Treatment of closing stock of forex contracts

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parteekjain (Querist)
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09 August 2012 AS PER AS 30,31,32 WE HAVE TO VALUE THE FOREX FORWARD & DERIVATIVE CONTRACTS ON MTM BASIS IN OUR ACCOUNTS.
BUT I HAVE DOUBT ITS TREATMENT OF VALUATION FOR THE INCOME TAX PURPOSE.
CAN ANY BODY PLEASE TELL ME ITS TREATMENT WITH REFERENCE TO PARTICULAR SECTIONS IN INCOME TAX ACT.
THANKS IN ADVANCE.

SIR,
I HAVE DOUBT IN THE TAXATION TREATMENT OF CLOSING NET POSITIONS OF F&O DERIVATIVES HELD AS ON 31.MARCH._______
AS PER ACCOUNTING STANDARD 30,31,32 THESE ARE FINANCIAL INSTRUMENTS HENCE HAS TO BE VALUED AS PER MTM BASIS IN THE BOOKS OF ACCOUNTS THEREFORE THE VALUE SHOWN IN THE BOOKS WILL BE THE FAIR VALUE AS ON THE CLOSING DATE OF THE FINANCIAL YEAR.
BUT FROM TAXATION POINT OF VIEW THE PROFIT & LOSS WHICH ARE BOOKED IN THE ACCOUNTS DUE TO CHANGE IN THE MARKET VALUE OF ASSETS UNDER CONSIDERATION ARE A NOTIONAL PROFIT OR LOSS HENCE THESE ARE OF CONTINGENT NATURE AND CONSIDERING THE BASIC ACCRUAL CONCEPT WE CAN ONLY BOOK FOR THE ACCRUAL LOSS BUT NOT FOR CONTINGENT GAIN.
IF THERE IS ANY LOSS DUE TO ABOVE FAIR VALUATION FOR WHICH THE POSITIONS ARE YET NOT SQUARED-UP THEN TAXATION AUTHORITIES MAY DENY TO PROVIDE FOR THE ADJUSTMENT OF THESE LOSS,CONSIDERING THEM AS A NOTIONAL LOSS AND IN THE CASE OF PROFIT TAXATION AUTHORITIES MAY OR MAY NOT ALLOW FOR THAT PROFIT CONSIDERING THE REST OF THE COMPUTATION OF INCOME,WHETHER SUCH PROFIT CAN BE ADJUSTED WITH OTHER HEADS LOSSES OR NOT.
BECAUSE BEING A DERIVATIVE TRANSACTION DONE THROUGH RECOGNIZED STOCK EXCHANGE THESE TRANSACTIONS WILL BE NON SPECULATIVE TRANSACTIONS, HENCE ALLOWED TO BE SET OFF WITH THE LOSS OR PROFIT OF OTHER HEADS OF INCOME.
HENCE PLEASE GUIDE ME HOW SHOULD I VALUE THE POSITIONS HELD ON 31 MARCH____ SO THAT TAX MATTERS WILL ALSO BE SATISFIED. IF THERE ARE ANY NOTIFICATIONS ,CIRCULARS,DECISIONS OR AMENDMENTS REGARDING THIS TOPIC THEN PLEASE ALSO PROVIDE FOR ITS REFERENCE FOR THAT.

THANKS IN ADVANCE.

Amol S Joglekar

Amol S Joglekar (Expert)
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09 August 2012 Income tax does not allow MTM gain or loss. We need to add back or otherwise while doing the computation.

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