2013 (9) TMI 895 - HC - Income Tax

Difference in exchange rate due to conversion of foreign currency into Indian rupee had been kept in the exchange reserve account Taxability of credit figure in the exchange reserve account Held that - It is of the capital nature and is not allowable as deduction as per the ratio laid down in the case of Atlas Cycle Industries vs. CIT 2004 (2) TMI 21 - PUNJAB AND HARYANA High Court - Also, in a different case, fluctuation in rate of exchange amounts to capital expenditure as per the ratio laid down in the case of Seshasayee Board Ltd. Vs. CIT 1997 (11) TMI 48 - MADRAS High Court the assessee could not provide any details as directed by the Tribunal and at the time of hearing - assets tried to submit the details before the high court - matter remanded back for reconsideration. Allowance of Interest as expenditure in which year - Assessee has taken the overdraft in the earlier years and claimed the interest payment during the assessment year under consideration Held that - Once the assessee has claimed the payment and debited the same then at least the same should have been allowed in any year - Once the payment is genuine and debited in the books of account, the same is allowable.

Summary

Issues involved:
1. Interpretation of bifurcation of income under Income Tax Act.
2. Treatment of exchange variation difference as taxable income.
3. Addition of interest on bank overdrafts to taxable income.

Interpretation of bifurcation of income under Income Tax Act:
The appeals were filed against judgments by the Income Tax Appellate Tribunal regarding the treatment of income under the Income Tax Act. The Tribunal upheld the addition of fluctuation amounts to taxable income. The appellant, a Government Company, earned income from foreign contracts, leading to exchange rate differences. The Assessing Officer (A.O.) considered the exchange rate difference as taxable income due to accounting discrepancies. The appellant argued compliance with Tribunal directions on bifurcation of income and cited legal precedents. The Tribunal's order was based on the appellant's failure to provide details as directed. The High Court directed the A.O. to verify details and decide in accordance with the law.

Treatment of exchange variation difference as taxable income:
The Tribunal confirmed the addition of exchange variation differences to taxable income, considering it capital expenditure. Legal precedents were cited to support this decision. The appellant's failure to provide directed details led to the confirmation of the Tribunal's order. The High Court directed the A.O. to re-examine the matter based on the provided details and legal principles.

Addition of interest on bank overdrafts to taxable income:
The A.O. added interest on bank overdrafts to taxable income, considering it related to earlier years. The Tribunal and first appellate authority upheld this addition. The appellant argued that the interest claimed and debited during the assessment year should be allowable. Legal precedents were cited in support. The High Court found the payment genuine and directed the A.O. to re-examine the issue, considering the timing of expenses and providing a reasonable opportunity to the assessee. Consequently, all appeals were allowed for statistical purposes.