Appeal partially allowed for assessee on interest, loss, and claim reduction. Disallowance on depreciation dismissed.

The Tribunal partly allowed the appeal in favor of the assessee. The decision favored the assessee on issues concerning accrued interest on securities, loss on unmatured foreign exchange contracts, and the reduction of the claim under section 36(1)(vii). The disallowance of depreciation on leased assets was dismissed as not pressed. The judgment was pronounced on 14th January 2011.

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Issues Involved:

1. Accrued interest on securities not due for payment.
2. Disallowance of depreciation on leased assets.
3. Disallowance of loss on unmatured foreign exchange contracts.
4. Reduction of claim under section 36(1)(vii) due to double deduction of provisions.

Detailed Analysis:

1. Accrued Interest on Securities Not Due for Payment:

The assessee contested the addition of Rs. 29,36,03,288 representing accrued interest on securities that had not yet matured for payment. The Assessing Officer (AO) added this amount to the total income, which was upheld by the CIT(A). The assessee argued that the interest accrues only on coupon dates, not on a day-to-day basis, citing the ITAT Mumbai Special Bench decision in DCIT v. Bank of Bahrain and Kuwait. The Tribunal agreed with the assessee, stating that interest on government securities accrues only on fixed coupon dates, not daily. Thus, following the precedent, this ground was decided in favor of the assessee.

2. Disallowance of Depreciation on Leased Assets:

The assessee did not press this ground during the hearing. Consequently, this ground was dismissed as not pressed.

3. Disallowance of Loss on Unmatured Foreign Exchange Contracts:

The assessee argued that the disallowance of Rs. 98,27,032 on unmatured foreign exchange contracts was incorrect, citing the ITAT Special Bench decision in Bank of Bahrain & Kuwait. The Tribunal found that the issue was covered by the Special Bench decision, which allowed the deduction for losses on unmatured forward foreign exchange contracts. The Tribunal noted that a binding obligation arises when such contracts are entered into, and a consistent method of accounting should not be disregarded. Therefore, this ground was allowed in favor of the assessee.

4. Reduction of Claim Under Section 36(1)(vii):

The assessee contested the reduction of the claim under section 36(1)(vii) from Rs. 110,49,17,280 to Rs. 103,99,74,646 due to double deduction of provisions. The Tribunal referred to the ITAT Mumbai decision in Oman International Bank, which clarified the interplay between sections 36(1)(vii) and 36(1)(viia). It was held that the deduction under section 36(1)(vii) should be computed without considering the admissible deduction under section 36(1)(viia) for the relevant year. Following this precedent, the Tribunal directed the AO to allow the deduction under section 36(1)(vii) without taking into account the provision under section 36(1)(viia) for the relevant year. This ground was also decided in favor of the assessee.

Conclusion:

The appeal was partly allowed, with the Tribunal deciding in favor of the assessee on the grounds related to accrued interest on securities, loss on unmatured foreign exchange contracts, and the reduction of the claim under section 36(1)(vii). The ground related to the disallowance of depreciation on leased assets was dismissed as not pressed. The judgment was pronounced in the open court on 14th January 2011.

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