2016 (7) TMI 999 - AT - Income Tax

ITAT dismisses department's appeals for 2004-05 & 2006-07, partly allows 2005-06 appeal.

The ITAT dismissed the department's appeals for the assessment years 2004-05 and 2006-07 and the assessee's cross-objection for 2004-05. The appeal for ... Addition on account of provision of liability regarding exchange rate fluctuation - Held that:- An identical issue has been decided in the case of CIT Vs Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT ) wherein held as “Loss” suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the date of the balance-sheet is an item of expenditure under section 37(1) of the Income-tax Act, 1961. - Decided in favour of assessee Addition on account of advance written off - Held that:- In the present case, it appears that an amount of ₹ 8,25,000/- was fraudulently withdrawn from the assessee’s bank account with Citi Bank by forging the signature of the assessee who had filed a suit against the bank, but no progress had yet been made. Therefore, it is clear that the incidental events happened in the regular course of business of the assessee, so it was an allowable expenditure u/s 37 of the Act and the ld. CIT(A) rightly held so - Decided in favour of assessee Percentage of adjustment to international transaction - Held that:- In the present case, it is an admitted fact that the ld. CIT(A) directed the AO to make the proportionate adjustment of the expenses to the extent it is attributable to the international transactions. No valid ground to interfere with the findings of the ld. CIT(A). Disallowance on account of excess claim of depreciation on computer peripherals - Held that:- Computer accessories and peripherals such as printers, scanners and server form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are part of the computer system, they are entitled to depreciation at the higher rate of 60 per cent. See CIT Vs BSES Yamuna Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT ] - Decided in favour of assessee Addition on account unascertained liability - Held that:- In the present case, it appears that the ld. CIT(A) allowed the claim of the expenses on this basis that the assessee was following this accounting policy, consistently and claiming the expenses by creating the provisions for such expenses. In our opinion, this issue requires verification at the level of the AO, he should verify as to whether the expenses pertained to this year or not and that the claim of the assessee was allowed in earlier and subsequent year on similar basis. Accordingly, this issue is set aside to the file of the AO for verification. Issues Involved:1. Deletion of addition on account of provision for exchange rate fluctuation.2. Deletion of addition on account of advance written off.3. Percentage of adjustment to international transaction.4. Deletion of addition on account of excess claim of depreciation on computer peripherals.5. Deletion of addition on account of unascertained liability for legal and statutory services.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Provision for Exchange Rate Fluctuation:The department contested the deletion of Rs. 77,90,000/- added by the AO for provision of liability regarding exchange rate fluctuation. The AO argued that the liability was contingent and not ascertained. The assessee claimed it as an allowable expenditure under AS-11 and cited various case laws. The CIT(A) deleted the addition, referencing the Supreme Court's decision in CIT Vs Woodward Governor India P. Ltd., which held that losses due to exchange rate fluctuations are allowable under section 37(1) of the Income-tax Act. The ITAT upheld the CIT(A)'s decision, emphasizing consistency with prior decisions and the principle of consistency.2. Deletion of Addition on Account of Advance Written Off:The AO added Rs. 8,25,000/- for an advance written off, considering it unsubstantiated and capital in nature. The assessee argued it was a business loss eligible for deduction under section 37(1) or alternatively as a business loss under section 28(i). The CIT(A) accepted the assessee's claim, noting the fraudulent withdrawal occurred in the regular course of business. The ITAT upheld this decision, finding no infirmity in the CIT(A)'s findings.3. Percentage of Adjustment to International Transaction:The TPO made an upward adjustment of Rs. 3,10,96,895/- to the assessee's income, rejecting adjustments for underutilization and extra depreciation. The CIT(A) directed the AO to use the full financial year data for comparables and to recalculate the international transactions with a mean margin of 1%. The CIT(A) also directed proportionate adjustment to the international transaction, aligning with the Jurisdictional High Court's decision in CIT Vs Keihin Panalfa Ltd., which supports proportionate TP adjustments. The ITAT upheld the CIT(A)'s directions.4. Deletion of Addition on Account of Excess Claim of Depreciation on Computer Peripherals:The AO disallowed Rs. 5,65,648/- claimed as depreciation on computer peripherals, arguing they should be classified under Plant & Machinery. The CIT(A) allowed the depreciation at 60%, following the Jurisdictional High Court's decision in CIT Vs BSES Yamuna Powers Ltd., which held that computer peripherals are integral to the computer system and eligible for higher depreciation. The ITAT upheld the CIT(A)'s decision.5. Deletion of Addition on Account of Unascertained Liability for Legal and Statutory Services:The AO disallowed Rs. 1,22,952/- from the provision for legal and statutory services, as the invoices raised were less than the provision. The CIT(A) deleted the addition, noting the assessee's consistent accounting policy of creating and reversing provisions. The ITAT set aside the issue to the AO for verification, directing to check if the expenses pertained to the relevant year and were consistently allowed in other years.Separate Judgments by Judges:The judgment does not mention separate judgments by the judges, indicating a consolidated decision.Conclusion:The ITAT dismissed the department's appeals for the assessment years 2004-05 and 2006-07 and the assessee's cross-objection for 2004-05. The appeal for 2005-06 was partly allowed for statistical purposes.