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2015 (7) TMI 865 - AT - Income TaxDisallowance of repayment of gold loan to SBI - Held that:- There is no doubt to the fact loan as per the scheme was not in terms of cash but in terms of gold. Therefore, the gold obtained under the loan scheme form part of the stock-in-trade of the erstwhile firm and was converted into ornaments for trading purpose. Therefore, the purpose of loan is for the working capital for conducting business. When assessee took over assets and liabilities of erstwhile firm along with the loan, cost incurred by assessee at the time of closure of account on account of appreciation of gold value is an allowable expenditure since it is linked to the trading activity. In other words, the amount incurred by assessee is part of cost of loan to assessee. It is to be noted that one of the reason on which AO has disallowed the deduction claimed is since assessee is following mercantile system of accounting, the expenditure incurred for prior period cannot be allowed. In this regard, we are of the view that though the amount has been termed as interest but it is not interest in strict sense of the term. As far as interest payment is concerned, definitely they have accrued to assessee in the respective AYs. However, as far as the repayment of principal amount is concerned, as per the terms of the agreement with bank it has to be on the basis of value of gold as on the date of repayment. Therefore, the liability on that account cannot be an ascertained liability, which could be said to have accrued to the firm in the respective AYs when the loan continued. As the payment has to be made by assessee company on the basis of market value of the gold on the date of closure of account, excess expenditure incurred on such date of payment, in our view, is allowable expenditure. In view of the aforesaid, we allow the claim of assessee by deleting the addition of ₹ 28,80,338. - Decided in favour of assessee.
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