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TMI Blog2015 (9) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... actice to provide for all known liabilities and losses as on the date of Balance Sheet. The accounting standards also mandate the companies to provide for known liabilities and losses. During the years under consideration, the claim of the assessee is that the nifty index level has gone up vis-ŕ-vis the level existed at the time of allotment of debentures, meaning thereby the liability of the assessee was known as on the date of Balance Sheet. Accordingly, we are of the view that the said liability would fall in the category of „expenditure‟, since it is in the nature of interest liability only. Accordingly, we are of the view that the ratio of the decision rendered by the Hon‟ble Supreme Court in the case of Woodward Governor India (P) Ltd shall apply to the facts of the present case also. As noticed that the assessing officer did not examine the workings relating to the liability quantified by the assessee. We notice that the terms and conditions relating to the debentures prescribe a particular methodology to arrive at the interest liability at the time of redemption of debentures. In our view, the liability of the assessee as on the Balance sheet date should be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue relating to deemed loan in AY 2008-09 before the Tribunal and the Tribunal, vide its order dated 25.3.2015 passed in iTA No.7572/Mum/2012 for AY 2008-09, has deleted the addition by following the decision rendered by Hon‟ble Bombay High Court in the cases of Vodafone india Services Pvt Ltd Vs. Union of India and Ors (368 ITR 01) and M/s Shell India Markets Pvt Ltd (369 ITR 516). The Ld D.R did not dispute these facts. 5. Thus, we notice that the very foundation, on which the notional interest has been levied i.e., the addition relating to the difference in issue price which was considered to be the deemed loan , has since been deleted by the Tribunal. In that case, the impugned addition pertaining to notional interest made in both the years under consideration does not survive and is accordingly liable to be deleted. Accordingly, we direct the AO to delete the addition relating to notional interest in both the years. 6. The next common issue relates to disallowance made in both the years in respect of revaluation loss on index linked debentures issued by the assessee. The assessee claimed revaluation loss of debentures under the head Interest financial char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is required to provide for the interest liability so arrived at in terms of mercantile system of accounting and accounting standard. Accordingly, the assessee has computed the interest element under the name Loss on revaluation of debentures and claimed the same as deduction. 7. The explanations furnished by the assessee were not acceptable to the Ld DRP/AO and accordingly the claim so made by the assessee was disallowed in both the years. 8. The Ld A.R submitted that the Non convertible debentures having maturity period of 21 months /36 months were issued by the assessee during the year under consideration. These debentures are principal protected and they are linked to the performance of Nifty index. Accordingly, the debenture holders are given a Coupon and the value of coupon shall be determined as per the pre-determined formula, which is based on the nifty index level at the time of allotment and the nifty index level at the time of redemption. The Ld A.R submitted that the assessee is also liable to deduct tax at source on the value of coupon at the time of redemption. He submitted that the liability arising on debentures is in effect, in the nature of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest liability of the assessee. 11. It is also a known fact that the nifty index level shall not increase at a constant rate, but it will fluctuate depending upon the market conditions. So whenever the nifty index level crosses the index level that prevailed at the time of allotment of debentures, the liability of the assessee would also simultaneously increase. Conversely, if the index level goes down, the liability of the assessee would also go down. 12. The Hon‟ble Supreme Court has considered the issue relating to the effect of changes in foreign exchange rates in the case of Woodward Governor India (P) Ltd (supra). In the case of foreign currency also, the conversion rates keep fluctuating and hence the liability of the assessee in respect of foreign currency loan would also keep changing. The Hon‟ble Supreme Court examined the Accounting standard -11 issued by ICAI, where in it is provided that any difference, loss or gain, arising on conversion of the said liability at the closing rate should be recognized in the P L account for the reporting period. The Hon‟ble Supreme Court held that the loss suffered by an assessee as on the date of balance sheet i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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