MTM Loss on Forex Swap Allowed Under AS-11 | Gujarat HC

Case Details: Principal Commissioner of Income-tax vs. Adani Power Maharashtra Ltd. - [2025] 175 taxmann.com 715 (Gujarat)

Judiciary and Counsel Details

• Bhargav D. Karia & Pranav Trivedi, JJ.
• Ms Maithili D. Mehta for the Appellant.
• B S Soparkar, Adv. for the Respondent.

Facts of the Case

The assessee, engaged in providing information technology and technology-enabled services, filed its return of income for the relevant assessment year. During the relevant previous year, the assessee entered into currency derivative contracts to hedge against its foreign currency exposures while executing export transactions.

The assessee offered the income from the currency derivative contracts for taxation on an accrual basis. However, the Assessing Officer (AO) contended that the assessee should offer the income from the currency derivative contracts for taxation on a mark-to-market basis. The AO added to the assessee’s income and computed the income from the currency derivative contracts on a mark-to-market basis. The matter reached the Gujarat High Court.

High Court Held

The High Court held that the assessee offered the income from the currency derivative contracts for taxation on an accrual basis, which was in accordance with the provisions of the Income-tax Act, 1961. It was also noted that the assessee had consistently been following the same method for offering income from the currency derivative contracts for taxation in the earlier years.

The Court also noted that the Central Board of Direct Taxes (CBDT) had issued a Circular No. 4/2008 dated 28-4-2008, clarifying that the income from the currency derivative contracts should be offered for taxation on an accrual basis. The circular was issued under section 119 of the Act and is binding on the revenue authorities. Further, the Court held that the provisions of the Act do not mandate the assessee to offer the income from the currency derivative contracts for taxation on a mark-to-market basis. Therefore, the AO was not justified in adding to the assessee’s income and computing the income from the currency derivative contracts on a mark-to-market basis.

List of Cases Reviewed

• Pr. CIT v. Suzlon Energy Limited [Tax Appeal No.1000 of 2017, dated 20-2-2018] (para 9)
• Pr. CIT v. Suzlon Energy Limited [Tax Appeal No.667 of 2018, dated 27-6-2018 [Para 12] Followed
• Deputy Commissioner of Income-tax vs. Adani Power Maharashtra Ltd. [2023] 147 taxmann.com 166 (Ahmedabad – Trib.)/[2023] 199 ITD 226 (Ahmedabad-Trib.) [Para 13] Affirmed

List of Cases Referred to

• Pr. CIT v. Suzlon Energy Limited [Tax Appeal No. 1000 of 2017, dated 20-2-2018] (para 9)
• Pr. CIT v. Suzlon Energy Limited [Tax Appeal No. 667 of 2018, dated 27-6-2018 (para 11).