Arali Nagaraj, J.:— In these two appeals, the appellant-Revenue has challenged the legality and correctness of the two orders dated December 12, 2003 (for the assessment year 1996-97) and dated June 3, 2004 (for the assessment year 1997-98) passed by the Income-tax Appellate Tribunal,Bangalore “A” Bench and “C” Bench (hereinafter referred to as “the Tribunal” for short) respectively in I.T.A Nos. 794.Bang/2000 and 795.Bang/2000. The respondent-assessee is common in these two appeals and, though the appellant-Revenue has raised for our consideration and decision as many as three substantial questions of law in I.T.A No. 106 of 2004 and four such questions in I.T.A No. 633 of 2004, one of them is common in both the appeals. These substantial questions of law are reframed without affecting the substance of each of them and they read as under:
“(1) Whether on facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the disallowances of depreciation as made by the Assessing Officer under section 143(3) of the Income-tax Act, 1961 in the respective orders of assessment on protective basis for the respective assessment years (1996-97 and 1997-98), are liable to be deleted on the ground that the same disallowances were the subject-matter of the block assessment order dated January 29, 1999, passed under section 158BC of the Act in respect of the same assessment years? (common question in both the appeals).
(2) Whether on facts and in the circumstances of the case, the Tribunal is justified in setting aside the addition made in respect of the disallowances on ‘provision for bad and doubtful debts’ that were made by the Assessing Officer in the assessment order for the year 1997-98 and remanding the matter to the Assessing Officer for fresh consideration of the claim of the assessee? (in I.T.A No. 633 of 2004 only).
(3) Whether on facts and in the circumstances of the case, the Tribunal is justified in deleting the disallowance of claim to the tune of Rs. 1,10,53,509 for the assessment year 1997-98 in respect of exchange fluctuation that was made by the Assessing Officer? (in I.T.A No. 633 of 2004 only).
(4) Whether on facts and in the circumstances of the case, the Tribunal is justified in allowing the additional claim of Rs. 2,46,04,418 for the assessment year 1997-98 holding that the capitalisation of the said sum is to be treated as revenue expenses? (in I.T.A No. 633 of 2004 only).”
2. The brief facts leading to the filing of I.T.A No. 106 of 2004 by the Revenue are as under:
(a) The respondent-assessee, viz., Wipro Finance Ltd., Bangalore filed its return of income for the assessment year 1996-97 on dated December 2, 1996, declaring a total loss of Rs. 4,14,38,722. It was processed under section 143(1)(a) of the Act on March 26, 1999. The Assessing Officer completed the assessment and passed the assessment order determining the total taxable income at Rs. 16,48,18,010 after making certain disallowances that were claimed by the assessee in respect of depreciation, provision as to bad and doubtful debts and under other heads and also making certain additions. The Assessing Officer added to the income in the said assessment order disallowance of depreciation to the tune of Rs. 17,36,44,507 on protective basis, though the same was added to the income of the assessee in the block assessment order dated January 29, 1999, that was made pursuant to the search of the premises of the assessee on January 3, 1997.
(b) Aggrieved by the said order of assessment dated March 26, 1999, the assessee preferred its appeal before the Commissioner of Income-tax Appeals) (CIT(A) for short) which came to be allowed in part, whereby the Commissioner of Income-tax (Appeals) granted certain reliefs to the assessee. Aggrieved by the said order, so far as it related to refusal to grant certain other reliefs, the assessee filed its further appeal before the Tribunal in I.T.A No. 794.Bang/2000. The Tribunal by passing the impugned order, allowed the said appeal granting further reliefs to the assessee. It is this order which is challenged in the present appeal.
3. Stated in a nutshell, the facts leading to the appeal in I.T.A No. 633 of 2004 are as under:
(i) The respondent-assessee filed its return of income on November 29, 1997 for the assessment year 1997-98 disclosing loss of Rs. 18,23,58,670. It was processed under section 143(1)(a) of the Income-tax Act (hereinafter referred to as “the Act”). After disallowing certain claims of the assessee with regard to the depreciation, provision for doubtful debts, provision for contingencies and supply items and after making certain additions based on the search which was conducted on January 3, 1997, in the premises of the assessee, the Assessing Officer passed the assessment order dated March 16, 2000 determining the taxable income at Rs. 17,31,20,662 as against the loss of Rs. 18,23,58,670 shown by the assessee in its returns.
(ii) Aggrieved by the said order of assessment, the assessee preferred its appeal before the Commissioner of Income-tax (Appeals) which came to be allowed in part giving some reliefs to the assessee. Aggrieved by the said order of the Commissioner of Income-tax (Appeals), so far as it related to the refusal to allow some of its claims, the assessee-company preferredits further appeal before the Tribunal. By passing the impugned order, the Tribunal allowed the entire claim of the assessee to the extent of Rs. 3,56,57,727. Therefore, aggrieved by the said order, the Revenue has filed the present appeal.
4. The first substantial question of law as formulated above is common in both these appeals. It pertains to the disallowance of a sum of Rs. 17,36,44,507 for the assessment year 1996-97 and another sum of Rs. 24,38,55,935 for the assessment year 1997-98 which were claimed by the assessee for these respective assessment years as depreciation on its various assets. The assessment has been made by the assessing authority on “protective basis” for the reasons that these sums were disallowed by the same assessing authority in his assessment order dated January 29, 1999, passed in respect of block assessment for the block period comprising of the previous years 1991-92 to 1996-97 which includes the previous years relevant to these assessment years in question, viz., 1996-97 and 1997-98. As to this protective assessment, Sri Indra Kumar, the learned senior counsel for the appellant-Revenue, strongly urged that though the concept of “protective assessment” is not contemplated under any of the provisions of the Act, it has been recognised by various High Courts and also the Supreme Court and accordingly, in order to protect the interest of the Revenue, the assessing authority passed the respective assessment orders for the said assessment years disallowing the said sums of depreciation on the ground that the block assessment order dated January 29, 1999, passed by it in respect of the block period which includes the previous years relevant to these assessment years, was challenged by the assessee initially before this court in Writ Petition No. 5053 of 1999 and after the said writ petition was withdrawn, before the Tribunal and, therefore, if the said order of block assessment is held to be not a legally valid order, in that event, the Revenue would be deprived of the tax levied on the said disallowances. As against this, Sri D.L.N Rao, the learned counsel for the respondent-assessee vehemently contended that though the concept of protective assessment has been recognised by various High Courts and the hon'ble Supreme Court, there could not be such an assessment in respect of the very same assessee and as to the very same amount of income assessed in the block assessment on the ground that it was undisclosed one.
5. It is not in dispute that a search was commenced in the premises of the assessee on January 3, 1997, and it came to be concluded on February 28, 1997, and, during the said search, the authorities found and seized certain documents pertaining to the assets in respect of which depreciation was claimed by the assessee in the previous years falling within the block period besides being relevant to the assessment years 1996-97 and 1997-98. It is also not in dispute that based on the said documents the assessing authority concluded the block assessment for the block period comprising of the previous years 1991-92 to 1996-97 and passed the block assessment order dated January 29, 1999, and this order was challenged by the assessee initially before this court by filing Writ Petition No. 5053 of 1999 and, after it came to be withdrawn, before the Tribunal by filing an appeal. It is also not in dispute that the Tribunal allowed the said appeal holding that the said block assessment was barred by limitation and, thereafter, challenging the said order, the appellant-Revenue filed I.T.A No. 296 of 2003 which is now disposed of by us. Thus, it is clear that as on the date of passing of the respective orders of assessment in respect of the assessment years 1996-97 and 1997-98, the said block assessment order dated January 29, 1999 was already passed and its correctness was challenged by the assessee.
6. Therefore, it is the case of the Revenue that since the legality and correctness of the said block assessment order was yet to be decided, as a protective measure, the assessing authority was justified in bringing to tax the very same amounts of depreciation which were disallowed in the block assessment order. At paragraphs 8 and 9 of his assessment order pertaining to the assessment year 1996-97, the assessing authority has observed that in the block assessment order passed under section 158BC on January 29, 1999, the depreciation claims made by the assessee for the assessment year 1996-97 to the tune of Rs. 17,36,44,507 were disallowed on the ground that the assessee failed to establish the genuineness of its so-called lease transactions and to prove the existence, location and identity of the assets and the assessee had challenged the said disallowance in writ petition before the hon'ble High Court of Karnataka on the plea that the disallowance of the depreciation could not be made in the block assessment as well as on protective basis. Further, in respect of such disallowance for the assessment year 1997-98 the assessing authority has observed at paragraph 19 of the assessment order that the assessee-company has claimed depreciation of Rs. 47.12 crores and the same has been disallowed in the block assessment order under section 158BC dated January 29, 1999, as it was found that the assessee-company had entered into certain lease transactions which were not genuine and the assessee had challenged the said disallowance in a writ petition before the hon'ble High Court of Karnataka on various grounds and therefore, the net depreciation to the tune of Rs. 24,38,55,935 as outlined in paragraph 111 of the said block assessment order has been disallowed on a protective basis.
7. As to the disallowance of a sum of Rs. 17,31,20,622 for the assessment year 1996-97, the Commissioner of Income-tax (Appeals) has observed at paragraph 5 of his order as : “the contention that protective assessments are not permissible in law does not appear to be correct, protective assessments do create the possibility of double assessment of the same income, may be in the hands of two persons, or in the hands of the same person but its effect is only temporary and only for a limited purpose, i.e, to ensure that the interest of the Revenue in ensuing that the income to be assessed is not left unassessed and ultimately only one assessment of the same income is going to stand, and there would be no double assessment”. He has further observed at paragraph 11 on page 34 of his order that in case the block assessment is held to be null and void by the hon'ble High Court there would not be any case of double assessment of the wrong claim of depreciation (once in block assessment and then in regular assessment) and the disallowance of depreciation in regular assessment made on a protective basis would become regular assessment on a regular basis and that, on the other hand, the hon'ble High Court holds that the block assessment subsists, then the disallowance of depreciation in regular assessment would get deleted.
8. While observing so the learned Commissioner of Income-tax (Appeals) confirmed the order of the assessing authority so far as it relates to the disallowance of the said amount of depreciation for the said assessment year on protective basis. Further, as to the disallowance of Rs. 24,38.55,935 for the assessment year 1997-98, the Commissioner of Income-tax (Appeals) has observed at paragraph 7 of his order that the contentions are on the same line as adopted for the assessment year 1996-97 and which are dealt with in his order in I.T.A No. 54.CC-WCIT(A)/1/1999-2000 of even date and that the observations made at paragraphs 5, 6, 7 and 8 of the said order would apply with equal force. Thus, based on the reasons assigned by him in his order in the appeal wherein the assessment order for the assessment year 1996-97 was challenged, the Commissioner of Income-tax (Appeals) confirmed the disallowance of the said amount in respect of the assessment year 1997-98.
9. As to the deletion of the disallowance of depreciation for the assessment year 1996-97, the Tribunal has observed at paragraph No. 6 of its order as under:
“Regular assessment and block assessment cannot stand simultaneously in view of the specific provision in Explanation to sub-section (2) of section 158BA of the Income-tax Act. Double addition has to go as held by the Commissioner of Income-tax (Appeals). Accordingly, we direct to do so. In the result the appeal is allowed.”
10. Further, as to the deletion of similar disallowance of depreciation for the assessment year 1997-98, the Tribunal has taken the same view as above.
11. Sri Indra Kumar, the learned senior counsel representing the appellant-Revenue has relied upon the following decisions in support of his legal contentions on protective assessment:
(i) Commissioner Of Income-Tax v. Smt. Durgawati Singh, [1998] 234 ITR 249 (All);
(ii)Jagannath Bawri v. CIT, [1998] 234 ITR 464 (Gauhati);
(iii)Lalji Haridas v. Income Tax Officer & Anothers, [1961] 43 ITR 387 (SC); and
(iv)N.R Paper and Board Ltd. v. Deputy CIT, [1998] 234 ITR 733 (Guj).
12. In first of these decisions, i.e, in the case of CIT v. Smt. Duragawati Singh, [1998] 234 ITR 249 (All) which was also considered by the Commissioner of Income-tax (Appeals), it is observed by the hon'ble High Court of Allahabad as under (headnote):
“It is settled that when there is a doubt as to which person amongst the two was liable to be assessed, parallel proceedings may be taken against both and alternative assessments may also be framed. It is also equally true that while a protective assessment is permissible, it is not open to the income-tax appellate authorities constituted under the Act to make a protective order. The law does not permit assessment of the same income successively in different hands. The tax can only be levied and collected in the hands of the person who has really earned the income and is liable to pay tax thereon.”
13. On a careful reading of the above observations, it could be noticed that the assessment of the same income on protective basis was made in the said case in respect of two different persons on the ground that there was doubt as to which of the two persons therein was liable to be assessed and the Tribunal, after considering both the assessment orders, had upheld one of them by cancelling the other. But the same is not in the instant cases here inasmuch as the protective assessment has been made in each case herein in respect of the same disallowance, which was made in the block assessment and in respect of the same assessee. The protective assessment herein is so made on the ground that the correctness of the said block assessment order was challenged and, therefore, if that order were to be ultimately held invalid, the assessment made on the said disallowances in these regular assessments would become “substantive and enforceable”. Further, whereas both the substantive and protective assessments in the said case were made under the same Chapter, in the instant cases, if the substantive assessment is made under Chapter XIV-B which provides for special procedure for assessment of search cases, the protective assessments have been made under section 143 of the Act during regular assessments for the respective assessment years, viz., 1996-97 and 1997-98. Therefore, the above observations of the hon'ble High Court of Allahabad cannot be made applicable to the facts of the present cases.
14. In the second of the above decisions, viz., Jagannath Bawri v. CIT, [1998] 234 ITR 464, the observations of the High Court of Gauhati at page 464 of the judgment read as under:
“Protective assessment—Ambiguity as to liability to charge of tax—Department can make assessments on two persons in respect of same income—Such assessments made to protect interest of Revenue as otherwise assessment proceedings may become barred by time against person finally found to be liable.”
15. These observations are also not applicable to the facts of the present cases inasmuch as both the substantive and protective assessments in the said case were made under the same provisions of the Act during the regular assessment for the relevant assessment year in respect of the two different assessees which is not so in the instant cases.
16. In the third of the abovesaid decisions relied upon by the learned senior counsel for the appellant-Revenue, viz., Lalji Haridas v. Income Tax Officer & Anothers, [1961] 43 ITR 387, the hon'ble Supreme Court has observed as under (page 392):
“In cases where it appears to the income-tax authorities that certain income has been received during the relevant year but it is not clear who has received that income and, prima facie, it appears that the income may have been received either by A or by B or by both together, it would be open to the income-tax authorities to determine the question who is responsible to pay tax by taking assessment proceedings both against A and B.”
17. Suffice to say that for the reasons stated supra in respect of the observations of the hon'ble High Courts of Allahabad and Gauhati in first and second of the decisions referred to above, these observations of the hon'ble Supreme Court are also not applicable to the facts of this case.
18. In the fourth of the above decisions relied upon by the learned senior counsel for the appellant-Revenue, viz., N.R Paper and Board Ltd. v. Deputy CIT, [1998] 234 ITR 733 (Guj), the facts narrated on page 734 of the judgment were as under:
“There was a search and seizure operation in the case of the assessees and the block assessment under Chapter XIV-B of the said Act was made for the block period from April 1, 1985, till January 6, 1996,which included the assessment year 1995-96. In those proceedings, the total income of the assessees for the said period was worked out in accordance with the provisions of section 158BB of the Act and after giving credit for the amount disclosed, the assessment order was made. The assessees' appeals in respect of the said assessment orders passed under Chapter XIV-B of the Act were pending before the Tribunal. The Assessing Officer issued notices to the assessees under section 143(2) with a view to completing the assessment for the assessment year 1995-96 pursuant to the returns filed by the assessees. In a writ petition it was contended by the assessees that the total income for the assessment year 1995-96 was already computed in the assessment orders for the block period and, therefore, no regular assessment for the assessment year 1995-96 could be computed and that the returns of income filed by them in respect of the assessment year 1995-96 were required to be filed.”
19. It was on the above facts, the hon'ble High Court of Gujarat observed on page 735 as under:
“Held, (i) that the notices issued under section 143(2) were in respect of the regular assessment and the Assessing Officer was within his jurisdiction to proceed with the same as per section 143(3) and make a regular assessment of the total income/loss of the previous year for the assessment year 1995-96 notwithstanding the fact that the said previous year was included in the block period for the purpose of assessment of the undisclosed income and that such assessment was already done and was the subject-matter of challenge before the Tribunal. Any question or problem that may arise in implementing the said provision or other provisions of Chapter XTV-B had no bearing whatsoever on the question whether the Assessing Officer had jurisdiction to proceed with the regular assessment for the assessment year 1995-96 in the case of the assessees;
(ii) that there is no need to give any reasons or grounds for proceeding with such regular assessment and the requirement of section 147 of there being reason to believe that any income chargeable to tax has escaped assessment, can never be read into the provisions of section 143(2). The only requirement for issuance of the notice under section 143(2) for calling upon the assessees to attend office and produce evidence in support of the returns is that the Assessing Officer should consider it necessary or expedient to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid the tax in any manner.”
20. On a plain reading of the above observations it is clear that the said observations cannot be made applicable to the facts of the present cases inasmuch as the block assessment has been made under Chapter XIV-B and the protective assessments have been made under Chapter XIV (i.e, section 143) of the Act as regular assessments and, both the block assessment and regular assessment have been made in respect of the same assessee.
21. In support of its findings that the same amount of disallowance on depreciation relating to the block period could not be simultaneously assessed in the regular assessments in relation to the same previous years which fell within the block period, the Tribunal has referred to in its impugned orders the provisions of section 158BA of the Act including Explanation (c) to sub-section (2) of section 158BA. The said provisions read as under:
“158BA. Assessment of undisclosed income as a result of search.— (1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995, a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter.
(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.
Explanation.—For the removal of doubts, it is hereby declared that—
(c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.”
22. From the plain reading of the above provisions, it is clear that the assessment of undisclosed income relating to the block period shall have to be made only in accordance with the provisions of Chapter XIV-B which provides special procedure for such assessment and that the total undisclosed income relating to the block period which is assessed under the said Chapter shall not be included in the regular assessment of any previous year included in the block period. In the present case, admittedly the search of the premises of the respondent-assessee was commenced on January 3, 1997, and it came to be concluded on February 28, 1997. Thus, it is clear that the previous years from 1991-92 to 1996-97 comprised the block period of these previous years, the years 1995-96 and 1996-97 are the relevant previous years for the assessment years 1996-97 and 1997-98. Therefore, it is further clear that since the search was commenced on January 3, 1997, the whole of the previous year 1995-96 and the previous year 1996-97 up to March 1, 1997, i.e, the date of commencement of search fell within the block period. This being so, undisclosed income relating to these two previous years could not be assessed on “protective basis” as part of the regular assessments for the assessment years 1996-97 and 1997-98 as has been done by the assessing authority in these appeals. Therefore, as rightly held by the Tribunal, in its impugned orders, the same income which was assessed as the undisclosed income for the block period could not have been assessed even on protective basis for the assessment years 1996-97 and 1997-98. As such, the findings of the Tribunal in this regard as recorded in the impugned orders do not call for any interference in these appeals. Consequently, substantial question No. 1 pertaining to “protective assessment” which is common in these two appeals requires to be answered in the “affirmative” and against the appellant-Revenue.
23. The second substantial question of law pertains to “provision for bad and doubtful debts”. The assessee had claimed for the assessment year 1996- 97 allowance of a sum of Rs. 85,88,515 as provision for bad and doubtful debts and for the assessment year 1997-98 he had also claimed such allowance to the tune of Rs. 10,36,92,864 which is inclusive of a sum of Rs. 1,17,61,000, which has been “written off” during the relevant previous year. The Assessing Officer allowed this sum of Rs. 1,17,61,000 which had been “written off” and disallowed the claim for Rs. 9,18,21,864 for the assessment year 1997-98 and nothing is mentioned in the assessment order as to the claim of the assessee for Rs. 85,88,515 for the assessment year 1996-97. When the said disallowance was challenged before the Commissioner of Income-tax (Appeals) in the appeal filed by the assessee, the Commissioner of Income-tax (Appeals) confirmed the same.
24. The concurrent findings of the Assessing Officer and the first appellate authority were challenged by the assessee-company in its appeal before the Tribunal. The Tribunal, while observing in its impugned order that since the assessing authority did not give sufficient opportunity to the assessee for submitting before him the details in respect of the said amounts claimed as bad and doubtful debts, the details available on record were inadequate for giving its finding on the said issue, remanded the matter pertaining to the assessment year 1997-98 to the Assessing Officer with a direction to reconsider the entire issue pertaining to the claim of the assessee as to the provision for bad and doubtful debts. Therefore, we have to examine whether the order of remand passed by the Tribunal is justified having regard to the material available on record.
25. It is the contention of the learned counsel for the assessee that the assessee had not been given by the Assessing Officer sufficient opportunity to place on record all the required details in respect of each of the debts claimed as allowable deduction under section 36(1)(vii) of the Act and, therefore, the Tribunal was quite justified in remanding the matter to the Assessing Officer, with a direction to reconsider the claim of the assessee as to the deduction under section 36(1)(vii) of the Act. As to this fact, the Tribunal has observed at paragraph 5.3 on page 23 of its order as under:
“5.3 We find that the details available on records are inadequate to deal with this issue. In fact, the Commissioner of Income-tax (Appeals) in his order at paragraph 13 has expressed similar difficulty in dealing with his issue. It is stated by the Commissioner of Income-tax (Appeals) that certain opportunity was given to the assessee to submit the details was not complied with by the assessee. The assessee's version is that the details could not be submitted as adequate time was not given by the Commissioner of Income-tax (Appeals). We see no purpose in dealing with this issue in detail in view of the inadequacy of the details. We find the Commissioner of Income-tax (Appeals) held the issue against the assessee by drawing inference for non-submission of the details. We find sufficient force in the request of the Authorised Representative that sufficient opportunity must be given to submit the details. We also find the issue involves a substantial disallowance; final opportunity must be given to the assessee to file the details. In view of this we set aside the issue and send it back to the Assessing Officer with a direction to reconsider the entire issue afresh after calling for the details required to consider the claim. The assessee shall also furnish such details as may be called by the Assessing Officer. In case the assessee fails to furnish the complete details even after reasonable opportunity claim for provision may be disallowed. However, in such event the Assessing Officer shall allow the claim for the bad debts in any subsequent year where the claim is ascertained and crystallised.”
26. As to the opportunity given to the assessee by the Assessing Officer for furnishing the details in respect of its claim on provision for bad and doubtful debts the Commissioner of Income-tax (Appeals) has observed at paragraph 13 on page 20 of his order as under:
“The assessee has claimed the amounts debited to the profit and loss account as bad debts written off as well as provision for ‘doubtful debts and advances’ are items eligible for deduction under section 36(1)(vii). These being claim for deduction, the onus is on the assessee to prove that the claim was allowable under the Income-tax Act. There are certain tests which have to be complied for examining the correctness of the claim. In my opinion, the Assessing Officer should have called for the details of various amounts debited and asked the assessee to explain how each of the items fulfil the requirement of valid write off. Instead of doing this, the Assessing Officer has adopted the criterion that the amounts debited to individual accounts of debtors and which form part of ‘bad and doubtful debts written off’ qualify for deduction under section 36(1)(vii) while ‘the provision for doubtful debts and advances’ do not qualify because the debt is not made in the individual accounts of debtors. The Assessing Officer has observed that the claim of bad and doubtful debt written off is allowable under section 36(1)(vii). It is not clear from the record that verification the Assessing Officer has made in this regard.”
27. After considering the above/these observations of the learned Commissioner of Income-tax (Appeals), the Tribunal has passed its impugned order remanding the matter to the assessing authority with a direction to reconsider this issue of provision as to bad and doubtful debts. The deductions claimed by the assessee towards the provision for doubtful debts and advances being Rs. 85,88,515 for the assessment year 1996-97 and Rs. 9,18,21,864 for the assessment year 1997-98 are substantial amounts. There is concurrence as to the finding on this fact by the Commissioner of Income-tax (Appeals) and the Tribunal that the assessee-company should have been given sufficient opportunity to place before the assessing authority all the details in respect of each item of debts in order to establish its case that the same was allowable under section 36(1)(vii) of the Act. Further, since the Tribunal remanded the matter to the Assessing Officer, it did not examine in detail, in its impugned order, the correctness or otherwise of the assessment order and also the order of the Commissioner of Income-tax (Appeals) by applying the provisions of section 36(1)(vii) and Explanation to it and section 36(2) of the Act which provides for allowance of deduction as bad debt or any part thereof and as provision for bad and doubtful debts. Therefore, we do not find any valid reasons to interfere with these concurrent findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal in their respective orders. Therefore, we have to answer this second substantial question of law in the “affirmative” and “against the appellant-Revenue”.
28. The third and fourth substantial questions of law as framed above pertain to deletion of disallowance of the claim of the assessee for the assessment year 1997-98 to the tune of Rs. 1,10,53,509 and allowance of additional claim of the assessee for Rs. 2,46,04,418 for the same assessment year that was made by the assessee before the Tribunal for the first time (which is the subject-matter of I.T.A No. 633 of 2004) in respect of the increased liability of the assessee due to exchange fluctuations. The said disallowance was made by the assessing authority on the ground that the same has been “capital in nature” but not “revenue in nature” as contended by the assessee and this disallowance had been confirmed by the Commissioner of Income-tax (Appeals).
29. The case of the assessee-company is that in pursuance of the agreement dated December 31, 1994, that was entered into by it with Common Wealth Development Corporation (CDC for short), the assessee availed of from CDC certain amount of foreign currency loan in pounds and, on the restatement/resettlement of the said loan as on March 31, 1997, its value jumped to Rs. 29,35,12,805 from its aggregate value at Rs. 25,88,55,078 as on the relevant dates on which the loans were availed of resulting in foreign exchange difference of Rs. 3,56,57,727 with consequent increase in the liability of the assessee. Further, the case of the assessee is that, of this amount, a sum of Rs. 2,46,04,418 was due “to the assets on use for leasing” and the same came to be “capitalised” and a sum of Rs. 1,10,53,909 was due “to stock on hire” and other revenue expenditure and, therefore, the same was to be treated as “revenue in nature”. This amount of Rs. 1,10,53,909 claimed by the assessee as deduction came to be disallowed by the assessing authority and this disallowance was confirmed by the Commissioner of Income-tax (Appeals). Besides this, the assessee made before the Tribunal for the first time an additional claim for Rs. 2,46,04,418 as deduction towards exchange fluctuation on the ground that the assessee had erroneously treated the same as capital in nature. The Tribunal, by its impugned order, directed the Assessing Officer to delete Rs. 1,10,53,909 which was disallowed by the Assessing Officer and also to allow as deduction Rs. 2,46,04,418 which was claimed by the assessee for the first time before the Tribunal as additional amount of deduction. Both the deletion of disallowance of Rs. 1,10,53,909 and allowance of deduction of Rs. 2,46,04,418 are challenged in I.T.A No. 633 of 2004.
30. Sri Indra Kumar, the learned senior counsel representing the appellant-Revenue strongly contended that the Tribunal committed a serious error in reversing the concurrent findings of the assessing authority and the Commissioner of Income-tax (Appeals) as to the disallowance of the said amount of Rs. 1,10,53,909, the increased liability of the assessee on account of foreign exchange fluctuation holding that the same was revenue in nature. He further urged that the Tribunal also committed another serious error in directing allowance of additional claim of the assessee for Rs. 2,46,04,418 that was made for the first time before the Tribunal as deduction towards loss incurred by it on account of foreign exchange fluctuation which amount was not so claimed either before the Assessing Officer or before the Commissioner of Income-tax (Appeals).
31. Per contra Sri D.L.N Rao, senior counsel, representing the respondent-assessee in I.T.A No. 633 of 2004 contended that since the very business of the assessee-company has been that of hire purchase, leasing of assets and intercorporate deposits, etc., the said loan in foreign currency was availed of by the assessee for financing the purchase of the assets for the purpose of leasing as part of its business and, therefore, the said amount of increased liability incurred by the assessee as a result of exchange fluctuations was rightly held by the Tribunal as revenue in nature and hence the impugned order so far as it relates to the deletion of disallowance of this amount does not call for any interference in this appeal. As to the additional claim of the assessee for Rs. 2,46,04,418 allowed by the Tribunal though the said claim was made by the assessee for the first time before the Tribunal, the learned counsel for the respondent-assessee contended that the assessee was not prohibited under law from claiming the said amount as allowance for the first time before the Tribunal and, therefore, the finding of the Tribunal as to allowance of the said amount cannot be held to be illegal as the same was allowed after considering the material that was available on record.
32. On a perusal of the order of assessment, as to the claim of the assessee for Rs. 1,10,53,909 as deduction on account of foreign exchange fluctuation it could be seen that the said deduction was claimed on the ground that it was revenue expenditure and not capital expenditure inasmuch as the said loan in foreign currency was availed of by the assessee for the purpose of financing the purchase of various assets for the purpose of leasing the same as part of its business. Since the assessing authority negatived this contention of the assessee and held that the said liability of the assessee was capital in nature inasmuch as the said loan was availed of by the assessee for the purchase of various assets such as plants and machinery which were admittedly capital in nature. This view of the assessing authority was upheld by the Commissioner of Income-tax (Appeals) and consequently disallowance of the said amount as made by the Assessing Officer was confirmed by the Commissioner of Income-tax (Appeals). Further, it is an undisputed fact that additional amount of Rs. 2,46,04,418 that was claimed by the assessee before the Tribunal as deduction towards exchange fluctuation, was not claimed by the assessee either before the assessing authority or before the Commissioner of Income-tax (Appeals). It is also undisputed that this amount was shown by the assessee before the Assessing Officer as capital in nature. However, the Tribunal allowed both the claims of the assessee.
33. As could be seen from paragraph 16 of the assessment order, in response to the explanation called for by the Assessing Officer, the assessee-company vide letter dated March 7, 2000 stated as under:
“The treatment of exchange fluctuations would depend on the purpose for which the ECB was availed of. We enclose as annexure 1, a statement showing the manner in which the aggregate exchange fluctuations has been arrived at and the accounting treatment thereof. To the extent the ECB was for the purpose of ‘stock on hire’, the exchange fluctuations on that account has been debited to the profit and loss account. Accordingly, out of Rs. 1,07,98,149 relating to stock on hire was debited to the profit and loss account. The profit and loss account was also debited with the net loss on forward cover aggregating to Rs. 3,36,982.”
34. In the extract of the statement showing the accounting for exchange fluctuation which is found at page 63 of the paper book, the assessee has shown that exchange fluctuation relating to leased assets to the tune of Rs. 2,46,04,418 (which was claimed as additional allowance before the Tribunal for the first time) was capitalised and a sum of Rs. 1,07,98,149 which has been claimed as deduction has been shown to be the exchange fluctuation relating to “stock on hire” debited to the profit and loss account.
35. In this regard, the assessing authority has observed at paragraph 16 of his order that a part of the exchange fluctuations has been capitalised and the balance portion has been debited to the profit and loss account stating that such an exchange fluctuation relates to stock on hire and that although section 10 of the agreement between the assessee-company and the CDC speaks of the manner in which the leasing and hire purchase business of the assessee-company has to be conducted, there is no direct link between the assets on lease or hire and the loan availed of and there are no ownership titles created on the assets in favour of the CDC inasmuch as all the leased assets have been owned by the assessee-company on which the depreciation has been claimed. While so observing, the Assessing Officer held in the same paragraph that the bifurcation of the CDC based on leased assets and the stock on hire is only an instrument created by the assessee-company to achieve tax advantage and, therefore, the exchange fluctuation debited to the tune of Rs. 1,07,98,749 along with others to the tune of Rs. 2,55,160 totalling to Rs. 1,10,53,909 claimed as deduction by the assessee has been disallowed.
36. The above findings of the assessing authority have been confirmed by the Commissioner of Income-tax (Appeals). On this issue the learned Commissioner of Income-tax (Appeals) has observed at paragraph 18.5 of his order that the phrase “stock on hire” used by the assessee itself is a misnomer as per the facts of the case inasmuch as it is not at par with trading stock as the business of the assessee is not trading in stock but leasing and hire purchase finance and, therefore, the appropriate treatment of the exchange fluctuation loss is as capital expenditure. At paragraph 20 of the said order, the Commissioner of Income-tax (Appeals) has further observed that the agreement (by the assessee with CDC) clearly shows that the loan was for acquisition of plant, machinery and other equipment to be used in its business which included hire purchase as well as leasing activity and thus the purpose for which the foreign loan was availed of was for acquisition of plant and machinery, which are the assets used in the business of the assessee and as such the increased liability of the assessee by reason of exchange fluctuation is capital in nature. Further, at paragraph 21.4 of his order, the Commissioner of Income-tax (Appeals), while concurring with the findings of the assessing authority on this issue, has held “the Assessing Officer was correct in not allowing the sum of Rs. 1,10,53,909 as a deduction in computing the total income of the assessee”.
37. On a careful reading of the impugned order of the Tribunal, it could be seen that while allowing the appeal of the assessee and reversing the concurring findings of the assessing authority and the Commissioner of Income-tax (Appeals), the Tribunal has made only a single paragraph discussion at paragraph 6.5 of its order from which it is apparent that the Tribunal has not at all applied its mind to the above concurrent findings of the assessing authority and the Commissioner of Income-tax (Appeals) and the view taken by the Tribunal that section 43A of the Act is not applicable to this issue is quite contrary to the very case of the assessee as borne out from the records inasmuch as, one Sri R. Shivakumar, the manager, taxation and accounts section of the assessee-company has stated in his letter dated March 10, 2000 as : “the exchange fluctuations attributed to loan used for acquiring leased assets was added to the cost of asset as per section 43A of the Act.
38. Further, though the Tribunal has stated in its impugned order as : “for these reasons we hold that section 43A is not applicable for the issue before us”, it is quite apparent from the impugned order that no reason whatsoever is assigned by the Tribunal supporting this view. Furthermore, the observation of the Tribunal that “funds borrowed were utilised for the purpose of regular finance business carried on by the assessee” is also not supported by any reasons besides being not founded on any facts on record. Besides this, the Tribunal has not recorded its reasoned finding in its impugned order as to how the findings of the Commissioner of Income-tax (Appeals) supported by detailed reasons concurring with those of the assessing authority could not be sustained on facts and in law so far as they relate to disallowance of the claim of the assessee for Rs. 1,10,53,909 on account of exchange fluctuation. Therefore, we are of the opinion that the impugned order of the Tribunal reversing the concurrent findings of the assessing authority and the Commissioner of Income-tax (Appeals) as to the disallowance of this sum of Rs. 1,10,53,909 deserves to be set aside.
39. As to the additional claim of the assessee-company for Rs. 2,46,04,418 which was made by it for the first time before the Tribunal on the ground that the assessee had erroneously treated the same as capital in nature, the Tribunal has not assigned any reasons whatsoever in its impugned order in allowing the same as deduction. The Tribunal has not stated anything in its impugned order as to how the assessee had erroneously capitalised the said amount before the assessing authority; why the assessee did not make this claim before the Commissioner of Income-tax (Appeals) and as to how the alleged error came to be corrected by the assessee so as to get the same allowed by the Tribunal? On a careful reading of the impugned order of the Tribunal on this issue, we have no alternative but to hold that the Tribunal has allowed the claim of the assessee for additional amount of Rs. 2,46,04,418 without any basis and as such, the impugned order as to this allowance also deserves to be set aside.
40. In view of our foregoing discussion, we answer the first substantial question of law pertaining to protective assessment which is common in both I.T.A Nos. 106 of 2004 and 633 of 2004 and in the “affirmative” and against the appellant-Revenue holding that the Tribunal is quite justified in ordering deletion of disallowance of the depreciation as made by the assessing authority under section 143(3) of the Income-tax Act, 1961 on protective basis for the assessment years 1996-97 and 1997-98. Therefore, the impugned orders of the Tribunal so far as they relate to the deletion of the respective amounts of depreciation that were disallowed by the assessing authority on protective basis in the respective assessment orders do not call for any interference in these appeals. Further, we answer the second substantial question of law pertaining to the disallowance on provision for bad and doubtful debts in the “affirmative” and against the appellant-Revenue holding that the Tribunal is quite justified in remanding the matter to the assessing authority pertaining to the assessment year 1997-98 after setting aside both the orders of the assessing authority and the Commissioner of Income-tax (Appeals), with a direction to the assessing authority to consider afresh the claim of the assessee-company as to provision for bad and doubtful debts and dispose of the matter in accordance with law after giving the assessee sufficient opportunity to substantiate its claim by producing the required particulars in respect of each debt.
41. We answer the third and fourth substantial questions of law that have arisen only in I.T.A No. 633 of 2004 in the “negative” and in favour of the Revenue holding that the Tribunal is not justified in deleting the disallowance of the claim of the assessee to the tune of Rs. 1,10,53,509 for assessment year 1997-98 and is allowing additional claim of the assessee for Rs. 2,46,04,418 for the assessment year 1997-98, both the claims being in respect of the foreign exchange fluctuations. Consequently, we set aside the impugned order of the Tribunal pertaining to the assessment year 1997-98 so far as it relates to the deletion of the disallowance of the claim of the assessee to the tune of Rs. 1,10,53,509 and allowing of the further claim of the assessee as to additional amount of Rs. 2,44,04,418. Accordingly, both the appeals in I.T.A Nos. 106 of 2004 and 633 of 2004 stand disposed of. No order as to costs.