April 2015
IDBI Capital Market Services Ltd. vs. DCIT ITAT “I” Bench, Mumbai Before N.K. Billaiya, (A. M.) & Amit Shukla (J. M.) I.T.A. No. 618/Mum/2012 Assessment Year: 2008-09. Decided on 18.02.2015 Counsel for Assessee/Revenue: N.C. Jain/Kishan Vyas
By Jagdish D. Shah
Jagdish T.Punjabi Chartered Accountants
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Section 37(1) – Loss arising from valuation of interest rate swap contracts as at the end of the year is allowable as deduction.
Facts:
The assessee is engaged in the business of investment, share broking and dealing in Government securities and it is a member of Bombay Stock Exchange as well as National Stock Exchange. While scrutinising the return of income the AO noticed that as on 31st March 2008 the assessee had valued the outstanding interest swap contracts and the loss of Rs.18.3 crore determined was debited to P&L Account. According to the AO, the assessee had recognised only the loss and not the profit. Further, he observed that the assessee was not consistent and definite in making entries in the account books in respect of losses and gains and accordingly denied the claim of deduction. On appeal, the CIT(A) relied upon the decision of the Bombay High Court in the case of Bharat Ruia in ITA No.1539 of 2010 and treated the loss as speculation loss and confirmed the disallowance.
Held:
The Tribunal noted that it was an undisputed fact that the assessee had made the valuation of interest rate swap contracts as at the end of the year and had incurred losses on such valuation. Further, it also noted that the assessee had made the entries following Accounting Standard AS- 11 of the ICAI. The Tribunal further found the observations of the AO that the assessee had never accounted for the gains on such transactions as totally misplaced and against the facts of the case. Relying on the decision of the Tribunal Special Bench Mumbai in the case of Bank of Bahrain & Kuwait, ITA No.4404 & 1883/Mum/2004 and of the Supreme Court in the case of Woodward Governor India Pvt. Ltd. [2009] 179 Taxman 326 (SC), the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of Rs.18.3 crore.
