TMI Blog2016 (6) TMI 1240X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case, we find there is no discussion on facts. The argument that the issue should be decided on the basis of past precedent cannot be accepted as the issue is purely factual and the relevant discussion on facts both by the taxpayer and the tax authorities is found to be missing. We find that the description of the softwares acquired given before the CIT(A) does not throw any light on the nature, use or purpose of the software which has to be understood in the context of its functional use to the taxpayer’s specific business. Accordingly, for this necessary exercise the issue is restored to the file of the AO. The assessee is given liberty to place necessary supporting evidences in support of its claim. Claim deferred revenue expenditure - Held that:- There is no dispute about the fact that assessee had incurred the expenditure and the expenses are not of capital nature, therefore, as per section 37 of Act, these are allowable in the year in which such expenditure has been incurred. The A.O. had relied upon the judgement of Madras Industrial Corpn. For disallowing a part of expenditure. However, in the judgement of Madras Industrial Investment [1997 (4) TMI 5 - SUPREME Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as capital expenditure. 2.1.That the Ld. CIT(A) erred on facts and in law in not appreciating the fact that claim for similar expenditure as revenue expenditure in the past has been upheld by the Hon'ble Tribunal and that the same has been accepted by the department. 3. That on the facts and in the circumstances of the case, the learned CIT(A) has erred in upholding an ad-hoc disallowance u/s 14A of the Act amounting to ₹ 25,00,000/-, on account of purported management / administrative expenses and other costs attributed towards earning dividend income, even though the AO had brought nothing on record to show that the appellant had incurred any expenditure to earn the dividend income. 4. That on the facts and in the circumstances of the case, the learned CIT(A) has erred in upholding addition of ₹ 8,14,14,298/- on account of revenue expenditure incurred in respect of raising loan funds by treating the same as Deferred Revenue expenditure. 4.1.That the learned CIT (A) erred on facts and in law in not appreciating that for purposes of the Act, revenue expenses have to be allowed in full in the year of accrual unless specifically deferred as pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for an application software erred in holding it to be capital in nature. Relying upon the past position it was submitted that the ITAT vide its order dated 10/06/2015 in 2000-01 assessment year in ITA No.2897 2807/Del/2007 has held the identical expenditure to be Revenue in nature and infact right from 1995 96 AY to 1997 98 AY the ITAT has all along on similar facts and circumstances held the expenditure to be a Revenue expenditure and allowed it as an expense and this decision has been affirmed by the Hon ble High Court in assessee s own case. Reliance was further placed upon CIT vs Asahi India Safety Glass Ltd. 203 Taxman 277 for the proposition that expenditure incurred in application software is a revenue expenditure. 4. The Ld. CIT DR vehemently opposed the submission made. It was his categorical stand that the nature of the software has not been addressed anywhere by the assessee in the facts of the present case. The mere recording of assessee s submission on facts that the expenditure incurred is for an application software by the Assessing Officer it was argued does not lead to the conclusion that it was an application software. It was his submission that firstly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure as in the earlier years. The impugned order also shows that the CIT(A) has also not cared to address the facts and was persuaded to decide the issue in the light of the decision of the ITAT in the case of Maruti Udyog Ltd. (cited supra). We find that the said approach of the CIT(A) was not correct. Whether a particular expenditure for computer software was to be allowed as a revenue expenditure or capital expenditure is an issue to be decided on the basis of specific facts of each case wherein not only the specific software needs to be addressed but also the functional utility and contribution to the assessee s business-whether in the capital field or Revenue field needs to be considered. Support is drawn from Amway India Enterprises vs DCIT, Circle-1(1), New Delhi [2008] 111 ITD 112 (Del.) (SB). A perusal of the facts before the Special Bench would show that the assessee-company therein incurred certain expenditure for acquiring computer softwares for use in its business. The assessee claimed that the expenditure in question was of revenue nature as all the softwares were essentially in the nature of application software and they only facilitated it in its day to day op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate test would be the functional test. It was considered that is the purpose of the outlay and its intended object which would be effected having regard to the specific business realities which could help in deciding the issue. It has been held that the cardinal rule for deciding the question whether a certain expenditure is on capital or revenue account should be decided from the practical and business view-point and in accordance with sound accountancy principles and this rule is of special significance in dealing with expenditure on expansion and development of business. It has been observed that while dealing with this complex issue, three tests are generally applied to decide the nature of expenditure as to whether it is capital or revenue, they are: the test of enduring benefit; ownership test; and functional test. For the purposes of computer software it has been held that the functional test becomes more important and relevant because of the peculiar nature of a computer software and its possible use in different areas of business touching either capital or revenue field or its utility to a businessman which may touch either capital or revenue field. The manner in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, for this necessary exercise the issue is restored to the file of the AO. The assessee is given liberty to place necessary supporting evidences in support of its claim. 7. The next issue agitated by the assessee in its appeal is addressed in Ground No.3 and is interlinked with Ground No.1 of the Revenue s appeal. The facts relatable thereto are found addressed in assessment order pages 3 to 4. A perusal of the same shows that the AO qua the dividend receipt of ₹ 6,85,58,082/- required the assessee to justify its claim that no expenditure had been incurred attributable to the earning of the exempt income. 7.1. The assessee in response thereto has replied that it was a Non Banking Financial Company dealing in activities in respect of ingredients of the NBFC. The investment it was stated had been made in the earlier years primarily out of its own fund thus it was argued that no expenditure had been incurred. 7.2. The said submission of the assessee was not accepted by the AO holding as under:- 4.2. I have considered the submissions of the assessee. This matter was examined in the assessment in the assessee's case for A.Y. 00-01. In that assessment, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the financials of A.Y. 94- 95 to A.Y. 97-98 in order to arrive at a conclusion as to whether the investment made during the said 4 years were from the appellant's own interns; accruals or from the interest charged loan funds. From the accounts of the appellant for A.Y. 94-95, the version of the appellant that investment of ₹ 10.83 crores for that year arose out of the internal accruals of ₹ 23,00 crores has not been controverted. For A.Y. 95-96, the investment were for ₹ 18.33 crores and the internal accrual for that year was ₹ 193,00 crores. For A.Y, 96-97, the investments were for ₹ 34.99 crores as against an internal accrual of ₹ 248.00 crores. Similarly also, the version of the appellant that investment of ₹ 46.93 crores during A.Y. 97-98 arose out of internal accruals of ₹ 253.00 crores during that year has not been factually disproved by the AO. Under the provisions of section 14A, it has been provided that for the purpose of computing total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 years and there should be no apparent presumption against the appellant to hold a view that the investments for these 4 years arose out of the borrowed funds. From an analysis of the appellant's accounts for A.Y 94-95 to 97-98 and the decision in the case of ACIT Vs Eicher 101 TTJ 369 (Del.), I hold that the provision of section 14A are not applicable to the facts of the case and in that view the disallowance stands deleted. The ground is allowed. 7.4. The discussion in the impugned order leading to sustaining the disallowance of ₹ 25 lacs which further led to filing of assessee s Ground No.3 in the present proceedings shows that the claim was rejected by the CIT(A) holding that the decision whether to stay invested in a particular share or financial instrument or to offload the investment were strategic decisions calling for skill, energy, time etc. These factors it was held can be measured only in money as a quantifiable expenditure. It was concluded that the very fact that the assessee has an investment portfolio of ₹ 309.67 crores at the beginning of the year and the accounts of the earlier years suggest that fresh investments and liquidation of investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very same investment made in the earlier years has been considered by the ITAT in 2000-01 AY wherein considering identical Ground no.1 of the Revenue and identical Ground No.4 of the assessee, the Revenue s appeal was dismissed and the assessee s claim was allowed. In the facts of the present case as per the submissions advanced before the CIT(A) at specific page 34, adhoc disallowance of ₹ 25 lacs is found to be 4% of the amount of dividend received by the assessee in the year and while making the adhoc disallowance herein also no specific effort has been made by the tax authorities in regard to incurring of expenditure. Reverting to the decision of the ITAT in assessee s own case, we find that the conclusion arrived at relying upon the decision of the Hero Cycles Ltd. (cited supra) has been followed to dismiss the Revenue s ground and allow the assessee s ground. The same is reproduced hereunder for ready-reference:- 14. As regards ground No.2 of Revenue s appeal, and ground No.4 of assessee s appeal, we find that the A.O. has made addition on a lump sum basis without noting down incurring of any expenditure @ 25% of dividend income whereas Ld. CIT(A) has restricte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent reasons for the same which has not been done in the present case. Therefore, relying upon the ratio of Hero Cycles Ltd. 323 ITR 518, we hold that without recording of finding of fact as to the incurring of some expenditure, disallowance made by A.O. and partly confirmed by Ld. CIT(A) is not justified. Moreover, we find hat dividends were received from the group companies wherein the investment was made as a strategic investment and not for the purpose of earning dividend and since these are strategic investments there is no chance of incurring of any expenditure on day to day basis. In view of above facts and circumstances, ground No. 4 of assessee s appeal is allowed, whereas ground No.2 of Revenue s appeal is dismissed. 9.1. On a consideration of the factual and legal matrix of the issue, we find that the Coordinate Bench in the immediately preceding assessment year has concluded both the issues in favour of the assessee. No change in fact, circumstance or legal position has been brought to out notice by the Revenue in order to justify deviation from the view taken. In the absence of any cogent argument on either fact or law we find no good reason to deviate. Respectfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpense, in respect of debenture issue expenses. There is a specific provision in sec. 35-D dealing with this claim and the same has to be considered under the specific provision and not under the general/residuary provision. If the claim of debenture issue expenses falls within the ambit of section 35-D, the A.O. would accordingly take necessary remedial measures. 11. Aggrieved by this, the assessee is in appeal before the ITAT. The Ld.AR inviting attention to the aforesaid order of the ITAT in 2000-01 AY submitted that the issue has been concluded in favour of the assessee in the immediately preceding assessment year. Accordingly following the past precedent, Ground No.4 may be allowed. It was his submission that in support of the said prayer no lengthy arguments need be addressed as it is evident from the assessment order itself on record that the AO relies on the view taken in 2000-01 AY and the CIT(A) also considering the past history rejected the claim. The ITAT in assessee s own case in the said year considering the views taken not only by the Apex Court in the case of Taparia Tools Ltd. vs JCIT in Civil Appeal no.6946-6948 of 2004 (S.C) [copy filed in the Court] and CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... despite a specific query, no argument was advanced justifying the deviation from the precedent available in assessee s own case in 2000-01 AY. 13. We have heard the rival submissions and perused the material available on record. We find that both the parties agree that qua the facts and circumstances and the position of law on the issue continue to remain the same as in the immediately preceding assessment year. The fact on record that in 2000-01 A.Y as in the present year there were consistent orders of the tax authorities in favour of the Revenue is not in dispute. The issue having been carried in appeal before the ITAT which concluded the same in favour of the assessee is also not in dispute. The assessee apart from supporting the view taken as the correct view heavily relies upon the same and the Ld.CIT DR has sought to argue that the view taken on facts should not be followed. In support of this argument, reliance has been placed on State of Punjab Others vs Surinder Kumar Others (cited supra) a perusal of the said decision shows that the Hon ble High Court in a writ petition passed the following judgement:- On the facts and circumstances of the case, we are of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out the reasons for justifying following of a precedent the Apex Court deprecated the practice followed as it is only the reasons based on facts which can on challenge be examined by a higher forum. The aforesaid principle does not advance the Revenue s case whatsoever as no argument on fact has been advanced justifying a deviation from the view taken in the immediately preceding assessment year. We propose at this stage to reproduce the finding relied upon by the assessee from the order of the Co-ordinate Bench:- 15. The last ground of appeal is regarding disallowance of expenditure incurred by assessee for raising loan by treating the same as deferred revenue expenditure. The Ld. A.R. submitted that during the year, the assessee had incurred an expenditure of ₹ 35,07,38,065/- for raising loan funds out of which ₹ 22,84,74,853/- had been debited to P L account and the remaining amount of ₹ 12,22,63,212/- had been claimed as deduction by way of adjustment in computation of income. He submitted that these expenses consisted of discount on debentures, debenture issue expenses, forward cover premium on foreign currency and discount on commercial papers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business are allowed in the computation of income unless they are of capital nature or of personal nature. There is no mention of deferred revenue expenditure in the income tax Act. In the case of Mad. Industrial as relied upon by Ld. CIT(A), the issue was decided in favour of revenue on account of the fact that assessee itself had claimed proportionate amount in the P L account and the Hon ble Court had held that in such a scenario proportionate claim was admissible. We further find that Section 35D is also not applicable in the case of assessee as the assessee is a NBFC and in the year under consideration, Section 35D was applicable only for industrial units. We further find that similar issue was considered by the Tribunal in the case of group companies of assessee and copy of order is placed at paper book pages 189-222. The findings of Tribunal as contained in para 19.1 -19.3 are reproduced as under: 19.1 We have considered the rival submissions and have perused the record of the case. We find that there is no concept of deferred revenue expenditure under the Income Tax Act except under certain specific, provisions like section 35D. Therefore, unless statutory prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and could be allowed as loss, were substantial questions of Law. 3. CIT vs. Panacea Biotech Ltd., vide ITA No. 22 24/2012, wherein the Hon'ble Delhi High Court observed as under: 4. The question of deferred revenue expenditure and the Judgment of the Supreme Court in the case of Madras industrial Investment Corporation Ltd. vs. CIT,MANUISCI049311997 : (1997)225 1TR 802 (SC) was examined and distinguished in CIT vs. Industrial Corporation of India MANUIDEl252112009 (2009) 185 Taxman 296 (Delhi) and it was held: 22. . .. The Ld. Counsel for the Revenue had strongly argued that matching concept is to be applied, as per which part of the expenditure had to be deferred and claimed in the subsequent years and, therefore, approach of the AO was correct. However, this argument overlooks that even LIZ Madras Industrial Investment Corporation (supra), on which the reliance was placed by Ms. Bansal, the general principle stated was that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business can be allowed in the year in which it is incurred. Some exceptional cases will justify spreading the expenditure and claiming it over a peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably white leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The lest of enduring belle fit is, therefore, not a certain or conclusive rest and it cannot be applied blindly and mechanically without regard LO the particular facts and circumstances of a given case.ITA Nos. 28081D1l1, 12931D112, 10471D112, 3977IDIlO 24701D1l1 22. 6. It was held that the claim of the Revenue that the revenue expense should be deferred in the absence of a statutory' provision or spread over some years cannot be accepted. In the case of Commissioner of Income Tax vs. Casio India Ltd. MANUIDE12405120II : (2011) 335 ITR 196 (Del.), reference wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee can claim the entire expenditure in this year itself, even though it had written off this expenditure in the books over a period of five years. Though the assessee has written off the expenditure in its books of account over a period of five years, it must be allowed ill its entirety in the year in which it was incurred, if it is revenue expenditure and if it is wholly and exclusively incurred for the purposes of business. The assessee had launched a new product and incurred heavy advertisement expenditure. The period for which the assessee can be said to have secured benefit by incurring this expenditure cannot be reasonably estimated. The undisputed fact is that the new product launched may fail to take off in the year of launch itself or may have a long life as a product. There is no way in which it can definitely be estimated that the benefit of the expenditure would last for a particular period of time. The entries in the books of account do not clinch the issue either way and they do not determine the allowability or otherwise of the expenditure. The entire advertisement expenditure for product launching is to be allowed in this year. The disallowance of ₹ 1,03,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 13.05.50.380/- as foreign exchange loss in the P L A/c. The AO required the assessee to justify the claim. The assessee is found to have submitted a letter dated 18.09.2003 stating that the foreign exchange loss was booked on account of year end provision for change in the exchange rate in respect of the outstanding liability on foreign exchange loan computed with reference to the exchange rate prevalent as on the balance sheet date. Reliance was also placed upon Accounting Standard 11 issued by ICAI. However subsequently the assessee claimed vide letter dated 11.02.2004 that the loss was on account of forward premium amortised in books in respect of loans that were due to be paid after 31.03.2001. The amounts were stated to be amortised on the basis of tenure of loan in accordance with AS 11 issued by ICAI. It was also submitted that the assessee followed a policy of hedging the forex exposure. The forward contracts were stated to have been entered for the period of the loan by paying a forward cover premium. It was explained that the liability to pay such a premium crystallized on the day contract for hedging the loan was entered into. Relying upon the copies of the two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In the case of Taparia Tools Ltd. vs JCIT 126 Taxman 544 (Bom.), in the context of claim of interest on non convertible debentures, the AO had noted that the assessee had claimed certain up front payment of interest. The AO held that such payment represented deferred intrest and not allowable in its entirely in one accounting yea. The High Court in that case held that matching concept in which revenue and income earned during an accounting period irrespective of actual cash inflow is required to be matched and compared with expenses incurred during the said period, in respective of actual cash out flow, is relevant for determining total income under the I.T. Act. That though ordinarily revenue expenditure incurred only and exclusively for business purpose should be allowed in its entirely in the year in which it is incurred, deferred interest in the case before the High Court was directed to be spread over the life of the said instrument. The case referred above concerned interest on non convertible debentures and the issue decided in favour of revenue related to the question as to whether up front payment of interest not relating to the year of account could be allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the order of the Co-ordinate Bench:- 20. Ground No.3 is regarding action of Ld. CIT(A) by which he had deleted an addition of ₹ 1,16,44,707/- which was made by A.O. on account of disallowance of notional foreign exchange fluctuation loss. Ld. D.R. had relied upon the order of A.O. Ld. A.R. submitted that the assessee had debited the aforesaid amount in the P L account on account of year end provision for change in exchange rate in respect of outstanding liability on account of working capital loans in foreign exchange. He submitted that the above debit in P L account was made on the balance sheet date and in accordance with accounting standard 11. He submitted that the A.O. had disallowed the claim treating the same as provision relying on the decision of the Tribunal in the case of ONGC reported in 83 ITD 151 and Ld. CIT(A) after analyzing the facts of the case, has held that the loss written off was not contingent in nature. Ld. A.R. submitted that the issue is squarely covered in favour of assessee by the decision of Hon'ble Supreme Court in the case of CIT Vs Woodward Governors India (P) Ltd. 312 ITR 254. 21. We have heard rival parties and have g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head Profits and gains of business . In sections 30 to 36, the expressions expenses incurred as well as allowances and depreciation have also been used. For example, depreciation and allowances are dealt with in section 32. Therefore, Parliament has used the expression ' any expenditure in section 37 to cover both. Therefore, the expression expenditure as used in section 37 may, in the circumstances of a particular case, cover an amount which is really a loss even though the said amount has not gone out from the pocket of the assessee. 14. In the case of M. P. Financial Corporation v. err reported in [1987) 165 14 ITR 765 the Madhya Pradesh High Court has held that the expression expenditure as used in section 37 may, in the circumstances of a particular case, cover an amount which is a loss even though the said amount has not gone out from the pocket' of the assessee. This view of the Madhya Pradesh High Court has been approved by this court in the case of Madras Industrial Investment Corporation Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increased profits before actual realization. This is the theory underlying the rule that closing stock is to be valued at cost or market price, whichever is the lower. As profits for income-tax purposes are to be computed in accordance With ordinary principles of commercial accounting, unless such principles stand superseded or modified by legislative enactments, unrealized profits in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following year's account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss has -not been realized actually. At this stage, we need to emphasise once again that the above system of commercial accounting can be superseded or modified by legislative enactment. This is where section 145(2). comes into play. Under that section, the Central Government is empowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also supported by the decision of the Jurisdictional High Court in the case of CIT vs Industrial Finance Corporation of India Ltd. (cited supra). The said decision it may be appropriate to address was taken when their Lordships did not have the benefit of the decision of the Apex Court in Woodward Governor s decision and it may not be out of place to observe that the author of the decision in the decision of the Hon ble High Court in CIT vs Industrial Finance Corp. of India Ltd. is the very same Hon ble Judge who was the author in the judgement of the Apex Court in the case of Taparia Tools Ltd. To revert back to the issue at hand the judgement of the Apex Court in Woodward Governor was relied upon by the Co-ordinate Bench in the immediately preceding assessment year in assessee s own case was not available to it. When considering with the facts of the present case it is seen that the facts in CIT vs Industrial Finance Corp. are more or less similar facts as considered by the Hon ble Court. In the facts before the Hon ble High Court the assessee was also a financial institution, engaged in the business of giving loans and advances to various industrial concerns. The assessee the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as moneis due and payable by the parties to whom they are debited. Reliance was placed on As considered in Keshav Mills Ltd. vs CIT [1953] 23 ITR 230, 239 (SC); Calcutta Co. Ltd. vs CIT [1959] 37 ITR 1 (SC); and CIT vs S.M.Holding Finance P.Ltd. [2003] 264 ITR 370 . On the strength of these decision and arguments it was submitted that the expenses were to be allowed proportionately i.e. the expenditure pertaining to the relevant year was to be allowed in the year under consideration and the balance had to be deferred to the subsequent year, as was done by the Assessing Officer in the instant case, which was wrongly upset by the ITAT. 19.2. The Hon ble High Court after considering the principle laid down in the aforesaid judgements namely (a) Jasjeet Films P.Ltd. vs CIT [2007] 165 Taxman 599 (Delhi); (b) Metal Box Co. of India Ltd. vs Their Workmen [1969] 73 ITR 53 (SC); (c )Asstt. CIT vs Shree Synthetics Ltd. [2008] 303 ITR 106 (MP); (d) E.D.Sassoon Co. Ltd. v CIT [1954] 26 ITR 27; and (e) Bharat Earth Movers v CIT [2000] 245 ITR 428 relied upon these accepting the arguments advanced on behalf of the assessee namely that the Revenue has not appreciated the nature of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding a drainage system and installing lights etc. When the plots were sold, the purchaser paid only a portion of the purchase price and undertook to pay the balance in installments. The appellant in its turn undertook to carry out the developments within six months but time was not of the essence of the contract. In the relevant accounting year, the appellant actually received in cash only a sum of ₹ 29,392 towards sale price of lands, but in accordance with the mercantile system of accounts adopted by it, it credited in its accounts the sum of ₹ 43,692 representing the full sale price of lands. At the same time, it also debited an estimated sum of ₹ 24,809 as expenditure for the developments it had undertaken to carry out, even though no part of that amount was actually spent. The Department disallowed the expenditure. The Supreme Court was of the view that the aforesaid expenditure was allowable in the year in question though no part of that amount was actually spent as it was `accrued liability' and not merely a contingent one. The Court quoted from the book Income-tax (2nd Edn., Vol. II (page 204), authored by Simon, wherein `accrued liability' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cold Coast Selection Trust Ltd. v. Humphrey (Inspector of Taxes) [1948] 17 ITR (Suppl.) 19, 23, where a particular asset which could not be immediately realized in a commercial sense was valued in money for income-tax purposes in the year of its receipt. 18. In Metal Box Co. of India Ltd.'s case (supra), where bonus payable to the workmen and liability under a scheme of gratuity in respect of the accounting year was stated in the profit and loss account, though not actually paid, the Court allowed the same in the following words, relying upon the judgment in Calcutta Co. Ltd's case (supra) :- . . . In the case of an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid. Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1995-96. It is clear from the nature of the transaction, that the assessee had raised foreign currency borrowings and swapped such foreign currency into Indian rupees in order to augment its rupee resources for meeting its lending requirements. The foreign currencies borrowed were repayable to the foreign lenders on later dates falling within the current previous year ending on 31-3-1995 and in some cases falling in the next previous year relevant to subsequent assessment year. In order to ensure that it is able to repay the foreign lenders in the foreign currency on their respective due dates of repayments, the assessee had entered into forward contracts as a safeguard against foreign currency fluctuations. It is the difference between the forward contract rate and the exchange rate on the date of transaction which was claimed as deduction in that very year. The forward contract is an agreement between two parties, requiring the delivery at some specified future date of a specified amount of foreign currency by one of the parties, against payment in domestic currency to the other party, at the price agreed upon in the contract. The rate of exchange applicable to the forwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time as was justifying such spread. It was a case of issuing debentures at discount; whereas the assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself. The Court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilize the said amount and secure the benefit over number of years. This is discernible from the following passage in that judgment on which reliance was placed by the learned counsel for the revenue herself :- The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of ₹ 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of matching concept is satisfied, which up to now has been restricted to the cases of debentures. 25. The upshot of the aforesaid discussion is to answer the question in favour of the assessee and against the revenue. The consequence would be to dismiss this appeal, which is hereby dismissed with costs. 19.5. While so holding, we have already taken into consideration the decision of the Apex Court in the case State of Punjab Others vs Surinder Kumar Others (cited supra) which issue we have discussed at greater length in the earlier part of this order. On considering the same, we find that though there can be no quarrel with the afore-said principle laid down therein. However, in the facts and circumstances, we find that it has no applicability to the facts of the present case. Accordingly considering the issue from all angles, we find that the assessee s Ground deserves to be allowed and by setting aside the impugned order the Revenue s ground can also be said to be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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