2011 (1) TMI 1211 - AT - Income Tax

Interest payable by industrial undertakings etc. on moneys borrowed Bad debts Business expenditure Business loss/deductions

Summary

Issues:
1. Allowance on revaluation of unmatured oil exchange contract.
2. Exemption in respect of interest on tax-free bonds.
3. Allowability of payments made to employees under the Voluntary Retirement Scheme as Revenue expenditure.
4. Disallowance made on account of bad debts.

Issue 1: Allowance on revaluation of unmatured oil exchange contract
The Tribunal dismissed the Revenue's appeal regarding the allowance on revaluation of unmatured oil exchange contract, citing the decision of the Special Bench in the case of Dy. CIT v. Bank of Bahrain & Kuwait. The Tribunal upheld the deduction of loss on the revaluation of forward contracts on the last date of the relevant accounting period before the maturity of the contract.

Issue 2: Exemption in respect of interest on tax-free bonds
The Tribunal upheld the decision of the first appellate authority regarding the exemption in respect of interest on tax-free bonds. The Tribunal relied on previous decisions and ruled in favor of the assessee, following precedents that allowed the gross amount of interest payable to qualify for exemption under relevant sections of the Income Tax Act.

Issue 3: Allowability of payments made to employees under the Voluntary Retirement Scheme
The Tribunal upheld the CIT(A)'s decision on the allowability of payments made to employees under the Voluntary Retirement Scheme as Revenue expenditure. Citing various legal precedents, including the Supreme Court's judgment in Indian Cable Co. Ltd. v. Workman, the Tribunal agreed that such expenditure was allowable in the year it was incurred, rejecting the Revenue's contention that it was of a capital nature.

Issue 4: Disallowance made on account of bad debts
The Tribunal allowed the deduction for bad debts without setting off the closing provision, following the decision of the Mumbai ITAT in Oman International Bank. The Tribunal directed the Assessing Officer to allow the bad debts claimed by the assessee without setting off the closing provision, as the issue was covered in favor of the assessee in previous cases.

The Tribunal dismissed the Revenue's appeals in both assessment years, upholding the decisions of the first appellate authority on all issues. Additionally, the Cross Objections filed by the assessee were deemed infructuous and dismissed.