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of <h1>Tribunal Allows Business Loss & Deduction for Bad Debts, Upholds Compensation Payment & Additional Depreciation Claims</h1> <h3>M/s. Indowind Energy Ltd. Versus The Deputy Commissioner of Income Tax, Company Circle-II (3), Chennai-34. (Vice-Versa)</h3> M/s. Indowind Energy Ltd. Versus The Deputy Commissioner of Income Tax, Company Circle-II (3), Chennai-34. (Vice-Versa) - TMI Issues Involved:1. Disallowance of bad debts under section 35D of the Act.2. Disallowance of compensation payment for delayed commissioning of windmills.3. Claim of bad debt in respect of advances made to M/s. Soprano Holdings Pvt. Ltd.4. Disallowance of bad debts written off for land advance given to M/s. Wipro Finance Ltd.5. Addition of rupee fluctuation loss on foreign currency convertible bonds.6. Additional depreciation claimed by the assessee.Detailed Analysis:Issue 1: Disallowance of Bad Debts under Section 35D of the Act- Facts: The assessee claimed bad debts of Rs.1,02,00,000/- for advances made to M/s. Cicon Environmental Technologies Ltd. for a project that was abandoned.- Assessing Officer's View: Disallowed the claim, treating the expenditure as preliminary expenses under section 35D, which can only be amortized upon successful commissioning of the project.- Commissioner of Income Tax (Appeals) Decision: Allowed 1/5th of the expenses (Rs.20,40,000/-) to be written off per year starting from the year the project was abandoned.- Tribunal's Decision: Directed the Assessing Officer to treat the entire amount of Rs.1,02,00,000/- as business loss and grant deduction, provided the debt is written off in the books of accounts.Issue 2: Disallowance of Compensation Payment for Delayed Commissioning of Windmills- Facts: The assessee paid Rs.65,00,000/- to M/s. Indonet Global Ltd. as compensation for delayed commissioning of windmills.- Assessing Officer's View: Disallowed the entire claim due to lack of substantiation.- Commissioner of Income Tax (Appeals) Decision: Allowed Rs.22,04,432/- as interest payment but disallowed the balance.- Tribunal's Decision: Directed the Assessing Officer to delete the addition and allow the entire Rs.65,00,000/- as a deductible expense under section 37 of the Act.Issue 3: Claim of Bad Debt in Respect of Advances Made to M/s. Soprano Holdings Pvt. Ltd.- Facts: The assessee claimed bad debts of Rs.2,00,00,000/- for advances made to M/s. Soprano Holdings Pvt. Ltd.- Assessing Officer's View: Disallowed the claim as the debt was not related to any revenue transaction or incidental to the business.- Commissioner of Income Tax (Appeals) Decision: Allowed the claim following the Tribunal's decision for the assessment year 2004-05.- Tribunal's Decision: Upheld the Commissioner of Income Tax (Appeals) decision, allowing the bad debt claim.Issue 4: Disallowance of Bad Debts Written Off for Land Advance Given to M/s. Wipro Finance Ltd.- Facts: The assessee claimed a loss of Rs.1,47,00,000/- for an advance given for land purchase that was not materialized.- Assessing Officer's View: Disallowed the claim as the loss had not crystallized during the relevant assessment year.- Commissioner of Income Tax (Appeals) Decision: Confirmed the disallowance, stating the advance was not a regular business asset.- Tribunal's Decision: Directed the Assessing Officer to allow the claim as business loss.Issue 5: Addition of Rupee Fluctuation Loss on Foreign Currency Convertible Bonds- Facts: The assessee claimed a deduction of Rs.4,78,44,777/- for rupee fluctuation loss on foreign currency convertible bonds.- Assessing Officer's View: Disallowed the claim as the loss was notional and contingent.- Commissioner of Income Tax (Appeals) Decision: Held that the loss can only be allowed in the year of actual redemption/conversion.- Tribunal's Decision: Directed the Assessing Officer to allow the claim provided section 43A of the Act is not applicable.Issue 6: Additional Depreciation Claimed by the Assessee- Facts: The assessee claimed additional depreciation of Rs.3,02,62,222/- on second-hand windmills.- Assessing Officer's View: Disallowed the excess claim of depreciation while computing book profit under section 115JB of the Act.- Commissioner of Income Tax (Appeals) Decision: Allowed the claim, stating that higher depreciation is permissible under the Companies Act and the Assessing Officer cannot make adjustments other than those specified in the Act.- Tribunal's Decision: Upheld the Commissioner of Income Tax (Appeals) decision, allowing the additional depreciation claim.Conclusion:- The appeals in ITA Nos.936 & 937/Mds/2015 of the assessee were allowed.- ITA No.1823/Mds/2015 of the Revenue was partly allowed for statistical purposes.- ITA No.1824/Mds/2015 of the Revenue was dismissed.
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