9911796707
TMI Blog2016 (6) TMI 1240X X X X Extracts X X X X X X X X Extracts X X X X ..... , the CIT(A) erred in deleting the disallowance of foreign exchange fluctuation loss of Rs. 1,13,35,384/- incurred as result of forward agreement executed for purchase of US $ in future at a fixed rate, ignoring the fact that the liability in respect of forward cover premium amortized in the accounts of the year under consideration was neither incurred nor discharged during the year. 3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of the hearing." ITA No.2898/Del/2007 1. "That the Order dated March 29, 2007 passed by the learned Commissioner of Income Tax (Appeals)-XV ["CIT(A)"] is erroneous and bad in law in so far as it has confirmed the additions/disallowances/levy of interest made in the assessment order. 2 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of expenses on purchase of software for updating the existing data processing system of the appellant company amounting to Rs. 23,04,500/- considering the same as capital expenditure. 2.1.That the Ld. CIT(A) erred on facts and in law in not appreciating the fact that claim for similar expenditure as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to submit such statements, documents and papers as may be considered necessary either before or during the appeal hearing." 2. Taking up the appeal filed by the assessee first with the concurrence of the CIT DR, the Ld. AR invited attention to the chart of Issues filed in the assessee's appeal submitted that the issue raised by the Revenue in Ground No. 1 is interlinked with Ground No. 3 of the assessee and the Ground No.2 of the Revenue is interlinked with Ground No.6 of the assessee. 2.1. Ground No. 1 in the assessee's appeal was stated to be general. 3. Addressing Ground No. 2 in assessee's appeal, the Ld. AR invited attention to the facts recorded on page 3 of the assessment order. Relying on the same it was his submission that the Assessing Officer on facts has wrongly relied upon Maruti Udyog Ltd. 92 ITD 119 (Del.) which has been upheld by the CIT(A) also at pages 2 and 3 of his order. It was his submission that the AO after holding that the expenditure incurred was for an application software erred in holding it to be capital in nature. Relying upon the past position it was submitted that the ITAT vide its order dated 10/06/2015 in 2000-01 assessment year in ITA No.2897 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's ground should not be allowed. 6. We have heard the rival submissions and perused the material available on record. We find that the way the Assessing Officer has worded the issue in para 3 of his order it does give cause to a debate however when examined in the context of the submissions and the findings on record, we find that there is no discussion on relevant facts. It is seen that considering the claim of the assessee, the AO showcauses the assessee to explain why the expenditure should not be held as capital expenditure as in the earlier years. The impugned order also shows that the CIT(A) has also not cared to address the facts and was persuaded to decide the issue in the light of the decision of the ITAT in the case of Maruti Udyog Ltd. (cited supra). We find that the said approach of the CIT(A) was not correct. Whether a particular expenditure for computer software was to be allowed as a revenue expenditure or capital expenditure is an issue to be decided on the basis of specific facts of each case wherein not only the specific software needs to be addressed but also the functional utility and contribution to the assessee's business-whether in the capital field ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture is capital or revenue. It was observed that it is a blurred and undefined area in which anyone can get lost and different minds may come to different conclusions with equal propriety as there is no single definitive criterion which by itself can be said to be determinative as to whether a particular outlay is for capital or revenue. Accordingly, after considering the merits of various tests for deciding the issue namely; ownership test; benefit of enduring nature and functional test, it was concluded that the most appropriate test would be the functional test. It was considered that is the purpose of the outlay and its intended object which would be effected having regard to the specific business realities which could help in deciding the issue. It has been held that the cardinal rule for deciding the question whether a certain expenditure is on capital or revenue account should be decided from the practical and business view-point and in accordance with sound accountancy principles and this rule is of special significance in dealing with expenditure on expansion and development of business. It has been observed that while dealing with this complex issue, three tests are gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find there is no discussion on facts. The argument that the issue should be decided on the basis of past precedent cannot be accepted as the issue is purely factual and the relevant discussion on facts both by the taxpayer and the tax authorities is found to be missing. We find that the description of the softwares acquired given before the CIT(A) does not throw any light on the nature, use or purpose of the software which has to be understood in the context of its functional use to the taxpayer's specific business. Accordingly, for this necessary exercise the issue is restored to the file of the AO. The assessee is given liberty to place necessary supporting evidences in support of its claim. 7. The next issue agitated by the assessee in its appeal is addressed in Ground No.3 and is interlinked with Ground No.1 of the Revenue's appeal. The facts relatable thereto are found addressed in assessment order pages 3 to 4. A perusal of the same shows that the AO qua the dividend receipt of Rs. 6,85,58,082/- required the assessee to justify its claim that no expenditure had been incurred attributable to the earning of the exempt income. 7.1. The assessee in response thereto has rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the filing of the departmental ground is addressed in para 4.4 at pages 7 & 8 and is reproduced hereunder for readyreference:- 4.4. "I have considered the submissions of the appellant with reference to the facts on record and the AO's findings thereon. It is not in dispute that dividend which were subjected to the provisions of section 14A were with respect to investments made by the appellant during F.Y. 93-94 to F.Y. 96-97. It is in that context that the investments are to be analyzed as per the financials of A.Y. 94- 95 to A.Y. 97-98 in order to arrive at a conclusion as to whether the investment made during the said 4 years were from the appellant's own interns; accruals or from the interest charged loan funds. From the accounts of the appellant for A.Y. 94-95, the version of the appellant that investment of Rs. 10.83 crores for that year arose out of the internal accruals of Rs. 23,00 crores has not been controverted. For A.Y. 95-96, the investment were for Rs. 18.33 crores and the internal accrual for that year was Rs. 193,00 crores. For A.Y, 96-97, the investments were for Rs. 34.99 crores as against an internal accrual of Rs. 248.00 crores. Similarly also, the ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 31.03.95, Rs. 248.00 crores for year ending 31.03.96 & Rs. 253.00 crores for year ending 31.03.97 have been employed for making investment of Rs. 10.83 crores, Rs. 18.33 crores, Rs. 34.99 crores and Rs. 46.93 crores for the respective 4 years, have not been disputed in any manner anywhere in the assessment order. The figure of internal accrual for the 4 years are 2 to 6 times more than the figure of investment for these 4 years and there should be no apparent presumption against the appellant to hold a view that the investments for these 4 years arose out of the borrowed funds. From an analysis of the appellant's accounts for A.Y 94-95 to 97-98 and the decision in the case of ACIT Vs Eicher 101 TTJ 369 (Del.), I hold that the provision of section 14A are not applicable to the facts of the case and in that view the disallowance stands deleted. The ground is allowed." 7.4. The discussion in the impugned order leading to sustaining the disallowance of Rs. 25 lacs which further led to filing of assessee's Ground No.3 in the present proceedings shows that the claim was rejected by the CIT(A) holding that the decision whether to stay invested in a particular share or financial i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted that the strategic investments are only in these two companies and it is not a case that the assessee has a large portfolio of shares in multiple companies. In the said background, the precedent available in the assessee's case was heavily relied upon. 9. We have heard the rival submissions and perused the material available on record. It is seen that the dividend earned on the very same investment made in the earlier years has been considered by the ITAT in 2000-01 AY wherein considering identical Ground no.1 of the Revenue and identical Ground No.4 of the assessee, the Revenue's appeal was dismissed and the assessee's claim was allowed. In the facts of the present case as per the submissions advanced before the CIT(A) at specific page 34, adhoc disallowance of Rs. 25 lacs is found to be 4% of the amount of dividend received by the assessee in the year and while making the adhoc disallowance herein also no specific effort has been made by the tax authorities in regard to incurring of expenditure. Reverting to the decision of the ITAT in assessee's own case, we find that the conclusion arrived at relying upon the decision of the Hero Cycles Ltd. (cited supra) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in both the cases that A.O. gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of total income under the Act in accordance with the prescribed method. While rejecting the claim of assessee with regard to expenditure or no expenditure as the case may be, in respect of exempt income, the A.O. would have to indicate cogent reasons for the same which has not been done in the present case. Therefore, relying upon the ratio of Hero Cycles Ltd. 323 ITR 518, we hold that without recording of finding of fact as to the incurring of some expenditure, disallowance made by A.O. and partly confirmed by Ld. CIT(A) is not justified. Moreover, we find hat dividends were received from the group companies wherein the investment was made as a strategic investment and not for the purpose of earning dividend and since these are strategic investments there is no chance of incurring of any expenditure on day to day basis. In view of above facts and circumstances, ground No. 4 of assessee's appeal is allowed, whereas ground No.2 of Revenue's appeal is dismissed." 9.1. On a consideration of the factual and legal matrix of the issue, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the CIT(A) who too rejected the ground holding as under:- "I agree with the AO that the decision in the case of Madras Industrial Syndicate (225 ITR 802 [SC]) holds good and in that view of the matter, there is no case for allowing the appellant's claim of deferred revenue expenses. The A.O. may also refer to the appellant's claim of deferred revenue expense, in respect of debenture issue expenses. There is a specific provision in sec. 35-D dealing with this claim and the same has to be considered under the specific provision and not under the general/residuary provision. If the claim of debenture issue expenses falls within the ambit of section 35-D, the A.O. would accordingly take necessary remedial measures." 11. Aggrieved by this, the assessee is in appeal before the ITAT. The Ld.AR inviting attention to the aforesaid order of the ITAT in 2000-01 AY submitted that the issue has been concluded in favour of the assessee in the immediately preceding assessment year. Accordingly following the past precedent, Ground No.4 may be allowed. It was his submission that in support of the said prayer no lengthy arguments need be addressed as it is evident from the assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts as available in Madras Industrial Investment Corporation Ltd. (cited supra) accordingly the consistent orders of the authorities below may be upheld. It was also his submission relying on State of Punjab & Others vs Surinder Kumar & Others (1992) 194 ITR 434 (SC) that a precedent is only a precedent if it decides a question of law. However, despite a specific query, no argument was advanced justifying the deviation from the precedent available in assessee's own case in 2000-01 AY. 13. We have heard the rival submissions and perused the material available on record. We find that both the parties agree that qua the facts and circumstances and the position of law on the issue continue to remain the same as in the immediately preceding assessment year. The fact on record that in 2000-01 A.Y as in the present year there were consistent orders of the tax authorities in favour of the Revenue is not in dispute. The issue having been carried in appeal before the ITAT which concluded the same in favour of the assessee is also not in dispute. The assessee apart from supporting the view taken as the correct view heavily relies upon the same and the Ld.CIT DR has sought to argue that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umscribed by the limitations discussed and declared by judicial decisions, and it cannot transgress the limits on the basis of whims or subjective sense of justice varying from judge to judge." 13.2. On a bare reading of the aforesaid judgement it is evident that without the effort of establishing similarity in material facts and brining out the reasons for justifying following of a "precedent" the Apex Court deprecated the practice followed as it is only the reasons based on facts which can on challenge be examined by a higher forum. The aforesaid principle does not advance the Revenue's case whatsoever as no argument on fact has been advanced justifying a deviation from the view taken in the immediately preceding assessment year. We propose at this stage to reproduce the finding relied upon by the assessee from the order of the Co-ordinate Bench:- 15. "The last ground of appeal is regarding disallowance of expenditure incurred by assessee for raising loan by treating the same as deferred revenue expenditure. The Ld. A.R. submitted that during the year, the assessee had incurred an expenditure of Rs. 35,07,38,065/- for raising loan funds out of which Rs. 22,84,74,853/- had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has not availed such option and has claimed the amount partly in P & L account and partly in computation of income. 17. We have heard rival parties and have gone through the material placed on record. We find that as per Section 37, all expenditure incurred wholly and exclusively for the purpose of business are allowed in the computation of income unless they are of capital nature or of personal nature. There is no mention of deferred revenue expenditure in the income tax Act. In the case of Mad. Industrial as relied upon by Ld. CIT(A), the issue was decided in favour of revenue on account of the fact that assessee itself had claimed proportionate amount in the P & L account and the Hon'ble Court had held that in such a scenario proportionate claim was admissible. We further find that Section 35D is also not applicable in the case of assessee as the assessee is a NBFC and in the year under consideration, Section 35D was applicable only for industrial units. We further find that similar issue was considered by the Tribunal in the case of group companies of assessee and copy of order is placed at paper book pages 189-222. The findings of Tribunal as contained in para 19.1 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid towards the project of supply chain management and human resource revenue-engineering by allowing deduction of one-fifth as expenditure in the year under assessment, and (ii) in holding that the unutilized amount of DEPB would be allowed as expenditure u/s 37(1) of the Income Tax Act,1961, and could be allowed as loss, were substantial questions of Law." 3. CIT vs. Panacea Biotech Ltd., vide ITA No. 22 & 24/2012, wherein the Hon'ble Delhi High Court observed as under: 4. "The question of deferred revenue expenditure and the Judgment of the Supreme Court in the case of Madras industrial Investment Corporation Ltd. vs. CIT,MANUISCI049311997 : (1997)225 1TR 802 (SC) was examined and distinguished in CIT vs. Industrial Corporation of India MANUIDEl252112009 (2009) 185 Taxman 296 (Delhi) and it was held: 22. . .. The Ld. Counsel for the Revenue had strongly argued that matching concept is to be applied, as per which part of the expenditure had to be deferred and claimed in the subsequent years and, therefore, approach of the AO was correct. However, this argument overlooks that even LIZ Madras Industrial Investment Corporation (supra), on which the reliance was placed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably white leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The lest of enduring belle fit is, therefore, not a certain or conclusive rest and it cannot be applied blindly and mechanically without regard LO the particular facts and circumstances of a given case.ITA Nos. 28081D1l1, 12931D112, 10471D112, 3977IDIlO & 24701D1l1 22. 6. It was held that the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Amar Raja Batteries vs. Asstt. CIT [2004} 91 ITD 280which is squarely applicable to the facts of this case, it was held that- "The undisputed fact is that the expenditure is in the revenue filed. The only issue to be considered is whether the assessee can claim the entire expenditure in this year itself, even though it had written off this expenditure in the books over a period of five years. Though the assessee has written off the expenditure in its books of account over a period of five years, it must be allowed ill its entirety in the year in which it was incurred, if it is revenue expenditure and if it is wholly and exclusively incurred for the purposes of business. The assessee had launched a new product and incurred heavy advertisement expenditure. The period for which the assessee can be said to have secured benefit by incurring this expenditure cannot be reasonably estimated. The undisputed fact is that the new product launched may fail to take off in the year of launch itself or may have a long life as a product. There is no way in which it can definitely be estimated that the benefit of the expenditure would last for a particular period of time. The entries in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agitated by the assessee in the appeal filed is addressed by Ground No.6 relatable to which the Revenue has filed Ground No.2 in its appeal. The relevant facts of the case are that the assessee claimed a deduction of Rs. 13.05.50.380/- as foreign exchange loss in the P&L A/c. The AO required the assessee to justify the claim. The assessee is found to have submitted a letter dated 18.09.2003 stating that the foreign exchange loss was booked on account of year end provision for change in the exchange rate in respect of the outstanding liability on foreign exchange loan computed with reference to the exchange rate prevalent as on the balance sheet date. Reliance was also placed upon Accounting Standard - 11 issued by ICAI. However subsequently the assessee claimed vide letter dated 11.02.2004 that the loss was on account of forward premium amortised in books in respect of loans that were due to be paid after 31.03.2001. The amounts were stated to be amortised on the basis of tenure of loan in accordance with AS- 11 issued by ICAI. It was also submitted that the assessee followed a policy of hedging the forex exposure. The forward contracts were stated to have been entered for the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder appeal was in respect of that portion which had been incurred in respect of a period subsequent to the close of the accounting year. The accounts itself testify to that effect. In the case of Taparia Tools Ltd. vs JCIT 126 Taxman 544 (Bom.), in the context of claim of interest on non convertible debentures, the AO had noted that the assessee had claimed certain up front payment of interest. The AO held that such payment represented deferred intrest and not allowable in its entirely in one accounting yea. The High Court in that case held that matching concept in which revenue and income earned during an accounting period irrespective of actual cash inflow is required to be matched and compared with expenses incurred during the said period, in respective of actual cash out flow, is relevant for determining total income under the I.T. Act. That though ordinarily revenue expenditure incurred only and exclusively for business purpose should be allowed in its entirely in the year in which it is incurred, deferred interest in the case before the High Court was directed to be spread over the life of the said instrument. The case referred above concerned interest on non convertible d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in assessee's favour. The Revenue has disputed this claim. Accordingly, at the outset, we first propose to reproduce the relevant discussion on the issue from the order of the Co-ordinate Bench:- 20. "Ground No.3 is regarding action of Ld. CIT(A) by which he had deleted an addition of Rs. 1,16,44,707/- which was made by A.O. on account of disallowance of notional foreign exchange fluctuation loss. Ld. D.R. had relied upon the order of A.O. Ld. A.R. submitted that the assessee had debited the aforesaid amount in the P & L account on account of year end provision for change in exchange rate in respect of outstanding liability on account of working capital loans in foreign exchange. He submitted that the above debit in P & L account was made on the balance sheet date and in accordance with accounting standard 11. He submitted that the A.O. had disallowed the claim treating the same as provision relying on the decision of the Tribunal in the case of ONGC reported in 83 ITD 151 and Ld. CIT(A) after analyzing the facts of the case, has held that the loss written off was not contingent in nature. Ld. A.R. submitted that the issue is squarely covered in favour of assessee by the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstood in the context in which it is used. Section 37 enjoins that any expenditure not being expenditure of the nature described in sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head "Profits and gains of business". In sections 30 to 36, the expressions "expenses incurred" as well as "allowances and depreciation" have also been used. For example, depreciation and allowances are dealt with in section 32. Therefore, Parliament has used the expression ' "any expenditure" in section 37 to cover both. Therefore, the expression "expenditure" as used in section 37 may, in the circumstances of a particular case, cover an amount which is really a "loss" even though the said amount has not gone out from the pocket of the assessee. 14. In the case of M. P. Financial Corporation v. err reported in [1987) 165 14 ITR 765 the Madhya Pradesh High Court has held that the expression "expenditure" as used in section 37 may, in the circumstances of a particular case, cover an amount which is a "loss" even though the said amount has not gone out from the pocket' of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock at the end of a particular year, the value prevailing on the last date is relevant. This is because profits/ loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increased profits before actual realization. This is the theory underlying the rule that closing stock is to be valued at cost or market price, whichever is the lower. As profits for income-tax purposes are to be computed in accordance With ordinary principles of commercial accounting, unless such principles stand superseded or modified by legislative enactments, unrealized profits in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following year's account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such "loss has -not been realized actually. At this stage, we need to emphasise once again that the above system of commercial accounting can be supersed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reduce the risks. We find that in the facts as they stand the Revenue really has no case. We further find that the view taken is also supported by the decision of the Jurisdictional High Court in the case of CIT vs Industrial Finance Corporation of India Ltd. (cited supra). The said decision it may be appropriate to address was taken when their Lordships did not have the benefit of the decision of the Apex Court in Woodward Governor's decision and it may not be out of place to observe that the author of the decision in the decision of the Hon'ble High Court in CIT vs Industrial Finance Corp. of India Ltd. is the very same Hon'ble Judge who was the author in the judgement of the Apex Court in the case of Taparia Tools Ltd. To revert back to the issue at hand the judgement of the Apex Court in Woodward Governor was relied upon by the Co-ordinate Bench in the immediately preceding assessment year in assessee's own case was not available to it. When considering with the facts of the present case it is seen that the facts in CIT vs Industrial Finance Corp. are more or less similar facts as considered by the Hon'ble Court. In the facts before the Hon'ble High Court the assessee was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redited in the books of account constitute the basis of computation of income and the system postulates the existence of tax insofar as moneis due and payable by the parties to whom they are debited. Reliance was placed on As considered in Keshav Mills Ltd. vs CIT [1953] 23 ITR 230, 239 (SC); Calcutta Co. Ltd. vs CIT [1959] 37 ITR 1 (SC); and CIT vs S.M.Holding & Finance P.Ltd. [2003] 264 ITR 370. On the strength of these decision and arguments it was submitted that the expenses were to be allowed proportionately i.e. the expenditure pertaining to the relevant year was to be allowed in the year under consideration and the balance had to be deferred to the subsequent year, as was done by the Assessing Officer in the instant case, which was wrongly upset by the ITAT. 19.2. The Hon'ble High Court after considering the principle laid down in the aforesaid judgements namely (a) Jasjeet Films P.Ltd. vs CIT [2007] 165 Taxman 599 (Delhi); (b) Metal Box Co. of India Ltd. vs Their Workmen [1969] 73 ITR 53 (SC); (c )Asstt. CIT vs Shree Synthetics Ltd. [2008] 303 ITR 106 (MP); (d) E.D.Sassoon & Co. Ltd. v CIT [1954] 26 ITR 27; and (e) Bharat Earth Movers v CIT [2000] 245 ITR 428 relied upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bought lands and sold them in plots fit for building purposes undertaking to develop them by laying out roads, providing a drainage system and installing lights etc. When the plots were sold, the purchaser paid only a portion of the purchase price and undertook to pay the balance in installments. The appellant in its turn undertook to carry out the developments within six months but time was not of the essence of the contract. In the relevant accounting year, the appellant actually received in cash only a sum of Rs. 29,392 towards sale price of lands, but in accordance with the mercantile system of accounts adopted by it, it credited in its accounts the sum of Rs. 43,692 representing the full sale price of lands. At the same time, it also debited an estimated sum of Rs. 24,809 as expenditure for the developments it had undertaken to carry out, even though no part of that amount was actually spent. The Department disallowed the expenditure. The Supreme Court was of the view that the aforesaid expenditure was allowable in the year in question though no part of that amount was actually spent as it was `accrued liability' and not merely a contingent one. The Court quoted from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing regard to all the circumstances of the case. That it can be so done is illustrated by Cold Coast Selection Trust Ltd. v. Humphrey (Inspector of Taxes) [1948] 17 ITR (Suppl.) 19, 23, where a particular asset which could not be immediately realized in a commercial sense was valued in money for income-tax purposes in the year of its receipt. 18. In Metal Box Co. of India Ltd.'s case (supra), where bonus payable to the workmen and liability under a scheme of gratuity in respect of the accounting year was stated in the profit and loss account, though not actually paid, the Court allowed the same in the following words, relying upon the judgment in Calcutta Co. Ltd's case (supra) :- ". . . In the case of an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid. Just as receipts, though not actual receipts but accrued due are brought in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rency funds in the year under consideration, i.e., the assessment year 1995-96. It is clear from the nature of the transaction, that the assessee had raised foreign currency borrowings and swapped such foreign currency into Indian rupees in order to augment its rupee resources for meeting its lending requirements. The foreign currencies borrowed were repayable to the foreign lenders on later dates falling within the current previous year ending on 31-3-1995 and in some cases falling in the next previous year relevant to subsequent assessment year. In order to ensure that it is able to repay the foreign lenders in the foreign currency on their respective due dates of repayments, the assessee had entered into forward contracts as a safeguard against foreign currency fluctuations. It is the difference between the forward contract rate and the exchange rate on the date of transaction which was claimed as deduction in that very year. The forward contract is an agreement between two parties, requiring the delivery at some specified future date of a specified amount of foreign currency by one of the parties, against payment in domestic currency to the other party, at the price agreed upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time as was justifying such spread. It was a case of issuing debentures at discount; whereas the assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself. The Court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilize the said amount and secure the benefit over number of years. This is discernible from the following passage in that judgment on which reliance was placed by the learned counsel for the revenue herself :- "The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in that year, the Income-tax department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of matching concept is satisfied, which up to now has been restricted to the cases of debentures. 25. The upshot of the aforesaid discussion is to answer the question in favour of the assessee and against the revenue. The consequence would be to dismiss this appeal, which is hereby dismissed with costs." 19.5. While so holding, we have already taken into consideration the decision of the Apex Court in the case State of Punjab & Others vs Surinder Kumar & Others (cited supra) which issue we have discussed at greater length in the earlier part of this order. On considering the same, we find that though there can be no quarrel with the afore-said principle laid down therein. However, in the facts and circumstances, we find that it has no applicability to the facts of the present case. Accordingly considering the issue from all angles, we find that the assessee's Ground deserves to be allowed and by setting aside the impugned order the Revenue's ground can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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