2009 (11) TMI 666 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of bad debts written off.
2. Disallowance of foreign exchange fluctuation loss.
3. Restriction of certain expenditures u/s 44C.
4. Applicability of India Mauritius Treaty on expenses.

Summary:

1. Disallowance of Bad Debts Written Off:
The assessee's claim for bad debts amounting to Rs. 47,48,426 was disallowed by the Assessing Officer (AO) and confirmed by the CIT(A). The Tribunal had earlier directed the AO to reconsider the claim, emphasizing that under the amended provisions of section 36(1)(vii), it is sufficient for the assessee to write off the debt in the books of account as irrecoverable. The AO, however, did not comply with these directions and again disallowed the claim, stating that the debt was not taken into account in computing the income of the assessee and appeared to be a trade discount. The Tribunal found that the assessee had fulfilled all conditions of section 36(1)(vii) and section 36(2), and thus, the disallowance was not justified. The Tribunal reversed the lower authorities' findings and allowed the claim for bad debts.

2. Disallowance of Foreign Exchange Fluctuation Loss:
The assessee's claim for foreign exchange fluctuation loss amounting to Rs. 2,36,625 was disallowed by the AO and confirmed by the CIT(A). The Tribunal had earlier directed the AO to examine whether the loss was a trading loss or capital loss and the method of accounting followed by the assessee. The AO again disallowed the claim, considering it a contingent liability. The Tribunal found that the loss was on account of trading transactions with group companies and should be allowed as per the decision of the Hon'ble Delhi High Court in CIT v. Woodward Governor India (P.) Ltd. The Tribunal allowed the claim for foreign exchange fluctuation loss.

3. Restriction of Certain Expenditures u/s 44C:
The CIT(A) restricted certain expenditures like commission, insurance, subscription to journals, advertisement, courier, etc., to 5% of the adjustable total income as per section 44C. The assessee contended that these expenses were not in the nature of head office expenditure and were not payable to the head office. The Tribunal did not specifically address this issue in the provided text.

4. Applicability of India Mauritius Treaty on Expenses:
The assessee argued that the expenditure incurred in India should be fully allowable under the India Mauritius Treaty, making section 44C inapplicable. The Tribunal did not specifically address this issue in the provided text.

Conclusion:
The Tribunal allowed the appeal of the assessee, reversing the disallowance of bad debts and foreign exchange fluctuation loss, while the issues regarding restriction of expenditures u/s 44C and applicability of the India Mauritius Treaty were not specifically addressed in the provided text.