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2019 (9) TMI 974 - ITAT CHENNAIIncome recognition in hire purchase transaction - Internal Rate Return (IRR) method OR Equated Sum (ESM) method - Whether tribunal was right in holding that the interest income on hire purchase transactions accrued only under the Internal Rate Return (IRR) method and form part of the mercantile system of accounting? - HELD THAT:- As relying on M/S. SUNDARAM FINANCE LIMITED. [2019 (3) TMI 1068 - MADRAS HIGH COURT] we direct the AO to tax the interest income on EMI method or ESM, which has been consistently followed by the assessee and allow the consequential relief in accordance with law. Thus, the assessee’s appeals on this issue are allowed. Provision for non-performing assets (NPAs) - HELD THAT:- Since the assessee’s claim require verification, we deem it fit to restore this matter back to the AO for a fresh examination and due decision after affording adequate opportunity to the assessee. Thus, the assessee’s appeal grounds on this issue are treated as partly allowed for both assessment years 2004-05 and 2005-06. Disallowing amount recovered in respect of bad debts written off in the books of amalgamating companies as an exempt income in its hands - HELD THAT:- After the amalgamation, the amalgamated company i.e., the assessee company, has all the rights the amalgamating companies had in their business which were transferred to it and also it owes all the liabilities the amalgamating companies owe and transferred to it. In exercise of such rights only, the assessee company recovered sum during the assessment years 2004-05 & 2005-06 respectively, from the bad-debts written off by the erstwhile amalgamating companies and therefore such recoveries are nothing but the business receipts of the amalgamated company i.e., the assessee and hence they are assessable in it its hands. This decision is also in accordance with the decision of CIT v. T. Veerabadra Rao [1985 (7) TMI 2 - SUPREME COURT] relied on by the Ld.CIT(A), supra. Disallowance of the business origination costs actually incurred by the assessee during the assessment year 2005- 06 - HELD THAT:- As per the decision normally revenue expenditure incurred in a particular year has to be allowed in that year and if the assessee claims that expenditure in that year, the Department cannot deny the same. Fact that assessee has deferred the expenditure in the books of account is irrelevant. However, if the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of 'Matching Concept' is satisfied. Since the assessee claimed the entire amount on the ground that it is a revenue expenditure instead of spreading over the amount to the period of contract, applying the case TAPARIA TOOLS LIMITED VERSUS JOINT COMMISSIONER OF INCOME TAX [2015 (3) TMI 853 - SUPREME COURT] balance may also be allowed. Capital loss on account of sale of Sundaram Mutual Fund (dividend option) - whether CIT(A) erred in directing the Assessing Officer to allow the capital loss without reducing the dividend income which was claimed as exempt, in contravention to the provision of sec. 94(7) ? - HELD THAT:- In the light of the decision of Walfort Share & Stock Brokers Ltd. [2008 (8) TMI 222 - BOMBAY HIGH COURT] and the Hon’ble Apex court’s decision In Commissioner Of Income-Tax. vs Walfort Share And Stock Brokers (P) Limited. . [2010 (7) TMI 15 - SUPREME COURT] we find that on the facts and circumstances, supra, the reasonings of the Ld.CIT(A) on both issues, supra, do not require any interference and hence dismiss the corresponding grounds of the revenue on both issues. Disallowance of broken period interest on purchase/sale of securities - HELD THAT:- Assessee is in the business of regular sale and purchase of Government securities, however, has classified them as investment. The sale and purchase of government securities have been considered for computation of capital gain or loss, as the case may be, and in almost every sale or purchase of government security capital loss has been booked after taking the benefit of indexation. For the impugned assessment years also the assessee company has claimed capital loss despite these instruments being in the nature of having fixed rate of return at the tenure of the instrument. The broken period interest on purchase and 'Sale of securities were accounted as revenue items in the books in accordance with the Accounting Standard-13 issued by the Institute of Chartered Accountants of India. However, for tax purpose, the assessee treated them as part of cost/consideration as the case may be, based on the decision of Supreme Court in Vijaya Bank's case [1990 (9) TMI 5 - SUPREME COURT] rendered u/s 18 of the Act which is no more in the statute from 01.4.1989 and hence it is clear that the Ld.CIT(A) has not appreciated the facts and circumstances of this issue properly. The courts have held that if the securities are regularly purchased and sold they could be stock in trade in such case the income or loss could be revenue in nature etc. In the facts and circumstances, these issue requires readjudication afresh and hence we deem it fit to remit the issues back to the AO for a fresh examination for the assessment years 2004-05 & 2005-06
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