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TMI Blog2013 (6) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... produce any evidence to demonstrate that these expenses crystallized during the year under consideration. The assessee is following mercantile system of accounting and in mercantile system of accounting the expenses relate to that year though not incurred has to be provided on estimate basis provided the incurring of such expenses is not contingent. The Ld AR did not submit any argument or evidence to prove that these expenses were contingent. - I.T.A. No.308/Del/2007 - - - Dated:- 7-6-2013 - Shri R. P. Tolani And Shri T. S. Kapoor,JJ. For the Appellant : Shri Mayank Moharka, ACA. For the Respondent : Dr. Sudha Kumari, CIT-DR. ORDER Per TS Kapoor, AM:- This is an appeal filed by the assessee against the order of Ld CIT(A) dated 6.10.2006. The appeal was earlier dismissed vide order dated 16.6.2008 for want of approval from COD. The same was recalled for hearing on merits vide order dated 26.6.2009. The grounds of appeals taken by the assessee are as under:- 1. The Ld CIT(A) has erred in holding the contention of the Addl. CIT that the following income have not been derived by the assessee company from the business of long term finance and disallowance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had credited an amount of Rs.10.53 crores as swapping premium received and has claimed the same as part of deduction u/s 36(1)(viii) considering the swapping premium as part of income from long term finance. The assessee was asked to explain on the eligibility of swapping premium to which the assessee replied that it was engaged in giving long term loans to State Electricity Board and had fixed interest rates. Due to steep fall, in interest rates It became necessary for the Corporation to reduce the interest rate by charging swapping premium. It was further submitted that swapping was done only on long term loans and no swapping premium was charged for short term loan. Thus it was argued that premium charged was directly from long term finance and the source of premium was from long term finance. It was also submitted that there was a direct nexus between the swapping premium and interest on term finance. The Assessing Officer however, did not accept the contention of the assessee and reduced the above three amounts from the deduction u/s 36(1)(viii) of the Act. 3. The Assessing Officer further observed that assessee had claimed deduction u/s 36(1)(viia) ( c) of Rs.34.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is incidental to the business cannot be said to be income derived from interest 'on lending money for long-term finance. The expression derived from has a definite but a restricted meaning. It cannot receive a flexible or wider meaning. 'Establishment of some sort of business connection does not mean that the income is derived from a particular source. In the case of swapping premiums, the immediate source of receipt is the scheme of converting the long-term finance given at a higher rate of interest to lower rate of interest. The swapping premium is a one time receipt for conversion of loan to different interest rate. Though there is a business connection before "swapping premium and long-term finance, the nexus is' only incidental. Therefore, the swapping premiums cannot 'be said to be derived for long-term finance. Similar issues were also discussed in A.Y. 2004-05. It was held that swapping premium, handling charges, consultancy processing fees and upfront fees are not income derived from business of long-term finance and not eligible for deduction under section 36(1 )(viii) of I.T. Act. In view of the discussion made above, it is held that consultancy, management and ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant o)n this ground is dismissed." 6. Aggrieved, the assessee is in appeal before us. 7. At the outset, the Ld AR submitted that the assessee was a Govt. company and is engaged in providing long term finance for rural electrification. It was further submitted that ground No.4 5 will not be pressed. In respect of ground No.1, point at Sl. No. 1 2 it was submitted that these also will not be pressed. In respect of swapping premium listed at Sl.No.3, the Ld AR submitted that this ground is covered in favour of assessee itself by the decision of AAR and Department suo moto in next year took cognizance of that and allowed this deduction. Our attention was invited at paper book pages 16 to 31 where relevant pages of AR were placed. With respect to ground No.2, the assessee submitted that it was also covered in favour of assessee with the order of Power Finance Corporation Ltd. v. JCIT and our attention was invited to paper book pages 53-70 wherein copy of order was placed. With respect to ground No.3, the Ld AR submitted that Assessing Officer disallowed the amount on the basis that assessee was following mercantile system of accounting and expenses related to earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and not the profit and loss account itself. The CAG, however, in the year under consideration, in its comments on the accounts for the year ending 31-3-1994 (as per PB pg. 20) characterized such provision as reserve and in pursuance of those comments, since being binding on the assessee in subsequent years, had shown the amount below the line in the appropriation account as indicated at internal pane 27 of PB pg 22 whereas the amount appears in Schedule II under the head 'Reserve and Surplus' but nevertheless, the amount was described as 'Provision for bad and doubtful debts' under section 36(1 )(viia)(c) of IT Act, 1961. We further find that in response the sole objection raised by learned DR, that the assessee In this manner would avail of a double deduction, the as sessee filed a certificate before the Tribunal to show that the assessee had not claimed any double deduction in respect of bad debts in any of the assessment years 1996-97 to 2005-06 which indicates that there was a fine link between such provision of the past and this fresh provision of the amount which has to be one year in which all the entries are to be made. Hence, we are of the opinion that the presentatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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