Asstt. CIT v. Renken Partner

INCOME TAX ACT, 1961

--Income from other sources--Deduction under section 57(iii)Reversal of interest income on premature encashment of FDR--Assessee was following mercantile method of accounting. It was having FDR in bank on which interest income was booked on accrual basis and was being offered to tax every year. During the year under consideration, it had made pre mature encashment of FDR and due to this, it received interest less than that amount which already had been offered to tax. Therefore, it claimed such loss of interest as current year expenditure allowable under section 57(iii). AO disallowed the expenditure holding that it was prior period expenses relatable to preceding year. Held: CIT(A) held that as the assessee was offering interest income on accrual basis as per accounting method followed by it, a reversal entry of the loss of interest had to be passed in the books of account of the relevant assessment year as this loss had crystallized in this year due to the premature encashment of FDR. It was not a case of prior period expenses because it was not expenditure and in case it was expenditure, then it had crystallized in the relevant assessment year. Before ITAT, department did not controvert and, therefore, order passed by CIT(A) was upheld.