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2013 (11) TMI 1335 - AT - Income TaxTPA - Allowance of usance interest and BLC interest as expenditure to the assessee - Machines, accessories and parts thereof were imported by the assessee company from its holding company Ricoh, Japan during the course of its normal business - As per the relevant bills of lading, the assessee was liable to pay interest to Ricoh, Japan for the delay in payment up to a period of 180 days - The assessee company had availed BLC from Citi Bank and as per the terms of the said credit, the Citi Bank was making the payment to Ricoh, Japan on behalf of the assessee company after a period of 180 days in Dollar terms and the said credit was subsequently repaid by the assessee again in Dollars along with interest. The usance interest to Ricoh, Japan and interest from BLC to Citi Bank was agreed to be paid at international libor – Held that:- Expenditure on account of usance interest and BLC interest was incurred by the assessee wholly and exclusively for the purpose of business and it cannot be said by any stretch of imagination that it was a case of transfer of its profits by the assessee company to the parent company Ricoh, Japan in the guise of the said interest in order to avoid the tax liability as alleged by the A.O. especially when the relevant international transactions of the assessee company with Ricoh, Japan were accepted by the transfer Pricing Office in its order passed u/s 92(3) as made at ALP – Decided against the Revenue. Treating the bank interest on deposits as ‘Business income’ instead of ‘Income from other sources’ – Held that:- Deposits with Bank were kept by the assessee as its business necessity to obtain the performance guarantee in favour of the clients and the ld. D.R has not been able to controvert/rebut this finding recorded by the ld. CIT(A) - Once it is found that the fixed deposits with Bank were kept by the assessee for the purpose of its business, the interest earned on the said deposits has to be treated as business income of the assessee – Decided against the Revenue. Allowability of loss due to fluctuation in foreign exchange – Held that:- Claim for foreign exchange fluctuation loss relating to usance interest and BLC interest is consequential to the issue relating to allowability of the said interest as involved in first ground above – Since the first ground is already decided in favor of assessee, allowed the consequential relief due to the assessee on account of foreign exchange fluctuation loss relating to the said interest – Decided against the Revenue. Taxability of interest on advance made on accrual basis - Advance to M/s CEAT Tyres Ltd – Held that:- Income Tax is a levy on income and Income Tax Act takes into account points of time at which the liability to tax is attracted viz. the accrual of income or its receipt. If the right to receive a particular income is vested in the assessee as per the agreement or understanding, the same can be said to have accrued to the assessee in the relevant year unless such right is waived by him as a result of revised agreement or understanding - Nothing has been brought on record in the present case either before the authorities below or even before the ITAT to show that interest chargeable by it on the advance to M/s CEAT Tyres Ltd. as per the agreement was actually waived in the year under consideration - On the other hand, a civil suit was filed by the assessee against M/s CEAT Tyres Ltd. to recover the advance along with interest which was pending before the Hon'ble Bombay High Court - Having regard to all these facts of the case, income on account of interest receivable on advance paid by the assessee to M/s CEAT Tyres Ltd. had accrued to the assessee in the year under consideration and the same was taxable in the hands of the assessee as rightly held by the A.O. – Decided in favor of Revenue.
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