TMI Blog2013 (1) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... of account. For the purpose of income tax it had claimed to offer interest on securities which had become due to the assessee. The Assessing Officer observed that since the assessee was following income accrued and due system of accounting for the purposes of income, the treatment of the assessee to exclude the interest accrued as on 31.3.1994 of ₹ 71,59,42,553/- was correct. But the assessee has not included in the computation of income interest which became due of ₹ 26,25,37,472/- during the assessment year 1994-95 which accrued in the assessment year 1993-94 but had not become due. Therefore, the Assessing Officer made addition of ₹ 26,25,37,472/- to the income of the assessee. Similarly, he added ₹ 71,59,42,553/- to the income of the assessee in the assessment year 1995-96. 4. On appeal before the CIT(A) the assessee submitted that the issue was covered against the assessee by the order of the CIT(A) in I.T.A.No. 286/2001-02 dated 21.10.2002 for assessment year 1993-94, therefore, as there was no deviation in facts, the CIT(A), following his order for assessment year 1993-94, dismissed the ground of appeal of the assessee For the very same reason, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on 31.3.1993 of ₹ 26,25,37,472/- and ₹ 71,59,42,553/- as on 31.3.1994 from the income of the assessee as these interest accrued had not become due to the assessee while computing the income for the assessment years 1993- 94 and 1994-95. He observed that the interest income which were excluded in the computation of income in the assessment years 1993- 94 and 1994-95 and which had become due to the assessee during the relevant previous year relating to the assessment years 1994-95 and 1995-96 were not included for taxation in the computation of income for the assessment years 1994-95 and 1995-96, therefore, he made the addition of ₹ 26,25,37,472/- in assessment year 1994-95 and ₹ 71,59,42,553/- in assessment year 1995-96. The assessee could not explain the reason for not including the interest income in the year of its becoming due to the assessee either before the Assessing Officer and the CIT(A) or even before us during the course of hearing. In our considered opinion, if the assessee was consistently following the system of computing total income by excluding the interest which has not legally become due during the year then the assessee is duty bound to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No.2 of the appeal for assessment year 1994-95 is directed against the order of the CIT(A) in confirming charging to tax ₹ 131,59,65,267/- being appreciation in value of capital invested in foreign branch which was repatriated to India. 9. The facts of the case as given in the assessment order are that the assessee credited ₹ 131,59,65,267/- in the Profit Loss Account on account of profit on exchange. The Assessing Officer observed that this represents the exchange difference on transfer of problem accounts of overseas branches to central office in Indian currency. In the computation memo the amount has been deducted as not being taxable based on the principle of mutuality. The Assessing Officer also observed that the assessee s main office in India had given some subsidy to its overseas branches for enabling them to make advances to clients/customers/parties. When some of such accounts became problematic, the amounts due were ascertained and transferred to the Head Office. At the time of re-transfer of such subsidy there was appreciation in value and this was booked as profit on exchange. The Assessing Officer observed that any accretion on deposits was reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a completed transaction during the year and not a notional liability or asset as on 31st of March. He further submitted that the assessee is an authorized dealer in foreign exchange and hence, the gains arising on transactions of foreign exchange was rightly treated as income by the assessee in its books of account. The assessee claims that such reversal was made on account of RBI directions. Firstly, directions of Reserve Bank are not binding on I.T. Authorities to decide the accrual of income as held by the Hon'ble Supreme Court in the case of southern Technologies Ltd vs JCIT, 320 ITR 577. Secondly, the assessee has not produced any evidence in support of such contention and if at all RBI gives any such direction, it will be to exclude such income from its books of account (which assessee has not done and not from the income for the purposes of I.T. assessment. He submitted that the issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of CIT vs Bank of India, 218 ITR 371 as well as the decision of the Delhi Bench of the Tribunal in the case of IRCON International Ltd. vs DCIT, 74 ITD 117. 13. We have heard the rival submissions and perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant itself is based on the real income principle. It has been held therein The levy of income tax is on income and. though the Income tax Act has taken note of the twin points of time at which the liability to tax is attracted, viz: the accrual of income or its receipt, yet, the substance of the matter is income and if income does not result at all, there cannot be a tax, even though, for purposes of book-keeping, an entry is made about an hypothetical income which does not materialise and a mere book-keeping entry cannot be income unless income has actually resulted. The question whether there is a loss or profit on foreign exchange transactions can be ascertained only after the settlement of the forward contracts and not before and so long as that stage has not been reached, the loss can only be notional and not actual or real and a notional loss cannot be claimed as a deduction. Whether a loss or profit, the principle applicable would be the same and the estimated profit, till the settlement of the forward foreign exchange contracts, could be regarded only as notional and not actual or real and such notional profits cannot be assessed. 250 ITR 146 This case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. It is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper principles of accountancy, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. Following the said decision the Bombay High Court in case of Commissioner of Income Tax vs Bank of India reported in 218 ITR 371 has held as under: Where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by him, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness purposes, transferred money to its branches abroad and subsequently when money was surplus in the branches, it received money back from the abroad branches. When money was received back exchange fluctuation income accrued to the assessee. In the case of Sutlez Cotton Mills Ltd vs CIT, 116 ITR 1, the Hon'ble Supreme Court has held as under: Where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held him, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. 15. No material could be brought before us to show that the foreign currency which was brought back by the assessee was held as capital asset or fixed asset of the assessee and not its trading asset. Thus, we do not find any good reason to interfere with the orders of the lower authorities. They are confirmed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995-96, Ground No.2 of the appeal is directed against the order of the CIT(A) in confirming addition of 47,05,41,973/- being appreciation in value of balance of foreign branches account in head office books. 23. The brief facts of the case are that during the assessment year 2005-06, the assessee had gains due to exchange difference on account of translation of items of financial statements of foreign branches which was credited to the Profit Loss Account by the assessee and deducted from the computation of income. The assessee contended before the Assessing Officer that it was a notional gain not liable to tax. The Assessing Officer added the exchange difference to the income of the assessee observing that the credit to the Profit Loss Account represents profit on exchange when problem accounts of overseas branches are transferred to central office in Indian currency. The CIT(A) confirmed the action of the Assessing Officer for the very same reason. 24. The A.R of the assessee submitted that both the lower authorities have not appreciated the true facts of the assessee s case. He pointed out from Ground No.2 of the appeal taken before the CIT(A) which was that the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artite agreement was entered into during the financial year 1994-95, therefore, the deduction claimed by the assessee in the computation of income should have been allowed to the assessee. 30. Before us, the DR filed notes on accounts to the Profit Loss Account of the assessee-bank. He pointed out from Note No.6(b) which states that in regard to wage arrears for Award Staff and officers, the Bank has been consistently following the accounting on cash basis and as such no provision has been made. He, therefore, submitted that the assessee consistently claimed such deduction on cash basis and even provision was not made in the accounts during the relevant previous year. He also submitted that consistent method followed by the assessee should not be disturbed and relied on the decision of the Hon'ble Supreme Court in the case of CIT vs Hindustan Zinc Ltd, 291 ITR 391. 31. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The assessee claimed deduction of ₹ 53,46,21,347/- in the computation of total income on account of provision of wage arrears. The Assessing Officer disallowed the claim on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the decision of the Hon'ble Madras High Court in the case of CIT vs Karur Vysya Bank Ltd in TCA No.2139 of 2008, order dated 13.7.2009. The DR also agreed with the same. 37. We find that the Hon'ble Madras High Court in the above quoted case has held as under: 2. In so far as the first question of law raised by the revenue is whether the Tribunal is right in holding that the diminution in the value of the securities held by the bank should be allowed as deduction disregarding the method prescribed in the Reserve Bank of India as per which permanent investments had to be valued only at cost and only current investments were to be valued at market price at the close of the accounting year . The very same issue came up for consideration before this Court in the decision reported in 273 ITR 510 @ 571, which was rendered by relying upon the decision of the Supreme Court reported in 1999 240 ITR 355. In that case, the Hon'ble Supreme Court categorically formulated the principles as under: 1. That for valuing the closing stock, it is open to the assessee to value it at the cost or market value whichever is lower; 2. In the balance-sheet, if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sen to debit only a part of the expenditure in the books of account shows that the benefits of the expenditure will be available to the assessee over a specified time and therefore, it was not open to the assessee to give a different treatment to the expenditure for the purposes of income tax. Hence, he disallowed the deduction fof ₹ 98,05,001/-. 41. On appeal, the CIT(A) confirmed the action of the Assessing Officer by following the decision of Hon'ble Supreme Court in the case of Madras Industrial Investment Corprn. Ltd vs CIT,225 ITR 802. 42. The A.R reiterated the submissions made before the lower authorities and the DR supported the orders of the lower authorities. 43. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The claim of the assessee for deduction of entire expenditure of ₹ 1,58,05,001/- incurred on account of sponsoring Wills World Cup was restricted by the Assessing Officer to ₹ 60 lakhs on the ground that the assessee has treated the remaining amount as asset in the Balance Sheet for writing it off over the subsequent two years. 44. On appeal, the CIT(A) confirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead of remanding back the issue of taxability of write back off excess provision towards bad and doubtful debts of ₹ 45,50,09,088 should have decided the said issue. The provision made in each year towards bad debts is added back and offered to tax. Therefore the write back of the same cannot be charged to tax. 8. The CIT(A) instead of remanding back the issue of deduction u/s.80G amounting to ₹ 2,75,558 to assessing officer should have decided the same. Since the assessing officer in the reassessment has converted the loss returned by the appellant as income he should have allowed the deduction eligible u/s 80G. 9. The CIT(A) had erred in not deciding on the issue of levy of additional tax amounting to Rs.l,56,40,000 which arose on account of the prima-facie disallowance of translation difference stated in ground. Therefore this issue should have been decided by CIT(A). 10. The CIT(A) had erred in not deciding on the issues of non taxability of rebated interest taxed by the department in the earlier years recovered and credited to Profit and Loss account of ₹ 12,83,594 and grant of DITR in respect of foreign branches in accordance with the DTA ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income filed by the assessee and therefore, the issue is not emanating from the impugned proceedings. 52. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We find that the assessee in the note appended to the return of income for assessment year 1996-97, stated as under: 7. The Rebated Interest in respect of Bad Debts Written Off which was offered to Tax in the earlier years will be claimed as a deduction at the time of assessment. 53. However, we find that the assessment order is silent on this issue. The assessee, before us, claimed that the relevant ground of appeal was also not adjudicated upon by the CIT(A). Considering the fact that Ground Nos.2 and 5 of the appeal for assessment year 1995- 96 have already been restored to the file of the Assessing Officer for adjudication afresh, it shall be fair and reasonable to restore this also back to the file of the Assessing Officer for adjudication of the issue by passing a speaking order. Thus, this ground of appeal is allowed for statistical purposes. 54. To summarize the result, I.T.A.No. 2412/Mds/2003 for assessment year 1994-95 is dismissed, I ..... 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