2008 (8) TMI 778 - AT - Income Tax

2013 (5) TMI 731 - AT

Issues Involved:
1. Disallowance of bad debts.
2. Disallowance of expenditure on advertisement and sales promotion.
3. Addition on account of reduction in value of old and obsolete inventory.
4. Disallowance of repairs and renovation expenses.
5. Inclusion of other income in turnover for computing deduction under s. 80HHC.
6. Disallowance of recruitment and training expenses.
7. Disallowance of loss on account of foreign exchange fluctuation.
8. Disallowance of provision for leave encashment under s. 43B.
9. Disallowance of belated payment of provident fund under s. 43B.

Detailed Analysis:

1. Disallowance of Bad Debts:
The assessee, a subsidiary of Schneider Electric Industries S.A., France, claimed a deduction of Rs. 1,55,51,796 on account of bad debts. The AO disallowed this claim, citing that the debts were recovered after the financial year and the assessee did not prove the debts had become bad. The CIT(A) upheld the disallowance as the write-off was not reflected in the unit level ledger accounts. The Tribunal set aside the CIT(A)'s order and directed the AO to verify the write-off from the corporate level books.

2. Disallowance of Expenditure on Advertisement and Sales Promotion:
The assessee did not press this ground, and it was dismissed as not pressed.

3. Addition on Account of Reduction in Value of Old and Obsolete Inventory:
The assessee claimed a reduction of Rs. 74 lakhs due to obsolescence of products. The AO rejected this claim, noting inconsistencies with previous years' claims. The CIT(A) upheld the AO's decision due to lack of evidence of consistent write-off policy. The Tribunal remanded the matter to the AO for verification of the assessee's claim from relevant records.

4. Disallowance of Repairs and Renovation Expenses:
The AO treated Rs. 41,13,243 as capital expenditure. The CIT(A) allowed Rs. 6,51,590 and Rs. 4,75,259 as revenue expenditure but upheld Rs. 29,86,394 as capital expenditure. The Tribunal allowed the entire Rs. 29,86,394 as revenue expenditure, citing the nature of expenses and supporting case law.

5. Inclusion of Other Income in Turnover for Computing Deduction under s. 80HHC:
The CIT(A) included distributor incentive, sales-tax absorption, liquidated damages, and discounts in turnover. The Tribunal excluded distributor incentive, sales-tax absorption, and discounts from turnover based on the decision of the Hon'ble Madras High Court, while the claim regarding liquidated damages was not pressed by the assessee.

6. Disallowance of Recruitment and Training Expenses:
The AO treated Rs. 53,05,991 as capital expenditure and amortized it over six years, disallowing Rs. 44,21,659. The CIT(A) allowed the full amount as revenue expenditure, citing regular incurrence and the necessity for business operations. The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Delhi High Court's ruling in a similar case.

7. Disallowance of Loss on Account of Foreign Exchange Fluctuation:
The AO treated the loss as notional. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, following the Hon'ble Delhi High Court's judgment that such losses are not notional or contingent.

8. Disallowance of Provision for Leave Encashment under s. 43B:
The CIT(A) deleted the disallowance as the payment was made before the due date of filing the return. The Tribunal upheld this decision, finding no contrary evidence from the Department.

9. Disallowance of Belated Payment of Provident Fund under s. 43B:
The AO disallowed Rs. 9,63,138 for late payment. The CIT(A) deleted the disallowance, considering the grace period allowed under the relevant Act. The Tribunal upheld this decision, referencing the Hon'ble Madras High Court's rulings.

Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeals were dismissed.

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