2008 (4) TMI 519 - HC - Income Tax

Protective assessment - Income assessed under block assessment cannot be assessed again under regular assessment Business expenditure Bad and doubtful debts - Tribunal remanded matter to assessing authority Justified Business expenditure Borrowing in foreign exchange finding that loan used for purchase of plant and machinery and increased liability of assessee by reason of fluctuation of foreign exchange rate is capital in nature Tribunal reversing finding without giving reasons Order of set aside

Issues Involved:
1. Protective assessment of depreciation.
2. Provision for bad and doubtful debts.
3. Disallowance of exchange fluctuation claim.
4. Allowance of additional exchange fluctuation claim.

Issue-wise Detailed Analysis:

1. Protective Assessment of Depreciation:
The appellant-Revenue challenged the deletion of disallowances of depreciation made by the Assessing Officer (AO) on a protective basis for the assessment years 1996-97 and 1997-98. The AO had disallowed depreciation claims of Rs. 17,36,44,507 and Rs. 24,38,55,935 respectively, citing the same disallowances in a block assessment order dated January 29, 1999. The Tribunal held that regular and block assessments cannot stand simultaneously as per Explanation to sub-section (2) of section 158BA of the Income-tax Act, 1961. The Tribunal's decision was upheld, stating that the same income assessed as undisclosed income for the block period could not be assessed on a protective basis for the assessment years 1996-97 and 1997-98. The court affirmed the Tribunal's decision and ruled against the appellant-Revenue.

2. Provision for Bad and Doubtful Debts:
The AO disallowed the assessee's claim for provision for bad and doubtful debts amounting to Rs. 85,88,515 for 1996-97 and Rs. 9,18,21,864 for 1997-98. The Tribunal remanded the matter to the AO for fresh consideration, noting that the assessee was not given sufficient opportunity to furnish details supporting its claim. The court found no reason to interfere with the Tribunal's decision to remand the case, thereby ruling in favor of the assessee.

3. Disallowance of Exchange Fluctuation Claim:
The AO disallowed the assessee's claim of Rs. 1,10,53,509 for exchange fluctuation, treating it as capital expenditure rather than revenue expenditure. The Tribunal reversed this decision, treating the increased liability due to exchange fluctuation as revenue in nature. However, the court found that the Tribunal did not adequately address the concurrent findings of the AO and the Commissioner of Income-tax (Appeals). The court set aside the Tribunal's decision, thereby ruling in favor of the Revenue.

4. Allowance of Additional Exchange Fluctuation Claim:
The assessee claimed an additional amount of Rs. 2,46,04,418 for the first time before the Tribunal, arguing that it was erroneously treated as capital in nature. The Tribunal allowed this claim without providing sufficient reasoning or addressing why it was not claimed earlier. The court found the Tribunal's decision to be without basis and set it aside, ruling in favor of the Revenue.

Conclusion:
1. The Tribunal's deletion of disallowances of depreciation on a protective basis for the assessment years 1996-97 and 1997-98 was upheld.
2. The Tribunal's remand of the provision for bad and doubtful debts issue for fresh consideration was upheld.
3. The Tribunal's decision to treat the exchange fluctuation claim of Rs. 1,10,53,509 as revenue expenditure was set aside.
4. The Tribunal's allowance of the additional exchange fluctuation claim of Rs. 2,46,04,418 was set aside.

Both appeals were disposed of with no order as to costs.

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