M/s. Mcdowell & Co. Ltd, Bangalore V. ACIT, Bangalore

ITA 217/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9543 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 16-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWATI S PATIL
• Assessee Lawyers: K R PRADEEP
• Keywords: Business expenditure; Bad and doubtful debts; Revenue expenditure
• Section: 234B; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI K.P.T. THANGAL, VICE PRESIDENT AND SHRI K.K. GUPTA, A.M. ITA NO.217(BNG)/09 (ASSESSMENT YEAR : 2005-06) M/S. MCDOWELL & CO. LTD., (NOW KNOWN AS UNITED SPIRITS LTD.) NO.51, RICHMOND ROAD, BANGALORE. VS. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(3), BANGALORE. APPELLANT. RESPONDENT. APPELLANT BY : SHRI K.R.PRADEEP. RESPONDENT BY : SMT. SWATI S. PATIL. O R D E R PER SHRI K.K. GUPTA, A.M. : THE ASSESSEE IS IN APPEAL AGITATING T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), IN CONFIRMING THE DISALLOWANC ES AS FOLLOWS : DISALLOWANCE OF BAD DEBTS RS.1,09,93,814. DISALLOWANCE TOWARDS R & D RS.1,18,78 ,000. DISALLOWANCE TOWARDS FOREIGN EXCHANGE RS.1,80,22, 000 RS.4,08,93,814 THE ASSESSEE IS ALSO AGITATING THE CONSEQUENTIAL LE VY OF INTEREST UNDER SECTION 234B & 234C. 2. THE BRIEF FACTS RELATING TO THE DISPUTE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME DECLARING AN INCOME OF RS.37,52,98,972 ON 28.10.2005. THE ASSESSEE HAD ITA NO.217(BNG)/09 - 2 - WRITTEN OFF BAD DEBTS AND ADVANCES TO THE TUNE OF R S.1,09,93,814. HOWEVER, THE ASSESSING AUTHORITY DECLINED TO ALLOW THE DEDUCTION AS CLAIMED BY THE ASSESSEE ALLEGING THAT THERE WAS NO EFFORT SHOWN TO HAVE BEEN TAKEN F OR RECOVERY THEREOF. THE ASSESSEES CLAIM OF EXPENDITURE TO THE TUNE OF RS.1 ,18,78,000 TOWARDS RESEARCH AND DEVELOPMENT WAS NOT ALLOWED ON THE PREMISE THAT THE ASSESSEE HAD NOT FURNISHED ANY OTHER DETAILS. THE ASSESSEES CLAIM OFRS.1,80,22,0 00 TOWARDS EXCHANGE FLUCTUATION LOSS WAS ALSO NOT ALLOWED. A TOTAL INCOME OF RS41,77,59 ,433 WAS DETERMINED AND TAX DEMANDED WHICH INCLUDED LEVY OF INTEREST UNDER SECT ION 234B AND 234C OF THE ACT TO THE TUNE OF RS.17,55,384. 3. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LOWER AUTHORITIES. (A) WITH RESPECT TO THE ISSUE OF DISALLOWANCE OF CL AIM OF BAD DEBT, THE LEARNED COUNSEL SUBMITTED THAT THE LEARNED CIT(A) ERRED IN NOT FOLL OWING THE DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF DCIT VS. OMAN INTERNATIONAL BANK SAOG REPORTED IN 100 ITD 285 WHICH CLEARLY INDICATE THAT THE ASSESSEE HAVING FULFILLED THE REQUIREMENTS UNDER SECTION 36(1)(VII) R.W.S. 36(2) FOR THE PURPOSE OF CLAIMING BAD DEBTS HAVE TO BE CONSIDERED FOR ALLOWANCE WAS ALSO ERRONE OUSLY CONSIDERED BY THE LEARNED CIT(A) BY IDENTIFYING OUT THE INDIVIDUAL ITEMS OF C LAIM OF BAD DEBTS TO DENY THE ENTIRE DEDUCTION FOR THE SIMPLE REASON THAT THE ASSESSEE H AD NOT ESTABLISHED THAT THE DEBT HAD BECOME BAD OR WERE IRRECOVERABLE. HE HELD THAT A SIMPLE RESOLUTION BY THE BOARD OF DIRECTORS WOULD NOT SUFFICE. THE CASE LAWS CITE D BEFORE HIM WERE CONSIDERED AS NOT ITA NO.217(BNG)/09 - 3 - APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. HE POINTED OUT THAT THE CLAIM OF BAD DEBTS & TRADE ADVANCES WRITTEN OFF RS.109.94 LAKHS INCLUDED BAD DEBTS WRITTEN OFF AMOUNTING TO RS.26.87 LAKHS; INTEREST NOT RECEIVED ON NSCS RS.1,59,949; LOSS ON PAYMENT OF IMPORT FEE & EXCISE DUTY PAID AGAINST PU RCHASES NOT MATERIALIZED RS.5,71,575; ADVANCE TO EMPLOYEES WRITTEN OFF RS. 43,142; TRAVEL ADVANCE WRITTEN OFF RS.5 LAKHS AND TRADE ADVANCES RS.69,31,963. VARIOU S DETAILS WERE FURNISHED TO THE LEARNED CIT(A) WHICH HE DID NOT CONSIDER APPROPRIAT E WHICH MAY KINDLY BE DIRECTED TO BE CONSIDERED IN ITS ENTIRETY. THE CIT(A) HAS ERR ONEOUSLY RESTRICTED THE CLAIM ONLY TO SECTION 36(1)(VII) AND HAS NOT APPLIED SECTION 37. EVEN UNDER SECTION 36(1)(VII) HE HAS HELD THAT THE ASSESSEE HAS TO PROVE THAT SUFFICIENT EFFORTS HAVE BEEN MADE FOR RECOVERY OF BAD DEBTS AND MERE WRITE OFF WAS NOT SU FFICIENT. IN DOING SO HE HAS OVER LOOKED THE FOLLOWING DECISIONS : I) CIT VS. STAR CHEMICALS LTD. (BOMBAY) (P) LTD. (2 20 CTR 319) II) CIT VS. GIRISH BHAGWAT PRASAD (256 ITR 772) III) SURESH GAGGAL VS. ITO (2008) (11 DTR 345) (HP) IV) CIT VS. TASKER DYE CHEM (2008)(9 DTR 298)(DEL) V) CIT VS. GETIT INFORMATION LTD. (2008) (37 IT REP 306) (DEL) VI) CIT VS. AUTOMETERS (292 ITR 345) (DEL) WHEREIN IT HAS BEEN HELD WRITE OFF IN BOOKS OF ACCO UNT WAS SUFFICIENT FOR MAKING THE CLAIM. SO FAR AS DEDUCTION UNDER SECTION 37 IS CON CERNED IT IS SUFFICIENT IF IT WAS FOR THE PURPOSE OF THE BUSINESS. ALL ADVANCES WRITTEN OFF ARE FOR THE PURPOSES OF BUSINESS ITA NO.217(BNG)/09 - 4 - WHICH IS EVIDENT FROM THE DETAILS FILED. SINCE SIM ILAR CLAIM HAS BEEN ALLOWED IN THE GROUP COMPANY IN THE CASE OF UNITED BREWERIES LTD. VS. DCIT IN ITA NO.680/BANG/2000 DT.26.7.2001. ACCORDINGLY THE ASS ESSING OFFICER MAY BE DIRECTED TO ALLOW THE ADVANCES WRITTEN OFF AS CLAIMED BY THE ASSESSEE. B) WITH RESPECT TO THE NEXT CLAIM OF RESEARCH AND D EVELOPMENT EXPENSES, HE POINTED OUT THAT THE ENTIRE AMOUNT WAS CLAIMED I N THE PROFIT AND LOSS ACCOUNT UNDER THE GROUP R & D EXPENSES AS CAN BE PURSUED IN THE P APER BOOK BEING R & D EXPENSES INCURRED SEPARATELY WITH THE ASSESSEE INCURS BEING IN THE MANUFACTURING OF INDIAN MADE FOREIGN LIQUOR (IMFL) FOR QUALITY CONTROL AND DEVELOPMENT AND HAS TO BE IDENTIFIED AS IN THE IMMEDIATELY PRECEDING ASSESSME NT YEAR ALSO WHEN THE CLAIM OF RS.97.59 LAKHS WAS MADE AND ALLOWED. IT IS NOT THE CASE OF THE ASSESSEE TO CLAIM WEIGHTED DEDUCTION TO ONLY TO IDENTIFY THE HUMAN RE SOURCES INDULGED IN SUCH ACTIVITY WHICH CANNOT BE DENIED TO THE ASSESSEE. THE LEARN ED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER WHO HAD HELD THAT THE ASSESSE E HAD NOT INCURRED ANY EXPENDITURE ON R & D AS NO VOUCHERS ETC WERE SUBMIT TED BEFORE HIM. SPECIFIC REQUIREMENT BY THE LEARNED CIT(A) WAS ALSO KNOWN T O THE ASSESSEE, THEREFORE, OUGHT TO HAVE BEEN SPECIFIED WITH THE CLAIM WAS MADE IN A CCORDANCE WITH THE INCOME TAX ACT, 1961 AND WAS NOT DEVIATED FROM IT AS IN THE E ARLIER YEARS. (C) (I) WITH RESPECT TO THE CLAIM OF FOREIGN EXC HANGE CONVERSION LOSS, HE POINTED OUT THAT THE ASSESSEE HAD MAINTAINED FOREIGN EXCHANGE C URRENCY OF NON-RESIDENT AMOUNTS WITH THE BANKS FOR HAVING PAYMENT OF LOANS FOR THE PURPOSE OF WORKING CAPITAL. THE ITA NO.217(BNG)/09 - 5 - ASSESSEE HAD ENTERED INTO CONTRACTS WHEN THE US DOL LAR SPOT RATE AND THE FORWARD RATE CONDITIONS RESULTED IN A NET LOSS TO THE ASSES SEE AMOUNTING TO RS.1.80 CRORES. THIS LOSS WAS CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT, 1961, THEREFORE, OUGHT TO HAVE BEEN ALLOWED WHEN THE LEAR NED CIT(A) CONSIDERED ERRONEOUSLY IN ACCORDANCE WITH THE RBI REGULATIONS WHETHER WAS ALLOWABLE TO AN INDIAN BANK BY AN ASSESSEE MAKING CONTRACTS TO REPRESENT THE BANK IN FOREIGN CURRENCY COULD BE HELD AS BUSINESS LOSS. ON A SPECIFIC QUERRY BY THE BENCH WHE THER THE DETAIL FOR SUCH CLAIM WAS FURNISHED TO THE ASSESSING OFFICER, IT WAS POINTED OUT THAT BY THE LEARNED COUNSEL THAT THE SPECIFIC DETAILS WERE NOT CALLED FOR BY THE ASS ESSING OFFICER WHO ON PAGE 3 OF HIS ORDER HAD NOTED THAT THE ASSESSEE HAD NOT SHOWN NEX US BETWEEN THE LOAN AVAILED BY IT AND THE USAGE THEREOF BY THE ASSESSEES CAPITAL REQ UIREMENT. RATHER THE ASSESSING OFFICER TRIED TO RELATE THE SAME TO THE INVESTMENTS MADE BY THE ASSESSEE HAVING GONE UP FROM RS.102.90 CRORES TO RS.380.32 CRORES AS PER THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THEREFORE BOTH THE AUTHORITIES M ISMATCH THE CLAIM OF THE ASSESSEE WHETHER ON CAPITAL ACCOUNT OR ON REVENUE ACCOUNT WA S SUBMITTED TO THE AUTHORITIES BELOW AS GIVEN IN THE PAPER BOOK BEING A NEXUS BETW EEN THE TWO HAS TO BE IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT, 1961 THE REFORE IS TO BE CONSIDERED AS BUSINESS LOSS IN THE HANDS OF THE ASSESSEE. II) IT WAS HELD THAT ASSESSEES INVESTMENTS HAD GON E UP FROM RS.102.90 CRORES TO RS.380.32 CRORES AND FOR THESE REASONS IT WAS HELD THAT FOREX LOANS WERE DIVERTED FOR ITA NO.217(BNG)/09 - 6 - THE PURPOSE OF MAKING INVESTMENTS. ON THIS BASIS F OREX LOSS WAS DISALLOWED. THE AUTHORITIES BELOW HAVE ERRED IN GIVING THE ABOVE FI NDINGS. FACTUALLY THE DETAILS OF FOREX LOSS IS AS UNDER : GROSS EXCHANGE FLUCTUATION LOSS RS.30592521 LESS : EXCHANGE FLUCTUATION GAIN RS.12570757 NET LOSS : RS.18021764 THE DETAILED BREAK UP OF THE ABOVE FOREX LOSS HAVE BEEN FURNISHED AS ANNEXURE 1 WHICH IS AVAILABLE IN THE PAPER BOOK FILED IN PAGE 94. THESE DETAILS WERE FURNISHED BEFORE THE ASSESSING OFFICER AND CIT(A). THE ASSES SEE HAD OBTAINED FCNR(B) LOANS FOR THE PURPOSE OF WORKING CAPITAL AND THE EVIDENCE S IN SUPPORT OF THIS HAS BEEN PROVIDED BEFORE THE AUTHORITIES BELOW AND WAS AVAIL ABLE IN PAGE NOS.68 TO 93 OF THE PAPER BOOK FILED. THE EXCHANGE LOSS PERTAINING TO THIS IS RS.30592521 WHEREAS THE INTEREST PAID ON THE FOREX LOANS WAS RS.4.85 CRORES . THE FOREX LOANS WERE OBTAINED ON VARIOUS DATES BETWEEN 2.4.2004 AND 31.3.2005 WHICH IS EVIDENT FROM THE ANNEXURE 1. THE INCREASE IN INVESTMENTS FROM 102.92 CRORES TO R S.380.32 CRORES WAS ON ACCOUNT OF INVESTMENT OF RS.287 CRORES IN 8% REDEEMABLE PREFER ENCE SHARES OF PHIPSON DISTILLERY LTD. THE SAID INVESTMENT WAS MADE ON 31.3.2005 I.E . ON THE LAST DAY OF THE YEAR. FACTUALLY NO EXPENDITURE WAS SAID TO HAVE BEEN INCU RRED ON THIS INVESTMENT MADE ON THE LAST DAY OF THE YEAR. EVEN THE SAID INVESTMENT IN SUBSIDIARIES WAS FOR THE PURPOSE OF BUSINESS. THE DISTINCTION MADE BY THE ASSESSING OFFICER BETWEEN BUSINESS PURPOSE ITA NO.217(BNG)/09 - 7 - AND INVESTMENT WAS ERRONEOUS AS BOTH WERE FOR COMME RCIAL PURPOSE AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR 1. HENCE THE REASON GIVEN BY THE ASSESSING OFFICER REGARDING DIV ERSION OF FUNDS WAS FACTUALLY INCORRECT. FURTHER THE ASSESSING OFFICER HAS DISAL LOWED NET FOREX LOSS AFTER ADJUSTING FOR INCOME EARNED AS EXTRACTED ABOVE, THUS FACTUAL LY THE ASSESSING OFFICER ALLOWED FOREX LOSS ON SAME SET OF FACTS. FURTHER THE ASSES SING OFFICER HAS ALLOWED ENTIRE INTEREST PAID ON FCNR LOAN AS REVENUE EXPENDITURE, WHEN INTEREST WAS FOUND TO BE ALLOWABLE, THE SAME REASON WAS GOOD FOR ASSESSING O FFICER FOR ALLOWING THE FOREX LOSS. DIVERGENT TREATMENT HAS BEEN GIVEN ON SAME SET OF F ACT WHICH WAS UNSUSTAINABLE. CONSEQUENTLY THE FOREX LOSS WAS ALLOWED AS CLAIMED BY THE ASSESSEE IN VIEW OF THE DECISION IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. & OTHERS REPORTED IN 294 ITR 451. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD CLAIMED BAD DEBT S AND ADVANCES WRITTEN OFF AMOUNTING TO RS.1,26,34,000. THE ASSESSEE WAS ASKE D TO FURNISH THE DETAILS OF BAD DEBTS WRITTEN OFF WITH THE NAMES AND ADDRESS OF THE PERSON AGAINST WHOM THE DEBTS WERE STANDING AND ITS JUSTIFICATION FOR THE CLAIM. THE RELEVANT INFORMATION WAS NOT FURNISHED DURING THE HEARING. THE ASSESSEE HAD SI MPLY STATED THAT THE MANAGEMENT WILL PERIODICALLY REVIEW THE OUTSTANDING AND RECOVE RABILITY OF THE DEBTS AND AFTER SATISFYING THE CHANCES OF RECOVERY ARE REMOTE, THE DEBTS WERE WRITTEN OFF. IT HAS NOT FURNISHED ANY EVIDENCE REGARDING THE EFFORTS MADE B Y IT FOR RECOVERING THE DEBTS / ITA NO.217(BNG)/09 - 8 - ADVANCES. IT WAS NOT ASCERTAINABLE WHETHER THE DEBT / ADVANCE HAS BECOME BAD OR NOT FOR THE PURPOSE OF CLAIMING AS EXPENDITURE. IT OFF ERED RS.16,30,000 TO TAX OUT OF RS.1,26,34,000 MAKING THE NET CLAIM OF BAD DEBTS / ADVANCES AT RS.1,09,93,814. THE SAME HAS BEEN DISALLOWED BY THE ASSESSING OFFICER A ND THE CIT(A). THE ASSESSEE HAS CLAIMED THE EXPENDITURE OF RS.1,18,78,000 TOWARDS R & D UNDER THE OTHER EXPENSES. IT HAS NOT FURNISHED ANY OTHER DETAILS REGARDING THE N ATURE OF RESEARCH UNDERTAKING AND THE FACILITIES AVAILABLE WITH IT FOR RESEARCH AND D EVELOPMENT. CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE AND THIS EXPENDITURE NOT C ONNECTED TO ITS BUSINESS ACTIVITY OF MANUFACTURE AND TRADING IN IMFL, THE ASSESSING OFFI CER HAS DISALLOWED THE CLAIM AND ADDED IT TO THE TOTAL INCOME. THE LEARNED COUNSEL POINTED OUT THAT THE ASSESSING OFFICER AND THE LEARNED CIT(A) HAVE NOT GIVEN ADEQU ATE OPPORTUNITY TO EXPLAIN THE SAME. THE LEARNED CIT(A) HAS HELD THAT THE ASSESSI NG OFFICER HAS GIVEN HIM ADEQUATE OPPORTUNITY TO EXPLAIN BUT WHICH THE ASSESSEE HAS F AILED TO DO SO. DURING THE APPELLATE PROCEEDINGS TOO THE ASSESSEE HAS NOT BEEN ABLE TO P RODUCE CORROBORATIVE VOUCHERS SHOWING EXPENSES AND HAS UPHELD THE ADDITION MADE B Y THE ASSESSING OFFICER. 9. THE LEARNED D.R. FURTHER SUBMITTED THAT THE ASSE SSEE HAS CLAIMED AN AMOUNT OF RS.1,80,22,000 TOWARDS EXCHANGE FLUCTUATI ON LOSS. DURING THE COURSE OF HEARING THE ASSESSEE WAS ASKED TO FILE THE DETAILS OF THE EXPENDITURE AND THE REASON OF THE LOSS. THE ASSESSEE VIDE ITS LETTER STATED T HAT THE COMPANY HAS ENTERED INTO AN AGREEMENT WITH CERTAIN BANKS AND RAISED FCNR WORKIN G CAPITAL DEMAND LOANS. THE ASSESSEE HAS NOT SHOWN ANY NEXUS BETWEEN THE LOANS AVAILED BY IT AND THE USAGE OF IT ITA NO.217(BNG)/09 - 9 - FOR THE WORKING CAPITAL REQUIREMENTS. THE ASSESSEE HAS ALSO MADE INVESTMENTS DURING THE YEAR IN THE FORM OF FULLY PAID EQUITY SHARES IN A NUMBER OF QUOTED / UNQUOTED INVESTMENTS. THE INVESTMENTS OF THE ASSESSEE DURIN G THE YEAR HAVE GONE UP FROM RS.102.90 CRORES IN THE YEAR 2004 TO RS.380.32 CROR ES IN THE YEAR ENDED 2005. THE ASSESSING OFFICER HAS HELD THAT WHEN SUCH HUGE AMOU NTS ARE GONE INTO INVESTMENTS OF THE SHARE CAPITALS OF VARIOUS COMPANIES AND AT THE SAME TIME WHEN THE ASSESSEE HAS OBTAINED HUGE LOANS, IT CANNOT BE SAID THAT THE FUN DS RAISED IN FCNR ARE USED FOR THE BUSINESS PURPOSES. IN THE ABSENCE OF ANY NEXUS BE TWEEN THE LOANS AVAILED BY IT AND THE USAGE OF IT FOR THE WORKING CAPITAL REQUIREMENT S AND SINCE THE ASSESSEE HAS ALSO MADE HUGE INVESTMENTS INTO THE SHARE CAPITAL OF VAR IOUS COMPANIES THE FOREIGN EXCHANGE FLUCTUATION LOSS CANNOT BE ATTRIBUTABLE TO THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY AND THEREFORE THE CLAIM HAS BEEN D ISALLOWED AND ADDED TO THE TOTAL INCOME. THE LEARNED CIT(A) IN HIS ORDER SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER SAYING THAT THE ASSESSING OFFICERS OBSERVA TION THAT THE ASSESSEE HAS GONE EXTENSIVELY FOR INVESTMENTS OF SHARE CAPITALS OF VA RIOUS COMPANIES HAS NOT BEEN CONTROVERTED BY THE ASSESSEE WHICH GOES TO JUSTIFY THE CONCLUSION OF THE ASSESSING OFFICER THAT THESE LOANS WERE NOT UTILIZED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE I. E. THE MANUFACTURE AND TRADING OF BEER. THE EVI DENCE PRODUCED BEFORE THE LEARNED CIT(A) BY THE A.R. OF THE ASSESSEE ALSO NEGATES THE CLAIM THAT SUCH LOANS WERE UTILIZED FOR THE BUSINESS ACTIVITY OF THE ASSESSEE. ITA NO.217(BNG)/09 - 10 - 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL PERUSAL OF THE FACTS A ND CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE LEARNED COUNSEL FOR THE ASSESSEE HAS BEEN ABLE TO SUBSTANTIATE THE ASSESSEES CLAIM IN ACCORDANCE WITH THE FINDINGS O F THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A). THE ASSESSING OFFICER ON THE C LAIM OF BAD DEBTS HAD CONSIDERED THE ENTIRE AMOUNT OF RS.1,26,34,000 WHEN THE ASSESS EE WITHDREW THE CLAIM OF RS.16,30,000 AND THE NET AMOUNT OF RS.1,09,93,814 W AS CONSIDERED FOR DISALLOWANCE FOR WANT OF DETAILS. THE DETAILS AS WERE FURNISHED BEF ORE THE LEARNED CIT(A) THAT INCLUDED A SUM OF RS.36.87 LAKHS BEING THE ACTUAL B AD DEBTS WRITTEN OFF IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36 (2). THEREFORE, WE ARE INCLINED TO HOLD AS ALLOWABLE ON THE ISSUE OF BAD DEBTS FOLLOWING TH E DECISION OF ITAT, SPECIAL BENCH IN THE CASE OF DCIT VS. OMAN INTERNATIONAL BANK SAOG ( SUPRA). W ITH RESPECT TO THE OTHER ITEMS AS MENTIONED BY THE LEARNED COUNSEL ABO VE, WE ARE INCLINED TO HOLD AS ALLOWABLE UNDER SECTION 37(1) AS THEY DO FULFILL TH E CRITERIA ENVISAGED BY THE PROVISIONS FOR CLAIMING EXPENSES UNDER THE MERCANTILE SYSTEM O F ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE. UNDER THE MERCANTILE SYSTEM OF ACC OUNTING, THE AMOUNTS SO CLAIMED WERE EXPENSES TO BE INCURRED AGAINST INCOME IN THE PREVIOUS YEARS AND THE NATURE THEREOF CLEARLY INDICATE THAT THE AMOUNTS WRITTEN O FF BY THE ASSESSEE WERE CONSIDERED OF THEIR IRRECOVERABILITY TO BE ALLOWED AS REVENUE LOSS CLAIMED AS BUSINESS EXPENDITURE. FOR THIS PROPOSITION, THE ASSESSING OFFICER OUGHT T O HAVE VERIFIED SUCH CLAIMS OF AMOUNTS WRITTEN OFF WHEN THE VERY NATURE OF THEIR E XPENSES HAVE BEEN ALLOWED BY HIM ITA NO.217(BNG)/09 - 11 - AS DAY TO DAY BUSINESS EXPENSES. THE ASSESSEE HAS FURNISHED DETAILS WITH RESPECT TO VARIOUS ITEMS CLAIMED INCLUDING THE CLAIM OF TRADE ADVANCES AMOUNTING TO RS.69,31,963 BEING THE AMOUNT PAID TO ONE MARTIN BURNS LIMITED F OR REPAIR/RENOVATION OF OFFICE AT CALCUTTA IN 1998-99. IT WAS SIMILARLY CONSIDERED A LLOWABLE IN ASSESSEES OWN CASE FOR A.YS 1996-97, 1997-98 BY THE TRIBUNAL WHEN THE AMOU NT WAS CLAIMED AS REVENUE EXPENDITURE ON RENOVATION AND REPAIRS OF AN ASSET N OT OWNED BY THE ASSESSEE BUT CATEGORIZED BEING ADVANCES PAID TO MARTIN BURNS LI MITED. THE VERY FACT THAT THE AMOUNT HAS BEEN PAID SUBJECT TO DEDUCTION AT SOURCE THEREFORE MAKES IT AMPLY CLEAR THAT THE AMOUNTS HAVE BEEN CLAIMED AS AN EXPENSE TH EREFORE CANNOT BE DISALLOWED AS A REVENUE EXPENDITURE IN THE IMPUGNED ASSESSMENT YEAR . WE ARE THEREFORE OF THE CONSIDERED VIEW THAT ITEMS OF ADVANCE FOR INTERNAL CONTROL PURPOSES HAVING BEEN NOT RENDERED FOR CLAIMING EXPENSES IN THE YEAR OF ADVAN CE BUT BECOMES IRRECOVERABLE AS NOTED BY BOARD OF DIRECTORS IN THE IMPUGNED YEAR IS A TRADE / REVENUE LOSS AS CLAIMED BY THE ASSESSEE BEING REVENUE IN NATURE IS FOR THE BUSINESS ONLY. THE DISALLOWANCE UNDER THIS HEAD THEREFORE IS DIRECTED TO BE DELETED . 6. ON THE ISSUE OF FOREIGN EXCHANGE LOSS ON CONVERS ION CLAIM, AS NOTED BY THE AUTHORITIES BELOW, DETAILS AS IN THE PAPER BOOK HAVE BEEN FURNISHED TO ESTABLISH NEXUS OF INCURRING THIS LOSS AS A BUSINESS LOSS IN THE HANDS OF THE ASSESSEE. THE ANNEXURE FURNISHED INDICATES THE FORWARD RATE AND T HE SPOT RATE DURING THE ACCOUNTING YEAR THEREFORE RESULTED IN LOSS AMOUNTING TO RS.1.8 CRORES IS BROUGHT OUT CLEARLY TO BE ALLOWED AS A BUSINESS LOSS WHEN PRIMARILY THE ASSES SEE INDICATES THAT THE LOANS WERE ITA NO.217(BNG)/09 - 12 - OBTAINED IN FOREIGN EXCHANGE FOR WORKING CAPITAL FR OM ITS BANKS THEREFORE INDICATED THAT A FOREIGN EXCHANGE LOSS AS NOTED BY THE BANK WAS NOT TO BE BORNE BY THE BANKS BUT BY THE ASSESSEE. THEREFORE IT IS CLEAR THAT TH E ASSESSEE HAS BEEN ABLE TO ESTABLISH ITS WORKING CAPITAL REQUIREMENTS AS WAS NOT RELATED AS OTHERWISE NOTED BY THE ASSESSING OFFICER CLAIMED AS INTEREST ON FORWARD CO NTRACTS FOR INVESTMENT IN SHARES OF COMPANIES WHICH INVESTMENT INCREASED FROM RS.102 CRORES TO RS.380 CRORES. JUSTIFIABLY THE LEARNED COUNSEL POINTED OUT THE ISS UE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43A DISTINGUISHING THE CAPITAL / REVENUE NATURE IMBIBED THEREIN TO RESULT IN CONSIDERATION THEREOF AS WERE CLAIMED BY THE ASSESS EE BEFORE THE AUTHORITIES BELOW. THE ASSESSEE HIMSELF RENDERED INCOME ON GAIN FROM E XCHANGE FLUCTUATION ON IDENTICAL NATURE OF REVENUE FROM LOANS REMAINING UNPAID. THE SAME IS TO BE ALLOWED ON THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE. 7. ON THE LAST ISSUE, WITH RESPECT TO DISALLOWANCE OF R & D EXPENSES, WE ARE INCLINED TO HOLD THAT THE AMOUNTS WERE NOT CLAI MED AS A DOUBLE DEDUCTION AS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BUT AT THE SAME TIME THE CLAIM SO MADE IN THE EARLIER ASSESSMENT YEAR AS WELL WAS TO IDENTIFY THE EXPENSES INCURRED BY THE ASSESSEE COMPANY FOR MAINTAINING ITS QUALITY AN D DEVELOPMENT BEING MANUFACTURER OF IMFL WHERE BLENDING IS A COMMON OCCURRENCE. WE ARE INCLINED TO HOLD THAT THE ASSESSEE NOT CLAIMING ANY WEIGHTED REDUCTION THEREU PON, WAS TO CLAIM THE SAME IN ITS NORMAL COURSE OF BUSINESS WHICH WE DIRECT TO BE ALL OWED. ITA NO.217(BNG)/09 - 13 - 8. LEVY OF INTEREST UNDER SECTION 234B & 234C IS MA NDATORY AS HAS BEEN HELD BY THE TRIBUNAL AND IS CONSEQUENTIAL TO MERIT ADDITIONS CONSIDERED ABOVE. IN THE RESULT THE APPEAL IS CONSIDER ED AS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST, 2009. SD/- SD/- (K.P.T. THANGAL) (K.K.GUPTA) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DT.21-08-2009. COPY TO : 1. THE ASSESSEE. 2. THE ASSESSING OFFICER. 3. CIT(APPEALS) 4. CIT 5. DEPARTMENTAL REPRESENTATIVE, ITAT, BANGALORE. 6. GUARD FILE, ITAT, BANGALORE. 7. GUARD FILE, ITAT, NEW DELHI. BY OR DER ASSISTANT R EGISTRAR