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TMI Blog2012 (11) TMI 1322X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Revenue filed for assessment 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 of interest attributable to the advances given by the assessee to its subsidiary company was made in the case of the assessee for the earlier years. In assessment year 1989-90, this issue was referred to a Third Member and vide the Third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 material facts relevant thereto are similar to assessment years 1995-96 to 1997-98, we respectfully follow the order of the Tribunal for the said years and uphold the impugned order of the learned CIT(Appeals) giving relief to the assessee on this issue. The relevant grounds of the Revenue's appeals are accordingly dismissed. 7. The next common issue involved in the five years under consideration i.e. assessment years 1998-99 to 2002-03 relating to deletion by the learned CIT(Appeals) of the addition mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 wrongly applied by the AO in its case. It was pointed out that as per AS-11, only monetary items were liable to be reported using the foreign exchange rate on the last date of the previous year while non-monetary items were required to be reported using only the exchange rate as prevailing on the date of relevant transaction. It was contended that as per the classification made in AS-11, non-monetary items included investment in equity shares and since the shareholders' deposit placed by the assessee company with TIHK was akin to investment in equity shares and it was in the nature of investment blocked for a very long period of 10 years, the same was rightly reported/recognized at the exchange rate prevailing on the transaction date. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 required to be recognized at the exchange rate prevailing on the last date of the relevant previous year. However, as submitted on behalf of the assessee before the learned CIT(Appeals) as well as before us, only the monetary items are required to be reported/recognized at the exchange rate prevailing on the last date of the relevant previous year whereas non-monetary items are required to be reported/recognized at the exchange rate prevailing on the date of relevant transaction. As per the classification made in AS-11, monetary items mainly include amounts held on current account, such as, cash receivables, payables etc. while non-monetary items include amounts held on capital account, such as, fixed assets, investment in shares etc. In the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds 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 deduction on account of expenditure incurred on replacement of carpets is raised in the following grounds : Assessment Year Ground No. 1994-95 4 1998-99 5 1999-2000 5 2000-01 3 2001-02 4 2002-03 4(a) 16. After considering the rival submissions and perusing the relevant material on record, it is observed that a similar issue has been consistently decided by the Tribunal in favour of the assessee in the earlier years. In assessment year 1992-93, the Tribunal vide its order dated 10th Sept., 2004 passed in ITA No. 3530/Mum/1996 upheld the order of the learned CIT(Appeals) allowing the deduction claimed by the assessee for expenses incurred on replacement of carpets following the orders of the coordinate bench in assessee's own case for the earlier years upto assessment year 1991-92. Similarly, in the subsequent years upto 1997- 98, the Tribunal followed its orders for the earlier years and decided a similar issue in favour of the assessee. The decision of Hon'ble Rajastan High Court in the case of CIT vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 01-06-2003, the date on which 234D was inserted in the statute to 22-03-2004 i.e. the date of assessment order. On appeal, the learned CIT(Appeals) cancelled the interest levied by the AO u/s 234D relying on the decision of Delhi Special Bench of ITAT in the case of ITO vs. Ekta Promoters P. Ltd. 113 ITD 719 (Del)(SB) wherein it was held that the provisions of section 234D are applicable only prospectively i.e. from assessment year 2004- 05. 22. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that section 234D has been amended by the Finance Act, 2012 with retrospective effect from 01-06-2003 whereby Explanation 2 has been inserted declaring that the provisions of section 234D shall also apply to assessment year commencing before the first day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date. In the present case, the assessment year involved in assessment year 2001-02 which is commencing before the first day of June, 2003 and since the assessment for the same has been completed on 22-03-2004 i.e. after 1st June, 2003, the provisions of section 234D are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept this treatment given by the assessee and included the amount of interest reversed by the assessee in its books of account in the total income of the assessee for the year under consideration. 27. The addition made by the AO on account of reversal of interest was challenged by the assessee in an appeal filed before the learned CIT(Appeals). It was submitted on behalf of the assessee before the learned CIT(Appeals) that the method of accounting for interest was changed as required by AS-10 issued by the Institute of Chartered Accountants of India and accordingly interest charged to the profit & loss account in the earlier years was reversed in the books of account merely to comply with the requirements of AS-10. It was contended that this treatment given in the books of account, however, had no implication on the taxable income of the assessee and, therefore, the amount of credit appearing in the profit & loss account was reduced while computing the total income for the year under consideration. It was submitted on behalf of the assessee that it did not receive any benefit from the lenders either by way of waiver of interest or any refund by virtue of the entries passed in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... likewise, it was held that in view of the Explanation to section 41(12), any unilateral act on the part of the assessee in writing back any trading liability in respect of which deduction has been allowed or made in assessment of any earlier year is taxable. In this case the assessee a sum allowed as deduction as deferred sales tax liability was later written back in the books which was held to be taxable income. 69.1 It may also be stated here that the appellant after writing off the interest had itself shown as income by crediting the profit and loss account but claimed the same not taxable in the return filed. Thus, the appellant is following doubles standards on the issue and its approach is self-contradictory. The entries in the books of account cannot be ignored as lightly as done by the appellant. In this connection, it would be relevant to make reference to some of the decisions on such aspect. In the case of JCIT vs Tirumalal chemicals Ltd. (2006) 9 SOT 744(Mum)- in which on similar claim, it was held that whether the entries in the books of account are decisive or not would depend on facts of the case and they cannot be lightly discarded unless they are shown to be inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides that for the purpose of section 41(1), the expression "Loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by unilateral act by the assessee. As already noted, the accounting entries passed by the assessee in its books of account reversing interest debited in the earlier year and including the same in the cost of relevant fixed asset did not result in any remission or cessation of any liability and it cannot be said that there was any such remission or cessation of any liability by universal act by the assessee so as to invoke Explanation 1 to section 41(1). In our opinion, it is just a case of capitalizing the interest expenditure to comply with the monetary requirements of AS-10 by passing the necessary entries in the books of account which has not resulted in any advantage or benefit to the assessee either by way of remission or cessation of any liability or in any other manner. The addition made by the AO and confirmed by the learned CIT(Appeals) on this issue thus is not sustainable and deleting the same, we allow ground No. 1 of the assessee's appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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