9911796707
TMI Blog2015 (9) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... disposed of by this common order, for the sake of convenience. 2. The assessee is engaged in the business of securities trading, NBFC activities and is also a professional clearing member for the derivatives segment with National Securities clearing corporation Ltd. 3. The first common issue urged in both the years relate to assessment of notional interest on the alleged loan given by the assessee to its AE. The facts relating thereto are stated in brief. During the financial year ended 31.3.2008 relevant to the AY 2008-09, the assessee issued 9 crores equity shares of Rs. 10/- each at a price of Rs. 36/- each. The TPO considered the same as international transaction and determined the arms length price of shares at Rs. 51.74 per share. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional interest in both the years. 6. The next common issue relates to disallowance made in both the years in respect of revaluation loss on index linked debentures issued by the assessee. The assessee claimed revaluation loss of debentures under the head "Interest & financial charges". The assessee furnished following reply, vide its letter dated 14.3.2013, during the course of assessment proceedings relating to AY 2009-10:- "i) During the year, the assessee had issued 100% principally protected debentures at par, having a pre-defined return payable on the maturity of the debentures. The return on these debentures is determined based on the Nifty index level prevailing on the date of maturity. On the date of maturity, the investor would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to settle the obligation, and, a reliable estimate can be made of the obligation. The assessee claims to have met the said condition." According to the assessee, the interest is payable on the basis of Nifty index level and hence if the index level as on the balance sheet date is more than the level at which the debentures were issued, then interest liability is created as on the Balance sheet date. Hence the assessee is required to provide for the interest liability so arrived at in terms of mercantile system of accounting and accounting standard. Accordingly, the assessee has computed the interest element under the name "Loss on revaluation of debentures" and claimed the same as deduction. 7. The explanations furnished by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the ratio laid down by the Hon‟ble Apex Court in the above said case is applicable to the issue under consideration. He further submitted that the liability of the assessee has fallen down in subsequent years and hence the assessee has offered the reduction in liability as its income in AY 2011-12 and 2012-13. 9. On the contrary, the Ld D.R submitted that the debentures issued by the assessee are only principally protected and there is no guarantee about the payment of interest. The interest liability can be determined only at the time of redemption of debentures and hence the provision made by the assessee cannot be considered to be accrued liability. 10. We have heard the rival contentions on this issue and perused the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court has considered the issue relating to the effect of changes in foreign exchange rates in the case of Woodward Governor India (P) Ltd (supra). In the case of foreign currency also, the conversion rates keep fluctuating and hence the liability of the assessee in respect of foreign currency loan would also keep changing. The Hon‟ble Supreme Court examined the Accounting standard -11 issued by ICAI, where in it is provided that any difference, loss or gain, arising on conversion of the said liability at the closing rate should be recognized in the P&L account for the reporting period. The Hon‟ble Supreme Court held that the loss suffered by an assessee as on the date of balance sheet in respect of a revenue liability, on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity quantified by the assessee. We notice that the terms and conditions relating to the debentures prescribe a particular methodology to arrive at the interest liability at the time of redemption of debentures. In our view, the liability of the assessee as on the Balance sheet date should be determined under the very same methodology. Accordingly, we are of the view that the computation made by the assessee requires verification at the end of the assessing officer. 15. In view of the above, we set aside the order of the AO/Ld DRP on this issue in both the years under consideration and restore the same to the file of the AO for the limited purpose of examining the computation made by the assessee in both the years. 16. In AY 2009-10, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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