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2020 (10) TMI 459 - HC - Income TaxMethod of accounting - receipt basis or accrual basis (mercantile system) - income received in advance in the nature of interest income on discounting of bills against letter of credit - HELD THAT:- It cannot be disputed that discounting of bills is being done in one of the modes of finance and the Assessing Officer accepted that the assessee received the amount of interest, which represented interest pertaining to a subsequent year. In such cases, if the assessee is not permitted to debit interest related to the period beyond the closing date from the interest received account and credited in the advance account, then it would fall foul of the mercantile system of accounting. In case of pre-payment of usance import bills, remittances may be made only after reducing the proportionate interest for the unexpired portion of usance at the rate at which interest has been claimed and in cases where interest is not separately claimed or expressly indicated, remittances may be allowed after deducting the proportionate interest for the unexpired portion of usance at the prevailing LIBOR of the currency of invoice. The above directions issued by the RBI would also come to the aid and assistance of the assessee. We hold that the Assessing Officer, the CIT(A) and the Tribunal fell in error while considering the issue framed before us as a substantial question of law.
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