2011 (11) TMI 832 - HC - Income Tax

Summary

Issues involved: Reassessment under Section 148 of the Income-Tax Act for the assessment year 2002-03 based on (i) treatment of renovation expenses as revenue or capital expenditure, (ii) loss on repossessed assets under 'administrative and marketing expenses', and (iii) loss on forward contracts in foreign currency.

Treatment of Renovation Expenses: The Assessing Officer disputed the treatment of renovation expenses claimed as revenue expenditure by the assessee, contending it should be considered capital expenditure. The reassessment was initiated under Section 148 of the Act due to alleged failure to disclose all material facts. The ITAT ruled in favor of the assessee, allowing the deduction of loss on repossessed assets as a normal business loss under Section 36(1)(vii) of the Act, akin to write off of bad debts, citing a change in law post-amendment in 1989. The judgment referenced a similar case involving Citicorp Maruti Finance Ltd., affirming the allowance of such loss.

Loss on Repossessed Assets: The dispute arose regarding the claim of loss on repossessed assets under 'administrative and marketing expenses'. The CIT (A) initially rejected the claim, but the ITAT overturned this decision, allowing the deduction as a normal business loss incurred during regular operations. The ITAT held that the loss on sale of repossessed assets is allowable under Section 36(1)(vii) of the Act, treating it as a write off of bad debts, in line with the amended law since 1989. The judgment emphasized the applicability of this allowance to the assessee, a non-banking financial company, similar to a precedent involving Citicorp Maruti Finance Ltd.

Forward Contracts in Foreign Currency: The Assessing Officer disallowed the loss claimed on forward contracts in foreign currency upon revaluation at year-end. However, the ITAT focused on the primary issue of the loss on repossessed assets, ultimately dismissing the appeal based on the allowance of such loss under Section 36(1)(vii) of the Act. The judgment highlighted the alignment of this decision with a previous ruling involving Citicorp Maruti Finance Ltd., reinforcing the entitlement of the assessee to the claimed deduction.