TMI Blog2012 (11) TMI 1322X X X X Extracts X X X X X X X X Extracts X X X X ..... essment years 1998-99 to 2002-03 against which the assessee has filed its cross objections. Since the issues involved therein are common, the same have been heard together and are being disposed of by this single composite order for the sake of convenience. 2. The first common issue involved in the appeals of the Revenue for all the six years under consideration relating to the deletion by the learned CIT(Appeals) of the disallowance made by the AO on account of proportionate interest attributable to the advances given by the assessee to its subsidiary/group companies at concessional interest rate or interest free is raised in the following grounds : Assessment Year Ground No. 1994-95 1 1998-99 1 1999-2000 2 2000-01 1 2001-02 2 2002-03 2 3. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that the similar disallowance on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money having been paid by the assessee company out of interest free funds available at the relevant time, the disallowance of interest as made by the AO was not justified. 6. After considering the rival submissions and perusing the relevant material on record, it is observed that this issue is squarely covered in favour of the assessee by the decision of the Tribunal rendered in assessee s own case for the earlier years. In assessment year 1995-96, it was held by the Tribunal vide its order date 12th Sept., 2006 passed in ITA No. 2527 and 3264/Mum/2002 that there being no diversion of interest bearing funds for non business purpose as alleged by the AO, there was no justification in making any disallowance on account of interest paid on the borrowed funds .It was also noted by the Tribunal that the share application money was finally refunded to the assessee with interest at the rate of 19% and the interest so received was duly offered to tax by the assessee in the relevant year. A similar view has been taken by the Tribunal in the immediately succeeding year i.e. assessment years 1996-97 and 1997-98. As the issue involved in the years under consideration as well as all the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the shareholders deposit with TIHK is long term investment akin to equity and the same was liable to be recognized at the exchange rate prevailing on the transaction date. This claim of the assessee was not found acceptable by the AO on the following grounds : a) AS-11 requires monetary items to be reported at the closing rate. The assessee follows this Accounting Standard and has, therefore, defaulted in not translating the deposit made to TIHK at the closing exchange rate. b) The auditors have also qualified on the above departure from the accounting policy. c) In A.Y. 1996-97 the assessee has suo-moto booked exchange gain on repatriation of a part of the shareholders deposit. For the reasons given above, the AO converted the amount of shareholders deposit outstanding as on the last dates of the relevant previous years at the exchange rate prevailing on such last dates and brought to tax the resultant gain arising from fluctuation in foreign exchange rate in the hands of the assessee being income on revenue account. 9. The matter was carried before the learned CIT(Appeals) and it was submitted on behalf of the assessee before him that AS-11 was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar even under the mercantile system of accounting even as per AS-11 and d) as per settled judicial pronouncements, such gains are on capital account not taxable at all. For the reasons given above as well as relying on the decisions of Hon ble Supreme Court and Hon ble Bombay High Court cited on behalf of the assessee company, the learned CIT(Appeals) held that there was no gain that had arisen to the assessee during the years under consideration even as per AS-11 and the additions made by the AO on this issue for all the five years under consideration were not sustainable. Accordingly, he deleted the said additions. 11. We have heard the arguments of both the sides and also perused the relevant material on record. The learned counsel for the assessee has strongly relied on the order of the learned CIT(Appeals) in support of the assessee s case on this issue whereas the learned DR has relied on the order of the AO in support of the Revenue s case. It is observed that the impugned additions were made by the AO mainly relying on AS-11. According to the AO, as per the said accounting standard, the investment made in shareholders deposit with TIHK by the assessee company was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, was not entitled to claim deduction u/s 80HHC thereon. The learned CIT(Appeals), however, accepted the contention of the assessee that the relevant sale proceeds constituted export in respect of which the assessee was entitled to claim deduction u/s 80HHC. 14. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that a similar issue was involved in assessee s own case for the earlier years and the same has been decided by the Tribunal in favour of the assessee consistently from assessment years 1989-90 to 1997-98. Respectfully following the said decisions of the Tribunal rendered in assessee s own case for the earlier years on a similar issue, we uphold the impugned order of the learned CIT(Appeals) allowing the claim of the assessee for deduction u/s 80HHC in respect of sale proceeds of meals supplied by its flight kitchen to foreign airlines holding that the same constituted export eligible for deduction u/s 80HHC. The relevant grounds of the Revenue s appeals are accordingly dismissed. 15. The next common issue involved in all the six years under consideration relating to assessee s claim for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial on record, it is observed that this issue is similar to the issue relating to assessee s claim for deduction on account of expenditure on replacement of carpets and the same also has been consistently decided by the Tribunal in favour of the assessee in the earlier years. Respectfully following the orders of the Tribunal in assessee s own case for earlier years upto assessment 1996-97 on a similar issue, we uphold the impugned order of the learned CIT(Appeals) allowing the deduction claimed by the assessee on account of expenditure incurred on replacement on linen and dismiss the relevant grounds of the Revenue s appeals. 19. Ground No.7 raised in the appeals of the Revenue for assessment years 1998-99, 2000-01, 2001-02 and 2002-03 as well as ground No. 8 of its appeal for assessment year 1999-2000 are general in nature seeking no specific decision from us. 20. Ground No. 8 of the Revenue s appeal for assessment year 2001-02 is relating to the issue of interest levied by the AO u/s 234D which has been cancelled by the learned CIT(Appeals). 21. The return of income filed by the assessee for assessment year 2001-02 was initially processed by the AO u/s 143(1) on 15-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. 24. As regards the appeal of the assessee for assessment year 1994-95 being ITA No. 3620/Mum/2010 which is directed against the order of learned CIT(Appeals)- 5, Mumbai dated 11-03-2010, the learned counsel for the assessee has not pressed ground No. 2 to 10 raised therein. The same are accordingly dismissed as not pressed. 25. What survives for our consideration now is only ground No. 1 of the assessee s appeal for assessment year 1994-95 which involve the issue relating to addition of Rs.3,14,70,562/- made by the AO and confirmed by the learned CIT(Appeals) on account of interest capitalized in the books treating the same as income of the assessee. 26. During the previous years relevant to assessment years 1991-92, 1992-93 and 1993-94, the assessee company had incurred interest expenditure on capital borrowed for the purpose of construction of fixed assets in respect of its Lucknow hotel project and Aurangabad hotel project aggregating to Rs.3,14,70,562/- and the said expenditure debited to the profit loss account was claimed as deduction. In the year under consideration, the assessee company, however, changed the method of accounting for such interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above facts. The appellant has debited interest expenditure in earlier years which was duly allowed as deduction u/s 36(1)(iii) by the Assessing Officer in the respective years. Though it is stated that it credited the interest income merely to comply with the requirement of AS-10 issued by the ICAI which are mandatorily required to be followed by the Corporate, the facts remains that the amount having been credited to the profit and loss account, is an admittance of the fact that the said sum represent income of the appellant in terms of section 41(1) of the Act as cessation of liability. The passing of such entry amounted to cessation of liability as the same had been taken into account in earlier years and section is directly applicable to the facts of the case. In this connection, reliance could be placed on Gee Bros vs. ITO (2009) 34 SOT 519 (Mum) in which it was held that remission or cessation of trading liability by unilateral act of the assessee by way of writing off its liability in its books of account will amount to obtaining a benefit for the purposes of section 41(1) and said act by itself would be sufficient to attract the provisions of the section. The company n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny dogmatic compulsions. It is not the case that the assessee committed any error in writing the books and it is also not the case that the treatment given in the books are not reflective of the true nature of the transaction. 29. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that the addition made by the AO on account of reversal of interest claimed in the earlier years by crediting the same in the books of account for the year under consideration has been confirmed by the learned CIT(Appeals) relying on the provisions of section 41(1) of the Act. However, as submitted on behalf of the assessee before the authorities below as well as before us, the accounting entries reversing the interest claimed in the earlier years and including the same in the cost of relevant fixed assets in the year under consideration was done by the assessee to comply with the monetary requirements of AS-10 and there was no remission or cessation of any liability on account of interest which was payable to the lending companies. As submitted on behalf of the assessee, even no depreciation on the interest amount capitalized w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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