Section 37: Mark to Market Loss due to Foreign Exchange Allowed

Kesoram Industries Ltd. Vs DCIT (ITAT Kolkata)

The issue under consideration is whether the addition made by AO for ‘Mark to market’ Loss  on account of disallowance of loss on foreign exchange forward contract loss is justified in law?

ITAT states that, the AO treated the loss arising on account of forward contracts in foreign currency which has not been settled in the year under consideration as notional loss. However the ld. CIT(A) allowed such loss having reliance on judgment of the Hon’ble Delhi High Court in the case CIT Vs Woodward Governor India Ltd. In rejoinder ld. DR stated that the said judgment of the Hon’ble Delhi High Court was delivered much earlier whereas the Instruction No. 3/2010 was issued dated 23.03.2010. Thus the instruction issued by the CBDT was not considered by the Hon’ble Delhi High Court. However, ITAT find that the instructions issued by the CBDT are not binding on the Courts. So there is no value in the argument of the ld. DR. However, ITAT disagree with the view of the AO on the ground that the adjustment was made by the assessee in terms of AS 11 issued by ICAI and in pursuance of mercantile system of accounting as notified u/s 145 of the Act. It is thus clear that the solitary issue involved in this appeal of the Revenue is squarely covered by the various judicial pronouncements referred to and relied upon by the ld. CIT(A) in his impugned order as well as the orders of this Tribunal as discussed above, and respectfully following the same, ITAT uphold the impugned order of ld. CIT(A) allowing the claim of the assessee for loss on derivative trading. The appeal of the Revenue is dismissed.