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TMI Blog2012 (11) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... n the investment on the balance sheet date which was not due nor received was not offered to tax. 4. The Assessing Officer rejected the contention of the assessee and held that interest accrued but not due should also be added to the total income. 5. On appeal the CIT(A) confirmed the order of the Assessing Officer giving rise to Ground No.1 by the assessee before the Tribunal. In doing so the CIT(A) followed his predecessors order in assessee's own case for A.Y 2000-01. 6. Aggrieved by the order of the CIT(A), the Assessee has raised ground No.1 before the Tribunal. Before us it is not dispute that this Tribunal had already considered identical issue in A.Y 2000-01 in ITA No.931/M/04and held as follows: 2. Apropos Ground No.2, material facts are like this. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had excluded `. 91,99,67,252/- on the ground that this amount though accrued but not received during the year being not due, hence not eligible to tax. The AO rejected the contention of the assessee and after excluding `. 62,63,63,964 being the amount already taxed in the assessment year 1999-2000, added the balance amount of `. 29,36,03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The department had placed reliance on the judgement of the Hon'ble Bombay High court in the case of American Express International banking Corporation v CIT, 258 ITR 602 and Taparia Tools Ltd v. JCIT, 269 ITR 102. These two judgments have been considered by the Tribunal in paragraphs 14 to 17 of the order cited above and it was held that these judgements are not applicable to the facts of Union Bank's case. In paragraphs 20 and 21, the Tribunal has also considered the objection of the department that the assessee cannot credit the interest on government securities in the profit & loss account on day to day basis but contended that for purposes of income tax only the interest that accrued on the coupon dates can be assessed. The Tribunal noticed the judgement of the Supreme Court in the case of another bank, namely United Commercial Bank, 240 ITR 355. In this case, the Supreme Court has reversed the judgement of the Calcutta High Court, which held that the assessee cannot prepare the computation of its income for income tax purposes in a manner different from the method under which it keeps accounts. Applying this judgment of the Supreme Court, the Tribunal held that Union Bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of the direction of the Tribunal given in the earlier year referred to above. 11. Ground No.4 raised by the assessee reads as follows: "On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of loss amounting to Rs.1,83,34,409/- on unmatured foreign exchange contracts and ignoring the fact that the appellant maintains the accounts on mercantile system, where liability already accrued though discharged at a future date is a proper deduction regard being had to the accepted principle of commercial practice and accountancy." 12. The assessee had booked a net profit of Rs. 2,11,43,40/- as forward profit as per the chart filed along with letter dated 15/3/2005. From the details the AO noticed that the assessee has incurred loss on forward foreign exchange contracts which were unmatured on the date of balance sheet amounting to Rs.1,83,34,409/- The details in this regard were as follows: AUD (-) 40,47,354 CHF (-) 21,20,157 DKK (-) 17,984 EUR (-) 74,12,343 GPB (-) 47,36,343 (-) 1,83,34,409 The assessee enters into forward contracts with clients to buy or sell foreign exchange at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act means an agreement to exchange different currencies at a forward rate. Forward rate is a specified rate for exchange of currency at a specified date. The assessee enters into forward contract with clients to buy or sell foreign exchange at an agreed price at a future date in order to hedge against the possible future financial loss on account of wide fluctuation in the rate of foreign currency. Thus, firstly, forward foreign exchange contract creates a continuing binding obligation on the date of contract against the assessee to fulfill the same on the date of maturity and secondly, it is in the nature of hedging contract because it is a contract entered into against possible financial losses .... In view of the above discussion, we allow the assessee's appeal for the following reasons:- i) A binding obligation accrued against the assessee the minute it entered into forward foreign exchange contracts. ii) A consistent method of accounting followed by assessee cannot be disregarded only on the ground that a better method could be adopted. iii) The assessee has consistently followed the same method of accounting in regard to recognition of profit or loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, the assessee is legally bound to pay the interest only on coupon dates as provided in terms of issue. The assessee therefore, prayed that provisions of section 43B are not applicable in this case and the interest is allowable as expenditure. The CIT(A) rejected the plea of the assessee and held as follows: "17.3 I have carefully considered the facts of the case and the submissions made by the appellant and the contentions of the assessing officer. I am unable to agree with the appellant's contention. The issue is very clear that interest payable to banks and financial institutions is allowable on payment basis in terms of provisions of sec. 43B of the Act. Therefore, the action of the AO is correct in disallowing the same. This ground of appeal is dismissed." 17. Aggrieved by the order of CIT(A) the assessee has raised Ground No.5 before the Tribunal. 18. The ld. counsel for the assessee submitted that as per the terms and conditions of the bond issued by it, payment of interest was due only on the coupon date, which was beyond the last date of the previous year. Our attention was drawn to the provisions of section 43B(d) of the Act and it was submitted that "any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only on November 18, 1996, for the first time, no deduction was admissible to the Assessee. The Commissioner of Income-tax (Appeals) and the Tribunal affirmed the order of the Assessing Officer and further held that the claim of interest was not allowable in terms of section 43B(d) of the Act. On further appeal by the Assessee the Hon'ble Delhi High Court held that merely because the interest was debited in the books of account maintained on the mercantile basis would not mean that the interest had become due and accrued because admittedly the interest liability would become due not during the relevant previous year but only for the first time on November 18, 1996. Thus, interest cannot be said to have accrued to become due and payable in the relevant previous year. The Hon'ble Court held that the stand of the assessee was incongruous because on the one hand it claims that interest became due and accrued in the relevant previous year however in the same breath it admits that the same would be due and payable only with effect from November 18, 1996. The concept of debiting the books maintained on the mercantile basis is on the principle that the payment has become due and payable a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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