2017 (4) TMI 362 - HC - Income Tax

Deprecation on Iraqi assets - difference on the translation of the overseas account in the Head Office account at the end of the year on exchange rate prevalent on the last day of the accounting year - Held that - The amount of this difference was notional debit/credit and did not represent any loss or income for the purpose of computing the taxable income under the Income-Tax Act. The entries on this account were made only for balancing the books. Therefore, this exercise was merely done on account of incorporating the trial balance appearing in the Iraqi branch in the Head Officer books in Indian currency. Since no actual gain accrued to the assessee, there was no question of taxing this amount. We, accordingly, confirm the order of the ld. CIT(A) Disallowance of interest on borrowing - Held that - Addition on account of interest upto the date of search to be deleted on the ground that no interest bearing funds were utilised for making any interest free loans/advances to various parties and hence, no interest should be disallowed in the year in question. See Commissioner of Income Tax Vs. M/S Jai Prakash Industries Pvt. Ltd. 2017 (3) TMI 1160 - ALLAHABAD HIGH COURT Share issue expenses debited in P & L account to be covered under Section 35D

Summary

Issues:
1. Appeal challenging the judgment and order passed by the Income Tax Appellate Tribunal for Assessment Year 2003-04.
2. Substantial questions of law regarding additions and disallowances made by the Tribunal.

Analysis:
1. The appeal under Section 260-A of the Income Tax Act, 1961 challenges the Tribunal's judgment on various substantial questions of law. The first issue relates to the addition made on account of deprecations on Iraqi assets. The Tribunal found that the difference in foreign currency translation was notional and did not represent any actual loss or income for tax purposes. The Court upheld this finding, citing a previous judgment and ruled against the Revenue on this question.

2. Questions (ii) and (iv) pertain to the depreciation of temporary structures and addition of retention money, respectively. The Court deemed these issues as questions of fact without raising any substantial questions of law, hence not requiring detailed analysis.

3. Question (iii) involves the disallowance of interest on borrowing despite interest-free advances given by the assessee. The Court referred to a previous judgment where a similar issue was decided in favor of the assessee. Following the precedent, the Court ruled against the Revenue on this question as well.

4. The final issue, Question (v), concerns the disallowance of share issue expenses debited in the Profit & Loss account. The Tribunal held that these expenses were covered under Section 35D of the Income Tax Act, 1961, entitling the assessee to the disallowance. The Court found no fault in the Tribunal's decision and ruled against the Revenue on this question too.

5. Ultimately, the Court dismissed the appeal, upholding the Tribunal's decisions on all the substantial questions of law raised by the parties. The judgment provides a detailed analysis of each issue, citing relevant precedents and legal principles to arrive at its conclusions.