses on unmatured contracts can be taken into account while computing business income, we find that there is an inherent fallacy in this approach inasmuch as anticipated losses and anticipated profits are not treated in the same manner in the computation of business profits. These dual standards in recognising anticipated losses and anticipated profits are accepted accounting norms and in the case of Chainrup Sampatram (supra), Honourable Supreme Court has approved this duality in approach. Just because anticipated profits are not assessed to tax, it would not follow, as a corollary thereto, that anticipated losses cannot be allowed as deduction in computation of business income. In view of these discussions, as also in view of Special Bench decision in the case of DCIT Vs Bank of Bahrain & Kuwait (132 TTJ 505) and a coordinate bench decision in the case of ADIT Vs J P Morgan Chase Bank ( 2010 TII 185 ITAT MUM), we uphold the grievance of the assessee. The impugned dis-allowance is accordingly deleted.

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ABN Amro Securities India Pvt Ltd  Vs. Income Tax Officer