Market to market loss on the balance sheet date allowable

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Dhaval Desai (Querist)
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12 May 2009 Whether market to market loss on the balance sheet date allowable under the income tax act

(in relation to unsettled transaction standing to the credit/debit on the balance sheet date)

please support ur answer by necessary sections/circulars/notifications & judicial decision

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)
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12 May 2009 If it is realized, then it is allowable.
If it is unrealized loss, then it is not allowable, being contigent upon its incurrence
Relevent section is Sec.37

taxindiaconnect

taxindiaconnect (Expert)
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13 May 2009 The mark to market losses / gain do not impact the computation of taxable income of the assessee. The MTM is not an actual loss / gain and is a mare entry in the books to recognise certain market related losses / gains on reinstatement of liability / assets. The treatment of a particular transaction in books is not decisive in tax computation. A taxable income is a taxable income or a loss not deductible is not deductible irrespective of it's book entry. This is a well settled principal and has been pronounced by various courts. In Chowringhee Sales Bureau P Limited Vs CIT 87 ITR 542 the Apex Court has held that a trading receipt is a trading receipt even if it not credited to P & L Account. Similarly A particular treatment of a transaction in books may not be in favour or against the assessee based upon it’s treatment in books. Apex court again in the case of Punjab Distilling Industries Ltd. VS CIT 57 ITR 1and Hoshiyarpur Electric Supply com 42ITR 608 has observed.

Since the MTM is only a book entry not a real transaction, based the above decided cases, it’s treatment in taxation shall not change. A further guidance may be sought from circular no 8/2001 which was issued by CBDT on the issue of treatment of of financial lease and operating lease in books based upon AS 17 “Accounting for Lease” where in the CBDT clarified that he the treatment of lease transaction in books does not have any impact on the taxability of the lease transaction for income tax purpose and the lease transaction would continue to taxes as it used to be taxes pre AS 17 issuance period

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