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TMI Blog2015 (7) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of appreciation of gold value is an allowable expenditure since it is linked to the trading activity. In other words, the amount incurred by assessee is part of cost of loan to assessee. It is to be noted that one of the reason on which AO has disallowed the deduction claimed is since assessee is following mercantile system of accounting, the expenditure incurred for prior period cannot be allowed. In this regard, we are of the view that though the amount has been termed as interest but it is not interest in strict sense of the term. As far as interest payment is concerned, definitely they have accrued to assessee in the respective AYs. However, as far as the repayment of principal amount is concerned, as per the terms of the agreement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Alternatively the amount of ₹ 43,32,189 is allowable in the hands of the appellant company as it is the cost of the loan of ₹ 98,54,661 to the appellant company. As the additional ground raised by assessee is also ancillary and incidental to the issue raised in ground Nos. 2 3, the same will be decided along with ground Nos. 2 3. 3. Briefly the facts as emanating from record are, assessee a company, as stated by AO, was formed on01/04/2006 by merger of three partnership firms, viz., KLN Readymades, KLN Silks and Sarees and KLN Jewels. Of course, assessee has stated before us that the company was actually incorporated on 23/12/2005. Be that as it may, AO in course of assessment proceeding, noticed that assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing over the unbooked liability of partnership firm , hence, he proposed to disallow the interest attributable to the period prior to 31/03/2006. Though, assessee objected to such disallowance, AO did not find any merit in the same. He noted that assessee company was formed only on 01/04/06, hence, loans relating to prior period of the firm could not be claimed as deduction at the hands of the company in the current AY. AO observed that though it may be a fact that under the Companies Act, assessee may take up discharge of such liabilities of firm, but, under the provisions of Income-tax Act, income of assessee has to be computed each year separately. AO observed, even assuming that the liability is allowable, but, since it partakes the cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all. There is no doubt about the fact that the terms and conditions of the gold metal account were very clear to the appellant and the liability of interest had been ascertained every year. The value of gold at the end of the year was known and it was clear to the appellant that the difference in value had to be debited as interest on charges to be paid to the bank. I agree with the AO that as per the mercantile system of accounting the liability pertaining to an earlier year cannot be debited in the current year. Therefore, I find no hesitation in confirming the addition. 4. Ld. AR submitted before us, the partnership firm M/s KLN Jewellery, which obtained gold loan of ₹ 98,54,661 from SBI, Vizag, amalgamated with assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) submitted, deduction claimed by assessee is not at all allowable as it is not interest, but, an extra cost incurred by assessee on account of appreciation of gold value on the date of repayment. Therefore, the excess payment/loss arising on that account cannot be taken to P L A/c. Ld. DR submitted, only because it is termed as current account, it cannot be linked to the trading account of assessee. Ld. DR submitted, assessee neither during assessment stage nor before ld. CIT(A) brought relevant materials like agreement with bank to the notice of the department, hence, it cannot be allowed to produce such evidences at this belated stage. Ld. DR submitted, loan taken by erstwhile firm is like foreign exchange loan and repayment depen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly the business of firm as a going concern but also all the assets and liabilities of erstwhile firm including the liability relating to gold loan. Though, at the time of availing gold loan, the value was Rs. . 98,54,661, but, when the account was closed, assessee had to pay an amount of ₹ 1,41,86,851 due to appreciation in the value of gold. Assessee claims the excess amount paid as finance charges on the loan availed. The issue to be decided is whether deduction claimed can be allowed as a revenue expenditure. There is no doubt to the fact loan as per the scheme was not in terms of cash but in terms of gold. Therefore, the gold obtained under the loan scheme form part of the stock-in-trade of the erstwhile firm and was converted in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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