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2011 (6) TMI 812 - AT - Income TaxInterest Accrued but Not Due on Securities - Added to Total Income or not? - CIT(A) confirmed some amount representing accrued interest on securities, but not falling due for payment. Such interest, which is in the process of accrual, is at the incipient and inchoate stage, maturing into taxable income only when it becomes due and payable in terms of issue of such security. HELD THAT:- Tribunal in own case followed the decision of DCIT VERSUS BANK OF BAHRAIN & KUWAIT [2010 (8) TMI 578 - ITAT, MUMBAI], where following the decision of UNITED COMMERCIAL BANK VERSUS COMMISSIONER OF INCOME-TAX [1999 (9) TMI 4 - SUPREME COURT], where it was held that the "Bank cannot be prevented from urging in the return that the interest on govt. securities accrued only on the specified coupon dates notwithstanding that credit has been taken in the profit & loss account for the interest on day to day basis." Thus, the issue has been decided in favour of the view that the interest accrues only on the specified coupon dates and not on day to day basis - Decision in Favour of Assessee. Disallowance of Loss on Unmatured Forward Contracts - HELD THAT:- We find that this issue is also squarely covered by the Special Bench decision in the case of DCIT VERSUS BANK OF BAHRAIN & KUWAIT [2010 (8) TMI 578 - ITAT, MUMBAI] in assessee’s favour, wherein, it was held that "where a forward contract is entered into by the assessee to sell the foreign currency at an agreed price at a future date falling beyond the last date of accounting period, the loss is incurred to the assessee on account of evaluation of the contract on the last date of the accounting period i.e. before the date of maturity of the forward contract.” Respectfully following the aforesaid decision of the Tribunal we hold that loss on unmatured foreign exchange contract have to be allowed as deduction - Decision in Favour of Assessee. Change in Valuation of Securities as per RBI guidelines - Statutory Compulsion u/s 145A - Assessee made changes in valuation policy as per RBI guidelines which was not accepted by AO - CIT(A) held that the change in valuation policy was bonafide but it cannot be applied retrospectively and asked assessee to revalue the security as at the beginning of the year HELD THAT:- We find that the change in the method of accounting became necessary because of the RBI guidelines and therefore it cannot be said that the change in the method of valuation was not bonafide. The direction to change the value of opening stock will result in distortion of profits and no real effect being given to the changed method of valuation. We agree with the contention of the learned counsel for the Assessee that provisions of section 145A, is a statutory compulsion with regard to valuation of inventory, which would necessarily include the opening stock also. As far as the case of the assessee is concerned, the change in method of accounting falls within the ambit of section 145 according to which the method of accounting and the change in the method of accounting, if it is bonafide, and if it is regularly followed thereafter has to be accepted as it is. The revenue in such circumstances cannot place any condition that the opening value of securities should also be changed. If securities as on the beginning of the year is also revalued the then changed method of accounting will become meaningless. We, therefore, hold that in a case of voluntary change in the method of accounting followed by the assesse, all that has to be seen is as to whether the change is bona fide and regularly followed thereafter. If the above condition is satisfied, then the changed method of accounting has to be accepted. In such an even there is no need to revalue the securities as on the beginning of the year. We are therefore, of the view that the direction of the CIT(A) to revalue the security as at the beginning of the year should be deleted and we direct accordingly. Interest for Broken Period - Allowed or Not as Deduction? - AO held, claim for exclusion of broken period interest in respect of various purchases of securities during the year represented interest accrued upto the date of purchase of securities is part of the purchase consideration and the broken period interest cannot be allowed as deduction - HELD THAT:- Issue has been considered by the Hon’ble Bombay High Court in the case of AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VERSUS COMMISSIONER OF INCOME-TAX. [2002 (9) TMI 96 - BOMBAY HIGH COURT], wherein it was held that purchase price of the securities should be bifurcated into (1) interest accrued upto the date of purchase and (2) balance of the price and interest should be allowed as revenue expenditure in the year of purchase provided the bank follow such a practice. In view of the above, we do not find any infirmity in the order of the CIT(A).
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