2017 (5) TMI 1499 - HC - Income Tax

Allowance of fluctuation loss - method of accounting followed by the respondent company - Held that - quarely covered by the decision of Supreme Court in the case of Commissioner of Income Tax vs. Woodward Governor India (P) Ltd. (2009 (4) TMI 4 - SUPREME COURT) thus the issues with regard to fluctuation loss are to be decided in favour of the assessee. Provision of bad and doubtful debts - claim allowed - Decided in favour of assessee. Excluding the provision for bad and doubtful debt for the purpose of Section 115JA? - retrospective amendment introduced in Section 115JA - Held that - With the introduction of the said amendment with retrospective effect from 01.04.1998 the provision for doubtful debts and the provision for doubtful advances which are nothing but provision for diminution in the value of asset are specifically covered under clause (g) of the said Explanation. Consequently the question insofar as it relates to provision for doubtful debts and provision for doubtful advances requires to be answered in favour of the revenue and against the assessee. See CIT. Versus ILPEA PARAMOUNT (P) LTD. 2010 (2) TMI 45 - DELHI HIGH COURT Disallowance of sum incurred on building by holding the same to be of revenue nature - Tribunal deleted the addition - Held that - Claim allowed of assessee as relying on CIT Versus Dr. AM Singhvi 2007 (8) TMI 265 - RAJASTHAN HIGH COURT

Issues Involved:
1. Allowance of foreign exchange fluctuation loss.
2. Deletion of disallowance on account of provision for bad and doubtful debts.
3. Nature of expenses incurred on building (revenue or capital).
4. Qualification of recovery of common services for deduction under Section 80HHC.
5. Classification of rent received as business income or other income.
6. Exclusion of provision for bad and doubtful debts for the purpose of Section 115JA.

Issue-wise Detailed Analysis:

1. Allowance of Foreign Exchange Fluctuation Loss:
The Tribunal allowed the fluctuation loss of ?30,31,455 based on Accounting Standard II and the method of accounting followed by the respondent company. The Court referred to the Supreme Court's decision in Commissioner of Income Tax vs. Woodward Governor India (P) Ltd. (2009) 312 ITR 254, which supported the Tribunal's decision. Consequently, this issue was decided in favor of the assessee.

2. Deletion of Disallowance on Account of Provision for Bad and Doubtful Debts:
The Tribunal's decision to delete the disallowance of ?26,21,567 for bad debts was upheld, referencing the Supreme Court's decision in T.R.F. Ltd. vs. Commissioner of Income Tax (2010) 323 ITR 397. The Tribunal's findings were not considered perverse, and the issue was resolved in favor of the assessee.

3. Nature of Expenses Incurred on Building:
The Tribunal's decision to treat the ?5 lacs incurred on the building as revenue expenditure was supported by the Rajasthan High Court's decisions in Commissioner of Income Tax vs. Dr. A.M. Singhi (2008) 302 ITR 26 and Commissioner of Income Tax vs. Lake Palace Hotels and Motels Pvt. Ltd. (2002) 258 ITR 526. This issue was also resolved in favor of the assessee.

4. Qualification of Recovery of Common Services for Deduction under Section 80HHC:
The Tribunal held that the amount of ?1,92,47,604 shown as recovery of common services did not qualify for deduction under Section 80HHC. The AO and CIT(A) had different views on this, but the Tribunal ultimately decided that the recovery of common service expenses should not be treated as income from other sources. The Tribunal's decision was upheld, and the issue was decided in favor of the assessee.

5. Classification of Rent Received as Business Income or Other Income:
The Tribunal reversed the CIT(A)'s decision and treated the ?21,000 rent received as business income, not income from other sources. The Tribunal's decision was based on the absence of any material evidence to support the AO's claim that the rent was for letting out premises. This issue was resolved in favor of the assessee.

6. Exclusion of Provision for Bad and Doubtful Debts for the Purpose of Section 115JA:
The Tribunal's decision to exclude the provision for bad and doubtful debts for the purpose of Section 115JA was remitted back for reconsideration in light of the Supreme Court's decision in Commissioner of Income Tax vs. HCL Comnet Systems & Services Ltd. (2008) 13 DTR 0105 and the Delhi High Court's judgment in Commissioner of Income Tax vs. ILPEA Paramount (P.) Ltd. [2011] 336 ITR 54 (Delhi). The Tribunal was instructed to reconsider the matter afresh, taking into account the retrospective amendment to Section 115JA.

Conclusion:
The High Court upheld the Tribunal's decisions on foreign exchange fluctuation loss, provision for bad and doubtful debts, and the nature of building expenses, all in favor of the assessee. The recovery of common services and the classification of rent as business income were also decided in favor of the assessee. However, the provision for bad and doubtful debts under Section 115JA was remitted back to the Tribunal for reconsideration in light of recent legal developments. All three appeals were disposed of accordingly.

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