2016 (5) TMI 1538 - AT - Income Tax

D ouble taxation in respect of Duty Free Import Authorization Scheme - HELD THAT - We find from record that the claim of double taxation was not made before the AO. Even before the ld.CIT(A) it appears that the assessee-company had not filed any evidence in support of double taxation in respect of export incentive. However, this claim was made for the first time before the CIT(A). In our considered opinion, this ground of appeal does not emanate from the assessment order. Appeal filed by the assessee-company the claim for double taxation was only in respect of ₹ 3,13,72,097/-. This should have been allowed only as additional ground as it does not emanate from the assessment order. This additional ground was apparently admitted by the CIT(A) without calling for remand report. Since the issue was restored to the file of the AO to adjudicate this issue in accordance with law, revenue is not aggrieved by this direction. Addition on account of bad debts written off - AO had not allowed the claim by holding that the claim does not fall within the ambit of provisions of sec.36(1)(vii) read with sec.36(2) as the amounts were written off without permission of the Reserve Bank of India as required under the provisions of the Foreign Exchange Regulations Act and accordingly he brought the amount to tax - HELD THAT - From the facts emanating from the assessment order it is clear that the amounts written off represent the claim made by the assessee-company by raising debit notes against its customers to meet the extra input cost on account of adverse foreign exchange variation. Admittedly these amounts were offered to tax in the earlier assessment year and the claims were not accepted by the respective customers, hence, reversed. Going by the facts as marshaled by the assessee-company during the assessment proceedings, income to the extent of such additional claim made by the assessee-company had not accrued. In the instant case, if the income had not accrued, as claimed by the assessee-company in the respective years, remedy is available to the assessee-company under other provisions of the Act to seek relief but deduction cannot be allowed as bad debts and to this extent, the decision of the CIT(A) is reversed. The addition made by AO is upheld.

Summary

Issues Involved:
1. Addition of unrealized export benefits as income.
2. Disallowance of bad debts written off.
3. Double taxation claim regarding export incentives.
4. Approval requirement for write-off of foreign party's accounts by Reserve Bank of India.

Analysis:

Issue 1: Addition of unrealized export benefits as income
The respondent-assessee claimed a deduction of &8377; 8,33,81,925/- on export benefits accounted as income, contending that the income had not accrued as it was not accepted by Customs authorities. The AO rejected the claim, stating that the income was accounted for as per Accounting Standards and brought it to tax. The CIT(A) held that export incentives should be offered to tax when exports are made, rejecting the claim that no income had accrued. However, the matter was set aside to verify the claim of double taxation for certain amounts. The Tribunal upheld the AO's addition, stating that if income had not accrued, other provisions of the Act could be used for relief, but deduction as bad debts was not applicable.

Issue 2: Disallowance of bad debts written off
The assessee claimed &8377; 3,33,79,971/- as bad debts written off, representing enhanced prices claimed from customers to cover input costs due to exchange fluctuations. The AO disallowed the claim as the amounts were written off without RBI permission. The CIT(A) allowed the claim, relying on previous decisions and holding that if income had not accrued, bad debts deduction was not applicable. The Tribunal reversed the CIT(A)'s decision, upholding the AO's addition.

Issue 3: Double taxation claim regarding export incentives
The CIT(A) set aside the issue of double taxation in respect of Duty Free Import Authorization Scheme to the AO for examination. The Tribunal dismissed the revenue's appeal on this ground, stating that the claim was not made before the AO and should have been allowed as an additional ground.

Issue 4: Approval requirement for write-off of foreign party's accounts by RBI
The revenue argued that RBI approval was required for write-off of foreign party's accounts, and as it was absent, the debts had not become bad. The Tribunal did not address this specific issue in the judgment.

In conclusion, the Tribunal partly allowed the revenue's appeal, upholding the addition of unrealized export benefits as income and reversing the allowance of bad debts written off. The issue of double taxation claim regarding export incentives was dismissed, and the RBI approval requirement for write-off of foreign party's accounts was not addressed in the judgment.