2014 (10) TMI 106 - HC - Income Tax

Court supports Respondent on head office expenses, bad debt, discounts on Bills of Exchange. Revenue's review dismissed. Further examination on buy-back transactions.

The Court upheld the Respondent-Assessee's position on head office expenditure, bad debt write-off, and discounts earned on Bills of Exchange. The ... Admission of review petition – head office expenses u/s 37(1) or u/s 44C – Held that:- As decided in Commissioner of Income-Tax Versus Deutsche Bank AG [2003 (7) TMI 6 - BOMBAY High Court], the Court has refused to entertain the issue and the review petition by the revenue cannot be admitted as it has already been decided that assessee was governed by the DTAA entered into between Germany and India - the deduction in respect of head office expenses allowable would not be less than what is allowable under the Indian Income Tax Act - the head 'office expenses' was deductable u/s 37 of the Act – the DTAA continues to be in force for the AY 1994-95 also – decided against revenue. Bad debts written off u/s 36(1)(vii) and 36(2) – Held that:- CIT(A) and Tribunal was rightly of the view that the advance was given by the assessee to its associate company was in the course of its banking business - the advance made to the associate company was lost only on account of security scam in AY 1993-94 which resulted in the market crashing and consequent losses of the associate company - when the assessee advanced money to its associate company, it could not have foreseen that it would not be recoverable - in any banking business, there are a lot of considerations involved in making advances and merely expressing doubt about the genuineness of the advance is not sufficient to take away discretion of the bankers to make advance – Decided against revenue. Buy back transactions in UTI units – Held that:- The appeal was admitted to the court for adjudication. Issues Involved:1. Allowability of head office expenditure under Section 37(1) of the Income Tax Act.2. Claim of bad debt written off under Sections 36(1)(vii) and 36(2) of the Act.3. Addition of discounts earned on Bills of Exchange purchased under Section 37 of the Income Tax Act.4. Addition on account of buy-back transactions in units of UTI made with M/s. DBFSIL.Analysis:Issue 1:The Tribunal allowed the appeal of the Respondent-Assessee regarding head office expenditure, citing a previous decision. The Revenue contended that a change in law after 1984-85 should be considered. However, the Court upheld the Respondent's position based on the Double Taxation Avoidance Agreement (DTAA) between Germany and India, ensuring deductions not less than those under Indian law pre-1984. The Court dismissed the Revenue's Review Petition, maintaining the decision in favor of the Respondent.Issue 2:The question was whether writing off an advance to an associate company is allowable under Sections 36(1)(vii) and 36(2) of the Act. The Assessing Officer argued that the advance was not in the ordinary course of business due to the associate company's financial instability. However, the CIT(A) and Tribunal found that the advance was made in the course of banking business and unforeseeable losses resulted from external factors, thus allowing the write-off. The Court refused to entertain this issue due to concurrent factual findings.Issue 3:The Tribunal upheld the order of CIT(A) regarding the addition of discounts earned on Bills of Exchange purchased, citing a previous decision for the Assessment Year 1992-93. As no distinguishing features were presented for the current year, and the Revenue had accepted the previous decision, the Court saw no reason to entertain the Revenue's appeal on this issue.Issue 4:The Court admitted Question No.4 concerning the addition on account of buy-back transactions in units of UTI made with M/s. DBFSIL, indicating a further examination of this matter is required.