2014 (12) TMI 176 - AT - Income Tax

Bad debts deleted facts and circumstances of case properly appreciated or not Held that - CIT(A) noted that the total claim of ₹ 53,05,057/- included export bad debts and domestic bad debts - it also included some advances written off - advances written off is not allowable u/s 36(1)(vii) although the same is allowable as business loss if it is established that it has accrued during this year - There is no finding given by CIT(A) on this aspect also, regarding export bad debts, it has to be seen as to whether any deduction was claimed by the assessee u/s 80HHC in the year of export in respect of this export because if deduction was claimed and allowed u/s 80HHC, then this bad debt written off does not remain included in the income of the assessee in any year and the provisions of section 36(2) are not complied with and as a result deduction is not allowable to the assessee - Since there is no finding by CIT(A) on these aspects, the matter is remitted back to the CIT(A) for fresh adjudication Decided in favour of revenue. Allowability of deduction u/s 80HHC Exchange fluctuation receipts Held that - Definitely, exchange fluctuation gain in respect of realization of export proceeds of current years is to be included in the profit of the business of the present year and same is also to be included in the export turnover and total turnover of the present year but if such exchange fluctuation gain is in respect of export of any earlier year then the same can neither be included in the business profit of the present year nor it can be included in the export turnover and total turnover - The same should relate back to the year of export and in that year, it should be included in business profit as well as export turnover and total turnover - Since the finding of CIT(A) is not on this line, the order of CIT(A) on this issue is not sustainable thus, the matter is remitted back to the CIT(A) for fresh decision Decided in favour of revenue. Interest income to be included under income from other sources or business income Held that - Following the decision in CIT vs. Jyoti Apparels 2007 (1) TMI 542 - DELHI HIGH COURT - interest earned on FDR even for the purpose of availing credit facilities from bank does not have immediate nexus with the export business and therefore, it has to be necessarily treated as income from other sources and not business income thus, interest income cannot be treated as business profit for the purpose of computing deduction allowable to the assessee u/s 80HHC Decided in favour of revenue. Allowability of deduction u/s 80IB Held that - Both the parties agreed that the issue is with regard to the duty draw back and in M/s Liberty India Versus Commissioner of Income Tax 2009 (8) TMI 63 - SUPREME COURT it has been held that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking Decided against assessee.

Summary

Issues Involved:
1. Deletion of bad debts amounting to Rs. 53,05,057.
2. Allowability of deduction u/s 80HHC regarding exchange fluctuation receipts, interest income, and miscellaneous receipts.
3. Allowability of deduction u/s 80IB regarding Duty Draw Back amounting to Rs. 1,86,38,381.

Issue-wise Detailed Analysis:

1. Deletion of Bad Debts Amounting to Rs. 53,05,057:
The Revenue contested the deletion of bad debts by the CIT(A). The assessee supported the CIT(A)'s decision, citing the Supreme Court's judgment in T.R.F. Ltd. vs. Commissioner of Income-tax and the Bombay High Court's judgment in Director of Income-tax (International Taxation) vs. Oman International Bank. The CIT(A) allowed the bad debts based on RBI approvals and the assessee's books. However, the Tribunal noted that advances written off are not allowable under Section 36(1)(vii) but may be considered as business loss if established for the current year. The Tribunal also emphasized the need to verify if the export bad debts had claimed deductions under Section 80HHC. Consequently, the issue was remanded back to the CIT(A) for a fresh decision.

2. Allowability of Deduction u/s 80HHC:
- Exchange Fluctuation Receipts: The Tribunal held that exchange fluctuation gains related to current year exports should be included in business profits and export turnover. Gains from previous years should be included in the respective year's figures. The CIT(A)'s decision was set aside, and the issue was remanded for a fresh decision.
- Interest Income: The Tribunal, citing Delhi High Court judgments in CIT vs. Shri Ram Honda Power Equip & Ors and CIT vs. Jyoti Apparels, held that interest income from FDRs does not have an immediate nexus with export business and should be treated as income from other sources. The CIT(A)'s decision was reversed, and the interest income was excluded from business profits.
- Miscellaneous Receipts: The Tribunal found the CIT(A)'s decision unsustainable due to a lack of clarity on the nature of excess export proceeds and rebates. The Tribunal reversed the CIT(A)'s decision and restored the Assessing Officer's order.

3. Allowability of Deduction u/s 80IB Regarding Duty Draw Back:
The assessee's appeal contested the exclusion of Duty Draw Back from eligible profits for Section 80IB relief. The Tribunal, referencing the Supreme Court's judgment in Liberty India vs. Commissioner of Income-tax, upheld the CIT(A)'s decision, denying the inclusion of Duty Draw Back in eligible profits. The assessee's appeal was dismissed.

Conclusion:
The Revenue's appeal was allowed, and the assessee's appeal was dismissed. The Tribunal remanded certain issues back to the CIT(A) for fresh consideration, ensuring compliance with legal provisions and providing adequate opportunities for both parties to be heard.