Assessee entered into forward contracts in commodity derivatives and recorded notional ‘mark-to-market’ profits in its accounts for the relevant year. Assessing Officer treated these unrealized gains as taxable income for the year and made an addition. Tribunal, relying on Supreme Court precedents, held that unrealised ‘mark-to-market’ gains on forward contracts were not liable to tax until accrual/realization and deleted the addition. On appeal, the Court held that in a ‘mark-to-market’ forward commodities contract, gains and losses fluctuate until the instrument matures on the period of expiry, and no prudent trader would account for anticipated profit, in the form of appreciated value of closing stock, until it is actually realised. Therefore, unrealised ‘mark-to-market’ gains made on forward contracts were not liable to tax in the relevant year prior to actual accrual or realisation on maturity of the instrument. Referred to: CIT v. Woodward Governor India (P.) Ltd. [2009] 223 CTR 1/312 ITR 254/179 Taxman 326 (SC)and Godhra Electricity Co. Ltd. v. CIT [1997] 91 Taxman 351 / 225 ITR 746 (SC)