2006 (2) TMI 212 - AT - Income Tax

Issues Involved:
1. Disallowance of expenditure related to swapping of foreign currency funds.
2. Disallowance of revenue expenditure in connection with the issue of Bonds and discount on CDs.
3. Deduction claims related to Special Reserve under section 36(1)(viii).
4. Deduction claims related to bad and doubtful debts.
5. Loss claims under the head "Investment written off."
6. Disallowance of lease rent.
7. Interest charged under sections 234B and 234C.
8. Reopening of assessment under section 147.
9. Deduction claims under section 35D.
10. Deletion of disallowance of bond issue expenses.

Detailed Analysis:

1. Disallowance of Expenditure Related to Swapping of Foreign Currency Funds:
The assessee claimed an expenditure of Rs. 11,59,82,000 for swapping foreign currency funds to augment rupee funds. The ITAT, Delhi Bench "A", in a previous order, allowed a similar claim for the assessment year 1995-96. Following this precedent, the Tribunal directed that the assessee be allowed the deduction for the assessment year 1996-97.

2. Disallowance of Revenue Expenditure in Connection with the Issue of Bonds and Discount on CDs:
The assessee initially claimed Rs. 144,77,62,262 as revenue expenditure, but later withdrew this ground of appeal. Consequently, the Tribunal rejected this ground as withdrawn.

3. Deduction Claims Related to Special Reserve under Section 36(1)(viii):
The assessee claimed a deduction of Rs. 50 crores under section 36(1)(viii). The Assessing Officer argued that the reserve created was only Rs. 7,906.18 lakhs, not Rs. 12,906.18 lakhs, and disallowed the claim. The CIT (Appeals) upheld the disallowance to the extent of Rs. 50 crores. The Tribunal, however, found that prior to assessment year 1998-99, there was no requirement for the retention of the special reserve created and directed that the deduction under section 36(1)(viii) could not be curtailed.

4. Deduction Claims Related to Bad and Doubtful Debts:
The Assessing Officer disallowed the assessee's claim of bad debts written off, arguing that the provision for bad and doubtful loans exceeded the total amount of bad debt written off. The CIT (Appeals) upheld this disallowance to the extent of Rs. 50 crores. The Tribunal found that the assessee could not claim deduction under both section 36(1)(vii) and section 36(1)(viia) and restored the issue to the Assessing Officer for computation of disallowance.

5. Loss Claims under the Head "Investment Written Off":
The assessee claimed a loss of Rs. 2,56,35,395 for investments written off. The Assessing Officer disallowed this claim, stating that the investments were capital assets and no loss could be computed without a transfer of the asset. The CIT (Appeals) and the Tribunal upheld this disallowance.

6. Disallowance of Lease Rent:
The issue of lease rent disallowance was restored to the Assessing Officer for reconsideration, following the Tribunal's directions in the assessee's earlier assessment years.

7. Interest Charged under Sections 234B and 234C:
The Tribunal directed the Assessing Officer to revise the interest levied under sections 234B and 234C based on the tax liability computed after giving effect to the Tribunal's order.

8. Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment for the assessment year 1995-96, arguing it was based on a mere change of opinion. The Tribunal found that there was no application of mind by the Assessing Officer during the original assessment and upheld the validity of the reopening under section 147.

9. Deduction Claims under Section 35D:
The assessee claimed a deduction of Rs. 23,997,000 under section 35D for share issue expenses. The Assessing Officer disallowed this claim, stating that the assessee was not an industrial undertaking. The CIT (Appeals) and the Tribunal upheld this disallowance.

10. Deletion of Disallowance of Bond Issue Expenses:
The revenue appealed against the deletion of Rs. 32.98 crore bond issue expenses. The Tribunal upheld the CIT (Appeals) order, allowing the bond issue expenses as revenue expenditure, following the judgment of the Hon'ble Supreme Court in India Cements Ltd. v. CIT.

Conclusion:
The assessee's appeals for assessment years 1995-96 and 1996-97 were partly allowed, while the appeal for assessment year 1998-99 and the revenue's appeal for assessment year 1996-97 were dismissed.

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