2011 (3) TMI 1664 - AT - Income Tax

Tribunal clarifies foreign exchange losses, allows club fees, and grants appeal for 2006-07 assessment

The Tribunal directed a fresh examination of the foreign exchange loss issue, emphasizing the distinction between losses on current assets/liabilities and ... - Issues involved: Appeal against addition of foreign exchange loss and disallowance of club fees for assessment year 2006-07.Issue 1: Addition of foreign exchange lossThe appellant challenged the addition of Rs. 5,89,194 made by the Assessing Officer as foreign exchange loss, contending it should be allowed as a revenue expenditure. The appellant cited the judgment in CIT v. Woodword Governor India Pvt. Ltd. (312 ITR 254) where it was held that such losses on current assets/liabilities are allowable as revenue expenditure. The Tribunal noted the distinction between losses on current assets/liabilities versus capital items, directing a fresh examination by the Assessing Officer to determine the nature of the loss. If related to current assets/liabilities, it should be allowed as revenue expenditure; if related to capital items, it should be capitalized. The ground was allowed for statistical purposes.Issue 2: Disallowance of club feesThe Assessing Officer disallowed Rs. 89,147 debited as club fees, deeming it personal in nature based on the auditor's certification. The appellant argued that the tax audit report contradicted this, stating the personal nature expenditure was nil. The report also detailed the club expenses, with a major portion towards annual membership fees. Citing the decision in OTIS Elevator Co. (India) Ltd. v. CIT (195 ITR 682) allowing club fees as expenditure, the Tribunal found no basis for disallowance. Consequently, the disallowance was deleted, and the appeal was allowed.In conclusion, the Tribunal directed a fresh examination of the foreign exchange loss issue and allowed the appeal regarding the disallowance of club fees for the assessment year 2006-07.