TMI Blog2012 (11) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... od i.e. before the date of maturity of the forward contract - loss on unmatured foreign exchange contract have to be allowed as deduction Disallowance u/s. 43B of interest accrued but not due on subordinated debts – Held that:- Interest can only be allowable when the same is actually paid and not merely because the same is due as per the method of accounting adopted by the assessee - Assessee cannot on the one hand say that interest liability has accrued under the mercantile system of accounting and on the other hand say that for the purposes of Sec. 43B(d) of the Act, the interest is not payable - in favour of the Revenue - ITA NO.3509/MUM/2006 - - - Dated:- 13-1-2012 - SHRI N.V.VASUDEVAN SHRI PRAMOD KUMAR, JJ. Assessee by : Shri D.S.Manikar Revenue by : Smt. Reena Jha Tripathi ORDER PER N.V.VASUDEVAN, J.M: This is an appeal by the assessee against the order dated 10/4/2006 of CIT(A) XXXIII, Mumbai relating to the assessment year 2003-04. 2. Ground No.1 raised by the assessee reads as follows: On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming an amount of Rs. 51,53,26,248/- representing accrued inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank of Bahrain and Kuwait (supra), wherein, it was held as follows:- 11.Ld Counsel for the assessee submitted that this issue is covered in assessee s own case for the assessment years 1992- 93, 1993-94, 1995-96 and 1996-97. ld Counsel submitted that interest on Government Securities does not accrue on day to day basis but on fixed dates and the entry made in the books are not relevant for income tax purposes. 12. We have heard both the sides and perused the records of the case. We find that the issue is covered by the decision of the Tribunal in assessee s own case for the assessment years 1992- 93, 1993-94, 1995-96 and 1996-97. In A.Y. 1996-97, the Tribunal has allowed the assessee s appeal, inter alia, observing as under:- We have carefully perused the order of the Tribunal cited above. In that case also, the issue was identical, namely, whether in the case of Government securities, interest accrues on day to day basis or only on the coupon dates. The Tribunal held that interest accrues only on the coupon dates and not on day to day basis. In coming to this conclusion, the Tribunal placed reliance on the judgment of the Lahore High court in Haveli Shah Sardarilal v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r view of the matter than the view so approved by the Special Bench. As regards, Hon ble Supreme court s judgement in the case of Ramabai (supra), the ratio of this judgement would not apply on interest on securities, since, as noted by the Tribunal in the above case, in the case of Government securities, interest does not accrue on day to day basis but only on the fixed dates. That situation is materially different from interest on compensation awards which were deal with by Hon ble Supreme Court. Respectfully following the decision of the Special bench (supra), we decide the issue in favour of the assessee. This ground is allowed. 7. Respectfully following the aforesaid decision of the Tribunal we direct that the addition made be deleted. Ground No.1 is accordingly allowed. 8. Ground No.2 was not pressed and the same is dismissed as not pressed. 9. Ground No.3 raised by the assessee reads as follows: On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance u/s. 14A of other expenses of Rs. 17,02,608/- in relation to earning exempt income. 10. The above ground relates to disallowance made under section 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange rate on that date and delivery rate of the contract rate is booked. In the case of unmatured forward contracts, the profit or loss is booked as on the balance sheet date based on the exchange rate on that date. The exchange as on the date of contract is substituted by the exchange rate prevailing as on the date of the balance sheet and loss is booked. The Assessing Officer as well as the CIT(A) were however of the view that the loss was notional and cannot be allowed as a deduction. 13. Before us it is not in dispute that identical issue had come up for consideration in assessee s own case in A.Y. 2000-01 in ITA No.931/M/04 and this Tribunal held as follows: 7. Apropos Ground No.3, learned counsel contended that this issue is also squarely covered by the decision of the ITAT (SB) in the case of Bank of Bahrain Kuwait (supra). However, learned D.R. relied upon the order of the authorities below. 8. Having heard both the sides, we find that this issue is also squarely covered by the Special Bench decision in the case of Bank of Bahrain Kuwait(supra) in assessee s favour, wherein, it was, inter alia, held as follows: There is no dispute that if the date of mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case of Woodward Governor India (I) P.Ltd., the assessee s claim is allowable. viii) In the ultimate analysis, there is no revenue effect and it is only the timing of taxation of loss/profit. We, accordingly, hold 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 decision of the Special Bench (supra) we allow this ground of appeal of the assessee. 14. Respectfully following the aforesaid decision of the Tribunal we hold that loss on unmatured foreign exchange contract have to be allowed as deduction. Ground No.4 is accordingly allowed. 15. Ground No.5 raised by the assessee reads as follows: 5. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance u/s. 43B of interest accrued but not due on subordinated debts amounting to Rs. 52,00,000/- 16. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred liability in the previous year even though such sum might not have been payable within that year under the relevant law. His submission was that while specific explanation was provided for section 43B(a) no such provision has been made for such section 43B(d) of the Act and, therefore, it is only sums which are actually payable in the sense which fall due for payment as per the agreement governing loans or borrowings on or before the last date of the previous year and which remains unpaid thereafter that can be disallowed under section 43B(d) of the Act . Ld. D.R relied on the decision of the Hon ble Delhi High Court in the case of Triveni Engineering Industries Ltd. vs. CIT , 320 ITR 430 (Del), wherein the Hon ble Delhi High Court was pleased to reject a similar contention raised by the assessee. 19. We have considered the rival submissions. The Hon ble Delhi High Court in the case of Triveni Engineering (supra) had to deal with a claim for deduction of interest expenses payable on a loan obtained by it from IFCI. As per the assessee-company, it was entitled to claim interest because interest accrues daily and the same did accrue as per the mercantile system of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. Certain deductions to be only on actual payment.- Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- . . . (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing ; . . . shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :" The aforesaid provision makes it more than abundantly clear that interest can only be allowable when the same is actually paid and not merely because the same is due as per the method of accounting adopted by the assessee. Any other interpretation as suggested by the appellant that the interest should be allowed even when not actually paid will defeat the very purpose of section 43B. ..The ot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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