2019 (3) TMI 71 - AT - Income Tax

Loss on sale of fixed assets - added in computation of the total income - profit adjusted in computation of the depreciation - double addition - HELD THAT - Profit and loss on sale of assets it is apparent that the assessee has taken the net difference between the profit and loss on sale of the fixed assets and same is found to be the profit and therefore same has been reduced from the total income in the computation of the total income. Therefore, we fully agree with the authorised representative that the above is a double addition as assessee itself as adjusted the business income/loss with the above disallowable item. On careful looking of the CIT-A where the whole issue is considered. Not find that the CIT-A has correctly considered the claim of the assessee. CIT-A has confused with the computation of the depreciation as well as the book entry of the loss on sale of fixed assets debited in the profit and loss account. Disallowance on account of legal and professional charges - debited under the head miscellaneous expenses - HELD THAT - The assessee has not substantiated the same before the lower authorities and by producing the basis of such professional fees. And therefore in the interest of the justice and to determine whether assessee has actually incurred these expenditure for the purposes of the business are not, the whole issue is set aside back to the file of the learned assessing officer with a direction to the assessee to substantiate the same with the production of the necessary evidences in the form of the appeal of the contract of the professionals. Accordingly, of the appeal of the assessee is allowed with above direction. Disallowance on account of fluctuation loss - effect of change in the foreign exchange rates - HELD THAT - The above issue is squarely covered by the decision of the honourable Supreme Court in case of Woodward governance 2009 (4) TMI 4 - SUPREME COURT . As before the learned assessing officer no information is provided by the assessee, we set aside this issue before the learned assessing officer with a direction to the assessee to show the amount of foreign exchange loss incurred by the assessee in terms of accounting standard 11 issued by the Inst of chartered accountants of India with respect to the vendor balances. AO is also directed to verify the detail and if the same is on account of the vendor s the claim of the assessee is allowable. AO then after verification may allow the loss of the foreign exchange fluctuation. - Decided in favour of assessee.

Issues Involved:
1. Disallowance of ?10,82,477/- on account of loss on sale of fixed assets.
2. Disallowance of ?24,42,988/- on account of legal and professional charges.
3. Disallowance of ?5,33,000/- on account of fluctuation in foreign currency.
4. Miscellaneous grounds (not pressed by the assessee).

Issue-wise Detailed Analysis:

1. Disallowance of ?10,82,477/- on account of loss on sale of fixed assets:
The assessee argued that the disallowance represented a double addition as the loss on the sale of fixed assets was already adjusted in the business income/loss. The Tribunal reviewed the computation of total income and found that the profit on sale of fixed assets had indeed been reduced from the total income, which included the loss on the sale of assets. The Tribunal agreed with the assessee that this was a double addition and reversed the orders of the lower authorities, thereby allowing the appeal on this ground.

2. Disallowance of ?24,42,988/- on account of legal and professional charges:
The assessee contended that the legal and professional charges were incurred wholly and exclusively for business purposes and provided details of these expenses. The Tribunal noted that the assessee had submitted the ledger accounts containing the nature of the expenses but had failed to substantiate these before the lower authorities. In the interest of justice, the Tribunal set aside this issue back to the Assessing Officer with a direction to the assessee to substantiate the expenses with necessary evidence. Therefore, the appeal was allowed with directions.

3. Disallowance of ?5,33,000/- on account of fluctuation in foreign currency:
The assessee claimed that the foreign exchange fluctuation loss was due to the conversion of outstanding balances of customers and vendors, in accordance with Accounting Standard 11. The Tribunal found that the assessee had not provided the necessary details before the lower authorities. Thus, it set aside this issue back to the Assessing Officer with instructions to verify the details and allow the claim if it was in accordance with Accounting Standard 11. The appeal was allowed with these directions.

4. Miscellaneous Grounds (Grounds 7, 8, 9, 10, 11, and 12):
The assessee did not press these grounds, and therefore, they were dismissed by the Tribunal.

Conclusion:
The appeal was partly allowed with specific directions for the issues of legal and professional charges and foreign currency fluctuation. The Tribunal reversed the lower authorities' orders on the issue of loss on sale of fixed assets, while the remaining grounds were dismissed as they were not pressed by the assessee. The order was pronounced in the open court on 25/02/2019.

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