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TMI Blog2013 (11) TMI 1335X X X X Extracts X X X X X X X X Extracts X X X X ..... to the parent company Ricoh, Japan in the guise of the said interest in order to avoid the tax liability as alleged by the A.O. especially when the relevant international transactions of the assessee company with Ricoh, Japan were accepted by the transfer Pricing Office in its order passed u/s 92(3) as made at ALP – Decided against the Revenue. Treating the bank interest on deposits as ‘Business income’ instead of ‘Income from other sources’ – Held that:- Deposits with Bank were kept by the assessee as its business necessity to obtain the performance guarantee in favour of the clients and the ld. D.R has not been able to controvert/rebut this finding recorded by the ld. CIT(A) - Once it is found that the fixed deposits with Bank were kept by the assessee for the purpose of its business, the interest earned on the said deposits has to be treated as business income of the assessee – Decided against the Revenue. Allowability of loss due to fluctuation in foreign exchange – Held that:- Claim for foreign exchange fluctuation loss relating to usance interest and BLC interest is consequential to the issue relating to allowability of the said interest as involved in first ground abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld. CIT(A) in deleting the addition made by the A.O. on account of usance interest amounting to ₹ 47,59,895/- and interest paid to bank on BLC amounting to ₹ 25,83,474/-. 4. The assessee in the present case is a company which is mainly engaged in the business of marketing, selling and servicing office automation products like photocopy machines, FAX machines etc. It imports the said machines as well as accessories and spare parts thereof from its parent company namely Ricoh, Japan. The return of income for the year under consideration was filed by the assessee on 30-10-2002 declaring total income at nil after setting off the brought forward losses of the earlier years. In the P L account filed along with the said return, usance interest of ₹ 47,59,895/- and interest paid to bank on BLC of ₹ 25,83,474/- was debited by the assessee. During the course of assessment proceedings, it was explained on behalf of the assessee before the A.O. that its holding company namely Ricoh, Japan allows a credit period of 180 days for the machines, spares and accessories from the date of bill of lading for which interest is charged on the basis of international libo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. on account of usance interest and BLC interest was disputed by the assessee in an appeal filed before the ld. CIT(A). It was submitted before the ld. CIT(A) on behalf of the assessee company that as per the business terms agreed with Rico, Japan, no credit period was allowed and the interest was payable from the date of bill of lading for the period of 180 days by which the assessee was required to make the payment. It was submitted that as per the arrangement made by the assessee with Citi Bank, the later had agreed to make the payment to Rico, Japan after a period of 180 days which was treated as Buyers Line of Credit (BLC) and interest was payable by the assessee on the said credit given in US Dollar terms. As regards the objection of the A.O. about the piling of stock, it was submitted by the assessee that the same was required because of the lead-time in procuring the imports. It was also submitted that the assessee being in the business of servicing and maintenance of all the models, was required to maintain stock of consumables, spares and accessories of all the machines. It was also submitted that higher stock of the machines newly introduced in the market was req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer should not have disallowed the amount of interest payable to Citi Bank. It might be in the Interest of the appellant to utilise the funds here in India rather than to make the payment to M/s. Ricoh Japan or to Citi Bank as these funds were available on comparatively cheaper rates at rate of 6.79% to 6.9% than the interest payable on CC limit which was 13.50%. In view of this it is held that AO is not legally justified in making disallowance out of BLC interest. Disallowance made is hereby deleted . 7. The ld. D.R., after narrating the facts relevant to this issue, relied on the order of the A.O. in support of the Revenue's case. 8. The ld. counsel for the assessee, on the other hand, strongly relied on the impugned order of the ld. CIT(A) giving relief to the assessee on this issue stating that the same is a well discussed and well reasoned order. 9. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the machines, accessories and parts thereof were imported by the assessee company from its holding company Ricoh, Japan during the course of its normal business and there is no dispute about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made at ALP. In that view of the matter, we find no infirmity in the impugned order of the ld. CIT(A) giving relief to the assessee on account of usance interest and BLC interest and upholding the same on this issue, we dismiss ground No. 1of Revenue's appeal. 10. In ground No. 2, the Revenue has challenged the action of the ld. CIT(A) in directing the A.O. to treat the bank interest as business income instead of income from other sources as considered by the A.O. 11. During the year under consideration, the assessee company had earned interest income on various fixed deposits kept with the Bank against performance bank guarantee issued by the Bank. Since the said investment in fixed deposits with Bank was made for the purpose of its business, the interest earned thereon was declared by the assessee company as business income. According to the A.O., none of the main objects of the assessee company as per its Memorandum of Article of Association was that of making investment in bank deposits for the purpose of earning interest income. He therefore held that interest income earned by the assessee on bank deposits was not its business income but the same was chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said interest. On appeal, the ld. CIT(A) allowed the claim of the assessee for foreign exchange fluctuation loss as the claim of the assessee for deduction on account of usance interest paid to Ricoh, Japan and BLC interest paid to Citi Bank was allowed by him. 16. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, the issue involved in this ground relating to assessee's claim for foreign exchange fluctuation loss relating to usance interest and BLC interest is consequential to the issue relating to allowability of the said interest as involved in ground No. 1 of Revenue's appeal. Since the said issue involved in ground No. 1 of Revenue's appeal has already been decided by us in favour of the assessee upholding the impugned order of the ld. CIT(A) deleting the disallowance made by the A.O. on account of usance interest and BLC interest, we allow the consequential relief due to the assessee on account of foreign exchange fluctuation loss relating to the said interest and dismiss ground No. 3 of the revenue's appeal. 17. In ground No. 4, the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration, the assessee had received miscellaneous income of ₹ 10.35 lacs on account of sundry charges received from clients towards visit of service engineers etc. which was shown as business income. According to the A.O., the assessee, however, could not produce any further details to show that the said miscellaneous income constituted its business income. The A.O. therefore did not accept the claim of the assessee that the miscellaneous income constituted its business income and brought the same to tax in the hands of the assessee under the head income from other sources . 22. During the course of appellate proceedings before the ld. CIT(A), the assessee furnished all the relevant details in respect of miscellaneous income as under:- Branches Amount (Rs) Trade-in recoveries Dealers Recovery charges Scrap Sales Miscellaneous Income Mumbai 1,813.00 - - 1,813.00 - Bhopal 16,991.00 - 16.991.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery/trade in machine sales. These old machines can be used as second hand machines only. In view of the above, the receipt against the sale of old machines Is very much from business activities carried on by the Appellant and therefore this income should be assessed under the head Income from Business only. 2. Dealer Recovery Charges: ₹ 7.82.058.20 When any dealer requires some technical help about the Appellant's product the company's service engineer visits such dealer/customer and provides him the necessary technical help. Since this is not a contract bound transaction, actual expenses incurred on such visit by the engineer plus nominal technical support charges are recovered from the dealer for such help. These are not netted off against the actual expenses claimed by the employee against his travel expenses, which are shown separately under the respective expense head. The gross recovery from the dealer Is shown separately under Miscellaneous Income. Therefore the Dealer Recovery charges are in the nature of technical support being provided to the customer of the Appellant and therefore related to the business carried on by the Appellant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue relating to addition of ₹ 19,43,928/- made by the A.O. on account of advances written off as bad debts which has been deleted by the ld. CIT(A) to the extent of ₹ 1,45,610/-. 25. In the P L account filed along with the return of income, the assessee had claimed advances written off to the tune of ₹ 19.43 lacs under the head other expenses . The assessee, however, did not furnish the relevant details to show that the amount of advances so written off had been brought to tax in the earlier years. It also could not produce any evidence to establish that the said advances had actually become bad or irrecoverable during the year under consideration. The A.O. therefore disallowed the claim of the assessee for deduction on account of advances written off holding that the conditions stipulated in section 36(1)(vii) r.w.s. 37(2) of the Act were not satisfied. 26. During the course of appellate proceedings before the ld. CIT(A), the assessee furnished the details of advances written off as bad debts as under:- (a) Earnest Money deposits ₹ 7,95,706/- Earnest Money deposits are given by the Appellant to various Government departments/Public Sector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, as regards the claim made for interest account and suppliers debit account, the explanation of the appellant is acceptable. The imprest account is outstanding amount recoverable against two employers who have already left the service and the suppliers debit balance is meager and no purpose will be served by taking cumbersome recovery measures. Therefore, claim of ₹ 1,45,610/- is allowed and the action of Assessing Officer in making disallowance of the balance amount is confirmed. This ground is partly allowed . The ld. CIT(A) thus allowed the claim of the assessee on account of advances written off to the extent of ₹ 1,45,610/- and sustained the disallowance made by the A.O. on this issue to the extent of ₹ 17,94,318/-. 28. We have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. counsel for the assessee has agreed that the amount of advances written off having not been treated as the income of the assessee in the earlier years, the same cannot be allowed as bad debts keeping in view the provisions of section 37(2) of the Act, he has submitted that the loss suffered by the assessee as a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 159.43 lacs was receivable from M/s CEAT Tyres Ltd. which represented rent receivable, maintenance charges receivable, bills for supply of spares receivable and service charges receivable. It was submitted that the said amount was outstanding for more than three years and a civil suit was already filed for the recovery of the same along with interest which was pending before the Hon'ble Bombay High Court. It was contended that the recovery of the principal amount itself thus was doubtful and interest thereon could not be treated as income accrued to the assessee in the year under consideration. The ld. CIT(A) found merit in this contention raised on behalf of the assessee and deleted the addition made by the A.O. on account of interest attributable to the advance given by the assessee to M/s CEAT Tyres Ltd. holding that when the matter for the recovery of principal amount along with interest was pending before the court, it could not be said that interest income had really accrued to the assessee during the year under consideration. He held that the interest income would accrue to the assessee only when the case of the assessee for recovery of interest is finally decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to M/s CEAT Tyres Ltd. had accrued to the assessee in the year under consideration and the same was taxable in the hands of the assessee as rightly held by the A.O. In that view of the matter, we set aside the impugned order of the ld. CIT(A) on this issue and restore that of the A.O. Ground No. 7 of Revenue's appeal is accordingly allowed. 34. In the C.O. filed for A.Y. 2002-03 being C.O. No. 97/Mum/2008, the assessee has raised the following grounds:- 1. On the facts and in the circumstances of the case, the CIT(A) has erred both on facts and in law, in not allowing deduction of Rs. l.47 lakhs in respect of revenue loss incidental to business which was wrongly disallowed by the ITO. 2. On the facts and in the circumstances of the case, the authorities below had taken the figure of ₹ 22.99 lakhs as the amount of disallowance whereas the correct figure is only Rs. l4.46 lakhs which alone requires to be allowed and as the wrong addition has been deleted in first appeal, the Revenue can have no grievance against the deletion of illegal addition. 3. On the facts and in the circumstances of the case, the authorities below have erred, both on facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O. Ground No. 3 of Revenue's appeal is accordingly dismissed. 41. Now, we shall take up the appeal of the Revenue for A.Y. 2004-05 being ITA No. 5738/Mum/2008 which is directed against the order of ld. CIT(A)-XXXII, Mumbai dtd.30-4-2008. 42. As regards ground No. 1 raised by the Revenue in this appeal, it is observed that the issue involved therein relating to disallowance of usance interest and BLC interest is similar to the one involved in ground No. 1 of the Revenue's appeal for A.Y. 2002-03 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2002-03, we delete the disallowance made by the A.O. on account of usance interest and BLC interest and dismiss ground No.1 raised by the Revenue. 43. As regards ground No. 2 of the Revenue's appeal, it is observed that the issue raised therein relating to the head of income under which bank interest is chargeable to is also similar to the one involved in ground No. 2 of Revenue's appeal for A.Y. 2002-03 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2002-03 on similar issue, we u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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