DCIT 4(1), MUMBAI V. IDBI CAPITAL MARKET SERVICES LTD, MUMBAI

ITA 731/MUM/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2106 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Department
• Bench Allotted: I
• Next Hearing Date: 13-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 31-01-2014
• Court: TRIBUNAL
• Assessee Lawyers: N C JAIN
• Keywords: Capital asset; Depreciation; Question of law; Revenue expenditure
• Section: 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH , JM ./ ITA NO . 731 / MUM/20 1 4 ( / ASSESSMENT YEAR :20 10 - 11 ) DCIT - 4(1), MUMBAI - 400020 VS. M/S IDBI CAPITAL MARKET SERVICES LIMITED, 3 RD FLOOR, MAFATLAL CENTRE, NARIMAN POINT, MUMBAI - 400021 ./ ./ PAN/GIR NO. : A AAC I 1268 F ( / APP ELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI SUNIL KUMAR AGRAWAL /ASSESSEE BY : SHRI N.C.JAIN / DATE OF HEARING : 13/08 /2015 / DATE OF PRONOUNCEMENT 07/10 / 2015 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), MUMBAI, FOR THE ASSESSMENT YEAR 20 10 - 11 , IN THE MATTER OF ORDER P ASSED U/S.143(3) OF THE I.T.ACT, WHEREIN THE REVENUE IS AGGRIEVED FOR DELET ING THE ADDITION MADE ON ACCOUNT OF MARK TO MARKET LOSS. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT AN AMOUNT OF RS.1,65,75,342/ - HAS BEEN DEBITED TO LOSS ON SWAPS BEING MARK T O MARKET LOSS AS ON 31/03/2010. BY OBSERVING THAT ASSESSEE HAS NOT OFFERED GAIN ON SIMILAR TRANSACTIONS, THE AO DISALLOWED THE LOSS BY OBSERVING THAT THE ITA NO. 731/14 2 ASSESSEE HAS NEVER TAXED THE GAIN ON VALUATION OF OUTSTANDING INTEREST RATE SWAP CONTRACTS. AS THE ASS ESSEE HAS NOT BEEN CONSISTENT AND DEFINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES AND GAIN THE DEDUCTION OF RS.1,65,75,342/ - WAS NOT ALLOWED TO THE ASSESSEE. 3. BY THE IMPUGNED ORDER THE CIT(A) DELETED THE ADDITIONS SO MADE AFTER OBS ERVING AS UNDER : - 3.3(A) BEFORE, I. TAKE UP THE ISSUE IT IS IMPERATIVE TO UNDERSTAND WHAT IS THE CONCEPT OF MARK - TO - MARKET . OR FAIR VALUE ACCOUNTING REFERS TO THE ACCOUNTING STANDARDS OF ASSIGNING A VALUE TO .A POSITION HELD IN A FINANCIAL INSTRUMENT BAS ED ON THE CURRENT FAIR MARKET PRICE FOR THE INSTRUMENT OR SIMILAR INSTRUMENTS. FAIR VALUE ACCOUNTING HAS BEEN A PART - I OF US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) SINCE THE EARLY 1990S. THE USE OF FAIR VALUE MEASUREMENTS HAS INCREASED STEADILY OV ER THE PAST DECADE, PRIMARILY IN RESPONSE TO INVESTOR DEMAND FOR RELEVANT AND TIMELY FINANCIAL STATEMENTS THAT WILL AID IN MAKING BETTER INFORMED DECISIONS. MARK TO MARKET IS A CONCEPT UNDER, WHICH YOU ARE DECLARING THE ACTUAL VALUE OF YOUR ASSETS AT THE MARKET RATES. IT'S QUITE A GOOD AND HEALTHY CONCEPT. LET US SAY, I HAVE PURCHASED SOME 100 STOCK TWO YEARS BACK AT RS. 20 AND SO AT THE TIME OF PURCHASES, VALUE OF MY ASSET WAS RS . 2000( RS. 20X 100=RS. 2000). BUT, SUPPOSE AS ON TODAY, THE MARKET VALUE OF MY ST OCK HAS DECLINED TO . 1 0, THEN TODAY I AM H OLDING ASSETS WORTH RS.1000 ( 1 0X100=RS1 000) ONLY. IF I HAD TAKEN A LOAN FROM A BANK OF RS. 2000 BY SURRENDERING THOSE . 200 SHARES TO BANK THEN TODAY THE BANK WILL BE FACING SHORTFALL IN ITS SECURITY VALUE - AS IT H AS ADVANCED 2000 AGAINST A SECURITY OF 1000 ONLY (PRESENT VALUE). SO IN THAT CASE, THE BANK WILL IMMEDIATELY CALL THE BALANCE (THE MARGIN) FROM ME AND I HAVE TO MAKE PROVISION OUT OF MY PRES E NT INCOME FOR THE CALL OF MY BAN K . IF I AM NOT PAYING MY LOAN AND THE BANK IS FORCED TO SELL MY SHARE. IN THE MARKET THEN, THE BANK WILL INCUR A LOSS OF 1000 AND THE BANK NEEDS TO PROVIDE RS. 1000 FOR THAT LOSS, WHICH MEANS THAT THE BANK ONLY HAS TO REDUCE RS. 1000 FROM ITS PROFIT AND FOR THE ACCOUNTING YEAR THAT RS. 1 000 WILL BE TERMED AS LOSS. 3.3(B) IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD (2009) 312 ITR (SC) 254, THE HON'BLE SUPRE ME COURT HELD THAT THE QUANTUM OF ALLOWANCES PERMITTED TO BE DEDUCTED. UNDER DIVERSE HEADS UNDER S. 30 TO 43C FROM THE INCOM E, PROFITS AND GAINS OF A BUSINESS WOULD DIFFER ACCORDING TO THE' SYSTEM ADOPTED. THIS IS MADE CLEAR BY DEFINING THE WORD 'PAID', IN S. 43(2), WHICH IS USED IN SEVERAL S. 30 TO 43C,AS MEANING ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING UPON THE BASIS ON WHICH PROFITS OR GAINS ARE COMPUTED UNDER S. 28/29. THAT IS WHY IN DECIDING THE QUESTION AS TO WHETHER THE WORD 'EXPENDITURE' IN S. 37(1) INCLUDES THE WORD 'LOSS' ONE HAS TO READ S. 37(1) WITH S. 28, S. 29 AND S. ITA NO. 731/14 3 145(1). ONE MORE PRINCIPL E NEEDS TO BE KEPT IN MIND. ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS ARE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. THE 1961 ACT MAKES NO PROVISION WITH REGARD TO VALUATION OF STOCK. BUT THE ORDINARY PRINCIPLE OF COMMERCIAL ACCOUNTING REQUIRES THAT IN THE P&L A/ C THE VALUE OF THE STOCK - IN - TRADE AT THE BEGINNING AND AT THE END OF THE YEAR SHOULD BE ENTERED AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER. THIS IS HOW BUSINESS PRO FITS ARISING DURING THE YEAR NEEDS TO BE COMPUTED. THIS IS ONE MORE REASON FOR READING S. 37(1) WITH S. 145. UNDER S. 145(2), THE CENTRAL GOVERNMENT IS EMPOWERED TO NOTIFY F ROM TIME TO TIME THE ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. ACCORDINGLY, UNDER S . 209 OF THE COMPAN IES ACT, MERCANTILE SYSTEM OF ACCOUNTING IS MADE MANDATORY FOR COMPANIES. IN OTHER WORDS, ACCOUNTING STANDARD WHICH IS CONTINUOUSLY ADOPTED BY AN A S SESSEE CAN BE SUPERSEDED OR MOD IFIED BY LEGISLATIVE INTERVENTION. HOWEVER BUT FOR SUCH INTERVENTION OR IN CASES FALLING UNDER S. 145(3),THE METHOD OF ACCOUNTING UNDERTAKEN BY THE ASSESSEE CONTINUOUSLY IS SUPREME. IN THE PRESENT BATCH OF GASES, THERE IS NO FINDING GIVEN BY THE AO ON THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. EQUALLY, THERE IS NO FINDING GIVEN BY THE AO STATING THAT THE ASSESSEE HAS NOT COMPLIED WITH THE ACCOUNTING STANDARDS. FOR THE REASONS GIVEN HEREINABOVE, THE 'LOSS' SUFFERED BY THE ASSESSEE ON AC COUNT OF THE EXCHANGE DIFFERENCE AS ON THE DATE OF THE BALANCE SHEET IS AN ITEM OF EXPENDITURE UNDER S. 37(1). 3.3(C) THE HON'BLE MUMBAI ITAT FOLLOWING THE DECISION OF S PE C IAL BENCH IN THE CASE OF DCIT (INTERNATIONAL TAXATION) VS. BANK OF BAHRAIN AND KU WAIT, HELD THAT NO ADDITION CAN BE MADE WHERE A FORWARD CONTRACT IS ENTERED INTO BY THE ASSESSEE TO SELL THE FOREIGN CURRENCY AT AN AGREED PRICE AT A FUTURE DATE FALLING BEYOND THE LAST DATE OF ACCOUNTIN G PERIOD, THE LOSS IS INCURRED TO THE ASSESSEE ON ACC OUNT OF EVALUATION OF THE CONTRACT ON THE LAST DATE OF THE ACCOUNTING PERIOD I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT. 3.3(D) IN THE CASE OF C IT VS. MOTOROLA INDIA PVT. LTD. REPORTED IN 2100 - TIOL - 289 - KAR - IT, THE FACTS OF THIS CASE ARE TH AT ASSESSEE IS AN INDIAN COMPANY ENGAGE D IN THE MANUFACTURE, SALE AND SERVICE OF TWO - WAY LAND MOBILE COMMUNICATIONS SYSTEMS, PAGING AND WIRELESS DATE SYSTEM, SEMI - CONDUCTOR, CELLULAR INFRASTRUCTURE AND TELEPHONES, ETC. THE ASSESSEE CLAIMED DEDUCTIONS ON T HE BASIS OF LOSS SUSTAINED BECAUSE OF VARIATION IN THE FOREIGN EXCHANGE RATE. BOTH THE ASSESSING AUTHORITY AS WELL AS APPELLATE AUTHORITY DISALLOWED THE SAID LOSS. ON APPEAL, THE TRIBUNAL HELD THAT THE ASSESSEE WAS FOLLOWING MERCANTILE ACCOUNTING' SYSTEM A ND ALSO FOLLOWED SETTLED PRINCIPLES OF ACCOUNTING AND TAXATION LAWS. FROM THE YEAR - END STATEMENT OF LIABILITIES, DUE TO FLUCTUATION IN RATE OF FOREIGN CURRENCY, LOSS WAS ALLOWABLE ON A YEAR TO YEAR BASIS, AS THE LOSS WAS NOT NATIONAL OR CONTINGENT, BUT AN ACTUAL LOSS.' THE EVENT WHICH GAVE RISE TO THE LOSS IN THE DECREASE IN THE VALUE OF THE RUPEE IN THE FOREIGN CURRENCY. THE REDUCTION IN THE VALUE OF THE RUPEE HAD ITA NO. 731/14 4 TAKEN PLACE WITHIN THE FINANCIAL YEAR, ALTHOUGH THE LIABILITY HAD NOT BEEN DISCHARGED BY THE ASSESSEE WITHIN THE RELEVANT PREVIOUS YEAR. THE REDUCTION IN THE VALUE OF THE RUPEE, THEREFORE WAS NOT CONTINGENT, BUT IS AN ACTUAL EVENT THEREFORE, IT HELD THE ASSESSEE WAS ENTITLED TO ALLOWANCE OF THE SAID LOSS SUSTAINED . ON APPEAL BEFORE THE HIGH COURT THE REVENUE ASSAILED THE TRIBUNAL'S DECISION BY REFERRING TO THE APEX COURT DECISION IN WOODWARD GOVERNOR I NDIA (P ) LTD. THE COUNSEL FOR THE REVENUE CONTENDED THAT THOUGH THE SUPREME COURT HAD HELD THAT LOSS SUFFERED BY THE ASSESSEE IN RESPECT OF A REVENUE LIABILITY ON ACCOUNT OF EXCHANGE DIFFERENCE AS ON THE DATE OF THE BALANCE SHEET IS AN ITEM OF EXPENDITURE ALLOWABLE UNDER SECTION 37(1) IN THE YEAR OF ACCRUAL, HOWEVER, THE SUPREME COURT ALSO HELD THAT IN ORDER TO FIND OUT IF THE EXPENDITURE WAS TAXABLE, FIVE TESTS HAD BEEN PRESCRIBED. THEREFORE, ONLY, IF THE SAID FIVE TESTS WERE SATISFIED, THE ASSESSEE WOULD BE ENTITLED TO SAID BENEFIT. AS IN THIS CASE, NONE OF THE AUTHORITIES HAVE APPLIED THEIR MIND, THE COURT MAY DIRECT THE AUTHORITIES TO CONSIDER WHETH ER THOSE TESTS WERE FULFILLED BY THE ASSESSEE BEFORE HE WAS ENTITLED TO DEDUCTION. RELYING ON THE DECISION OF THE APEX COURT IN THE CASE OF CL T I VS. WOODWARD GOVERNOR INDIA (P) LTD (2009) 312 ITR (SC) 254 , THE HON'BLE HIGH COURT HELD THAT THE FIRST AND FO REMOST REQUIREMENT OF THE. APEX COURT DECISION IS THAT HE MUST BE ADOPTING MERCANTILE SYSTEM OF ACCOUNTING. SECONDLY, THE SAID LOSS CLAIMED SHOULD HAVE BEEN CLAIMED NOT ONLY IN THE YEAR IN DISPUTE, BUT A CONTINUOUS COURSE OF CONDUCT TO SHOW THAT, THAT IS T HE WAY SAID CLAIM IS REFLECTED IN THE ACCOUNTS. THIRDLY, IT SHOULD BE BONAFIDE ONE. THE TRIBUNAL ON APPRECIATING THE MATERIAL ON RECORD HAD HELD THAT THE AFORESAID CONDITIONS WERE SATISFIED. IT IS ONLY AFTER BEING SATISFIED OF THE SAID CONDITIONS, IT HAS G RANTED THE RELIEF; IN THESE CIRCUMSTANCES, THERE IS NO JUSTIFICATION TO INTERFERE WITH THE SAID ORDER OR TO IMPOSE ANY CONDITIONS, AS THE CONDITIONS IMPOSED BY THE SUPREME COURT AIR STAND FULLY SATISFIED. IN THIS VIEW OF THE MATTER, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION. 3.3(E) IN THE CASE OF INDUSIND BANK LTD VS. ADDL. CIT, THE LD. AD MADE A DISALLOWANCE OF JOSS AMOUNTING TO RS.98,27,032 ON UN - MATURED FOREIGN EXCHANGE CONTRACTS CIT (A) CONFIRMED THE ORDER OF THE AD. IN APPEAL IT WAS CONT ENDED BY THE ASSESSEE THAT THE APPELLANT MAINTAINED THE ACCOUNTS ON MERCANTILE SYSTEM WHERE LIABILITY ALREADY ACCRUED THOU G H DISCHARGED AT A FUTURE DATE AND WAS A PROPER DEDUCTION ACCEPTING THE PRINCIPLES OF COMMERCIAL PRACTICE AND ACCOUNTANCY. 3.3(F) IN THE CASE OF CL T VS. WIPRO FINANCE LTD. 2010 - TIOL - 766 - HC - KAR - IT, THE ASSESSEE AVAILS LOAN IN FOREIGN CURRENCY AND SUFFERS LOSS ON ACCOUNT OF FLUCTUATION IN FOREIGN CURRENCY RATE, CLAIMS THE SAME AS REVENUE EXPENDITURE. AD DISALLOWS THE SAME AND THE CIT(A) CONFIRMS THE ORDER. TRIBUNAL ALLOWS ASSESSEE'S APPEAL BY HOLDING THAT IT IS SETTLED LAW THAT THE LOSS ARISING OUT OF FLUCTUATION IN THE FOREIGN EXCHANGE RATE IS ALLOWABLE AS REVENUE EXPENDITURE . 3.3(G) THE HON'BLE SUPREME COURT IN THE CASE OF ACLL VS. EL ECON ENGINEERING COMPANY LTD REPORTED IN 322 ITR 20(SC) CONSIDERED ITA NO. 731/14 5 THE IMPACT OF SEC. 43A BOTH BEFORE AMENDMENT AND AFTER AMENDMENT. THE COURT WAS IN FACT EXAMINING THE DEDUCTIBILITY OF ROLL OVER PREMIUM IN RESPECT OF FOREIGN EXCHANGE FORWARD CONTRACTS. TH E - COURT HAS HELD THAT WHEREVER THE FOREIGN EXCHANGE LOANS - WERE AVAILED FOR SECURING CAPITAL ASSETS, THE DECREASE OR INCREASE WOULD AFFECT THE CAPITAL ASSET. IF THE FOREIGN EXCHANGE LOAN WAS ACQUIRED FOR WORKING CAPITAL OR OTHER REVENUE COMMITMENTS, THE FL UCTUATION EFFECT SHALL BE ADJUSTED IN REVENUE ACCOUNT. TILL THE AMENDMENT BROUGHT IN BY THE FINANCE ACT 2002, THIS ADJUSTMENT HAS TO BE MADE ON YEARLY BASIS EVALUATING THE POSITION ON THE LAST DAY OF THE CONCERNED PREVIOUS YEAR. BUT AFTER THE AMENDMENT, TH E ADJUSTMENT SHALL BE MADE ON THE ACTUAL PAYMENT OR SETTLEMENT OF CONTRACTS AND DUES. THIS POSITION HAS BEEN MADE CLEAR BY THE HON'BLE COURT IN THE ABOVE CASE. THE HON'BLE COURT HAS FURTHER DELIBERATED UPON THE CAPITAL NATURE AND REVENUE NATURE OF SUCH ADJ USTMENTS ARISING OUT OF FOREIGN EXCHANGE FLUCTUATION. APART FROM THE ABOVE GENERAL PROPOSITION OF LAW, THE HON'BLE COURT FURTHER EXAMINED WHETHER THE ROLL OVER PREMIUM IN RESPECT OF FOREIGN EXCHANGE FORWARD CONTRACT IS ELIGIBLE FOR DEPRECIATION IN THE NATU RE OF EXPENDITURE TO BE ADDED TO THE COST OF THE CAPITAL ASSET; OR TO BE DEBITED IN THE PROFIT AND LOSS ACCOUNT, IF IT IS IN THE REVENUE ACCOUNT. IF ROLL OVER PREMIUM 'ON FORWARD CONTRACT BY ITSELF IS HELD TO BE ADMISSIBLE AS A DEDUCTION OR ADJUSTMENT, THE N THERE IS NO DOUBT THAT THE LOSS ARISES OUT OF THE FORWARD CONTRACTS WOULD BE VERY MUCH ENTITLED FOR DEDUCTION OR ADJUSTMENT IF IT IS A LOSS. 3.3:(H) OIL & NATURAL GAS CORPORATION LTD. VS ERR (2010) 322 ITR 180(SC), THE ASSESSEE IS A PUBLIC SECTOR UNDER TAKING, ENGAGED IN EXPLORATION AND PROSPECTING OIL. IT LARGELY DEPENDS ON FOREIGN LOANS TO COVER ITS CAPITAL AND REVENUE EXPENSES. FLUCTUATION IN FOREIGN CURRENCY RATES RESULTS IN LOSS AND ASSESSEE CLAIMS DEDUCTION U/S 37(1) IN THE YEAR OF FLUCTUATION APA RT FROM ADJUSTING .THE ACTUAL COST OF IMPORTED CAPITAL ASSETS ACQUIRED IN FOREIGN CURRENCY ON ACCOUNT OF FLUCTUATION AT EACH . BALANCE - SHEET DATE, PENDING ACTUAL PAYMENT OF THE VARIED LIABILITY. AO DISALLOWED THE CLAIM AND LD. CIT(A) GOES WITH THE AO ON TH E ASSESSEE'S CLAIM FOR FOREIGN EXCHANGE LOSS IN REVENUE ACCOUNT BUT ACCEPTS THE ASSESSEE'S STAND RELATING TO CAPITAL ACCOUNT. TRIBUNAL DISAGREES WITH THE AD BUT HIGH COURT REVERSES THE TRIBUNAL'S ORDER - HELD, IN VIEW OF THE APEX COURT DECISION IN THE WOO DWARD GOVERNOR CASE AND THE FACT THAT THIS CASE PERTAINS TO THE PERIOD PRIOR TO THE AMENDMENT IN SEC 43A, BOTH THE ISSUES WERE SETTLED IN FAVOUR OF THE ASSESSEE. 3.3(I) IT HAS BEEN SUBMITTED THAT THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING THE PRINCIPL E OF COST OR MARKET VALUE WHICHEVER IS LOWER FOR VALUATION OF OUTSTANDING INTEREST RATE SWAPS ON EACH BALANCE SHEET DATE.' FURTHER, ALL OUTSTANDING CONTRACTS ARE INDIVIDUALLY VALUED BASED ON METHODOLOGY PRESCRIBED BY THE FIMMDA (FIXED INCOME & MONEY MARKET DERIVATIVES ASSOCIATION OF INDIA). IT HAS ALSO BEEN SUBMITTED BY THE APPELLANT THAT VALUATION IS MADE CONTRACT WISE AND MARK TO MARKET LOSS IS NETTED AGAINST MARK TO. MARKET PROFIT, WHEREVER AVAILABLE WITHIN THE BASKET. FURTHER IF THE VALUE AFTER NETTING' RESULTS IN LOSS, THE APPELLANT IS DEBITING EQUIVALENT AMOUNT ITA NO. 731/14 6 TO THE P&L ALC. FURTHER, IN CASE PROVISION FOR MARK TO MARKET LOSS MADE BY DEBITING P&L ALC. IN A PARTICULAR YEAR FOUND TO BE IN EXCESS THAN THE AMOUNT REQUIRED TO BE PROVIDED FOR MARK' TO MARKE T LOSS IN SUBSEQUENT YEAR, THE APPELLANT WRITES BACK THE EXCESS AMOUNT TO THE P&L ALE. OFFERING THE SAME FOR TAX IN THE RETURN OF INCOME. 3.30) IN VIEW OF THE FOREGOING, IN THIS CASE IT CAN. BE OBSERVED THAT A BINDING OBLIGATION ACCRUED AGAINST THE APPEL LANT THE MINUTE IT ENTERED INTO A SWAP CONTRACT. IT IS ALSO EVIDENT THAT A CONSISTENT METHOD OF ACCOUNTING IS FOLLOWED BY ASSESSEE AND REVENUE CANNOT DISREGARD ITS METHOD ONLY ON THE GROUND THAT A BETTER METHOD COULD BE ADOPTED. A LIABILITY IS SAID TO HAVE CRYSTALLISED WHEN A PENDING OBLIGATION ON THE BALANCE SHEET DATE IS DETERMINABLE WITH REASONABLE CERTAINTY. THE CONSIDERATIONS FOR ACCOUNTING THE INCOME ARE ENTIRELY' ON DIFFERENT FOOTING; THE DERIVATIVE CONTRACTS HAVE. ALL THE TRAPPINGS OF STOCK - IN - TRADE . THEREFORE, IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD., THE ASSESSEE'S CLAIM IS ALLOWABLE. FURTHER, IN THE ULTIMATE ANALYSIS, THERE IS NO REVENUE EFFECT AND IT IS ONLY THE TIMING OF TAXATION OF LOSS/P ROFIT, AS IN THE NEXT YEAR THERE IS AN ACTUAL SETTLEMENT OF THE CONTRACTS. ACCORDINGLY, WHERE AN INTEREST SWAP RATE CONTRACT IS ENTERED INTO BY THE APPELLANT TO WORK OUT THE INTEREST RATE AT AN AGREED PRICE AT A FUTURE DATE FALLING BEYOND THE LAST DATE OF ACCOUNTING PERIOD, THE LOSS IS INCURRED TO THE APPELLANT ON ACCOUNT OF EVALUATION OF THE CONTRACT ON THE LAST DATE OF THE ACCOUNTING PERIOD LE. BEFORE THE DATE OF MATURITY OF THE CONTRACT. THUS, WHAT APPLIES TO FORWARD EXCHANGE CONTRACT ALSO APPLIES TO FOR WARD INTEREST RATE CONTR A CTS AND ACCORDINGLY THE MARK - TO - MARKET LOSS OF SUCH NATURE IS A BUSINESS LOSS AND THE SAME IS NEITHER A PROVISION AGAINST UNASCERTAINED LIABILITY NOR DIMINUTION OF ANY ASSET. IN VIEW OF THE FORGOING THE CLAIM OF THE APPELLANT IS AL LOWED: THIS GROUND OF APPEAL IS ALLOWED. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW . THE ISSUE IS COVERED BY THE VARIOUS DECISION OF THE COORDINATE BENCHES AS WELL AS DECISION OF HIGH COURT AN D SUPREME COURT CITED BY THE CIT(A) IN HIS ORDER. WE ALSO FOUND THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING THE COST OR MARK TO MARKET VALUE, WHICHEVER IS LOWER FOR VALUATION OF OUTSTANDING INTEREST RATE SWAP ON EACH BALANCE SHEET DATE. FURTHERMORE, A LIAB ILITY IS SAID TO HAVE CRYSTALISED WHEN A PENDING OBLIGATION ON THE BALANCE SHEET DATE IS DETERMINABLE WITH REASONABLE CERTAINTY. T HE DETAILED FINDINGS RECORDED BY CIT(A) IN THIS ITA NO. 731/14 7 REGARD, AS WE REPRODUCE ABOVE , HA VE NOT BEEN CONTR OVERTED BY LD. DR. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR ALLOWING MARK TO MARKET LOSS. 5 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 07/10 / 201 5 . SD/ - SD/ - ( ) ( PAWAN SINGH ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 07/10 /2015 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6 . / GUARD FILE. //TRUE COPY//