2009 (8) TMI 1266 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of bad debts
2. Disallowance towards Research & Development (R&D) expenses
3. Disallowance towards foreign exchange loss
4. Consequential levy of interest u/s 234B & 234C

Summary:

1. Disallowance of Bad Debts:
The assessee contested the disallowance of bad debts amounting to Rs. 1,09,93,814. The learned CIT(A) did not follow the ITAT, Special Bench, Mumbai decision in DCIT Vs. Oman International Bank SAOG, which supports the allowance of bad debts u/s 36(1)(vii) r.w.s. 36(2). The CIT(A) erroneously required proof of irrecoverability, contrary to established case laws like CIT Vs. Star Chemicals Ltd. and others, which hold that write-off in books is sufficient. The Tribunal directed the Assessing Officer to allow the advances written off as claimed by the assessee.

2. Disallowance towards R&D Expenses:
The assessee's claim of Rs. 1,18,78,000 towards R&D expenses was disallowed due to lack of supporting vouchers. The Tribunal noted that similar claims were allowed in previous years and directed that the expenses incurred for quality control and development in the manufacturing of IMFL should be allowed as they were for business purposes.

3. Disallowance towards Foreign Exchange Loss:
The assessee's claim of Rs. 1,80,22,000 towards foreign exchange loss was disallowed by the Assessing Officer, who argued that the loans were used for investments rather than business purposes. The Tribunal found that the assessee had provided sufficient evidence to establish the nexus between the loans and working capital requirements. The Tribunal held that the forex loss should be allowed as a business loss, referencing the decision in Woodward Governor India (P) Ltd. & Others.

4. Consequential Levy of Interest u/s 234B & 234C:
The levy of interest u/s 234B & 234C was deemed mandatory and consequential to the merit additions considered above.

Conclusion:
The appeal was allowed, with the Tribunal directing the deletion of disallowances and the allowance of claimed expenses and losses. The decision was pronounced in the open court on 21st August 2009.