2010 (5) TMI 903 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of foreign exchange fluctuation.
2. Restriction of addition on account of interest paid.
3. Deletion of addition u/s 68 for unsecured loans.

Summary:

Issue 1: Deletion of addition on account of foreign exchange fluctuation

The assessee claimed expenses of Rs. 1,04,473/- on account of foreign exchange fluctuation under 'income from other sources'. The AO disallowed this, stating that the loss was not actual but a provision created by revaluation of debts. The CIT(A) allowed the loss based on the decision in "Woodward Governor India (P) Ltd.", which was upheld by the Supreme Court. The Tribunal found no error in the CIT(A)'s order and rejected the Department's ground.

Issue 2: Restriction of addition on account of interest paid

The AO disallowed Rs. 17,46,330/- as interest expenses, observing that the assessee borrowed funds at higher rates and advanced them to Directors at lower rates. The CIT(A) restricted the disallowance to Rs. 3,70,068/-, representing the difference between interest paid to M/s. Dhampur Alco Chem Ltd. and interest received from Directors. The Tribunal remitted the issue to the CIT(A) to determine if the amount advanced to Directors was out of the loan from M/s. Dhampur Alco Chem Ltd.

Issue 3: Deletion of addition u/s 68 for unsecured loans

The AO added Rs. 45,94,525/- u/s 68, as the assessee failed to provide confirmations for unsecured loans. The CIT(A) accepted additional evidence and directed the AO to examine it. The AO's remand report found the confirmations in order. The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the AO had accepted the merits of the confirmations and the transactions were through regular banking channels.

Conclusion:

The appeal filed by the Department is partly allowed, with the issue regarding interest paid remitted to the CIT(A) for fresh consideration.