Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowable as - Assessment year 1980-81 - Assessee, an exporter of tea, which had borrowed money from bank for export of tea to Sudan made a provision for interest which might become payable in future because of possibility of loss of exports to Sudan as it was a country which had difficulty in meeting its export payments - Whether assessee's claim for deduction of provision for interest which assessee may become liable to pay on outstanding amounts to bank, was not allowable even though assessee was following mercantile system of accounting - Held, yes FACTS The assessee was an exporter of tea. During the previous year relevant to the assessment year 1980-81, the assessee exported tea to Sudan. It had borrowed from a bank for exporting tea. Interest was payable to the bank up to the close of the previous year ending 31-12-1979. The ITO found that, out of Rs. 4,23,490 debited towards interest and bank charges, a sum of Rs. 3,40,000 was only a provision made by the assessee for interest which it may become liable to pay during the subsequent years. The assessee contended that there was an element of risk in exports to Sudan, and Sudan was a country which had difficulty in meeting its export payment. Since only 90 per cent of the billed amount had been guaranteed by the Export Credit & Guarantee Corpn., the assessee made a provision of a sum of Rs. 3,40,000 for the year ending on31-12-1979. The ITO, however, rejected the assessee's claim for deduction of interest. On appeal, the stand of the assessee was that the parties in Sudan who imported tea had been overcharged since the assessee had invariably to provide for interest due to delay in realisation of sale proceeds and that, even though the amount was included in the bill, 90 per cent of it alone constituted the real income. The Commissioner (Appeals) did not accept the contention of the assessee and sustained the order of disallowance made by the ITO. On second appeal, the Tribunal confirmed the order of the Commissioner (Appeals). On reference : HELD The claim to the extent of Rs. 3,40,000 was only a mere provision on account of interest…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492