2009 (3) TMI 1000 - AT - Income Tax

Summary

Issues Involved:
1. Allowing of depreciation.
2. Disallowance of transit breakage.
3. Disallowance of brand registration expenses.
4. Employees' contribution to provident fund u/s 43B.
5. Adding unascertained liabilities while computing profit u/s 115JB.

Summary:

1. Allowing of Depreciation:
The first issue pertains to the allowance of depreciation. The assessee did not claim depreciation for the assessment year 2000-01, and it was not allowed by the Assessing Officer. In subsequent years, the assessee claimed depreciation on the WDV as on the opening day of the assessment year 2000-01 without reducing the depreciation allowable but not allowed. The Assessing Officer computed depreciation after reducing the depreciation allowable in the assessment year 2000-01, citing Explanation 5 to section 32, inserted by the Finance Act, 2001, as having retrospective effect. The CIT (Appeals) allowed depreciation on the original WDV, relying on the Supreme Court decision in CIT vs. Mahendra Mills, which held that Explanation 5 was prospective and effective from April 1, 2002. The Tribunal upheld the CIT (Appeals) decision, stating that depreciation should be allowed based on WDV without reducing notional depreciation.

2. Disallowance of Transit Breakage:
The next issue involves the disallowance of transit breakage. The assessee made a provision for breakage at the end of the year, which was reversed on the first day of the next year. The Assessing Officer disallowed the claim, considering it contingent. The CIT (Appeals) allowed the claim for the assessment year 2001-02, noting that the provision was made on a scientific basis and based on past experience. However, the CIT (Appeals) upheld the disallowance for the subsequent three years. The Tribunal found that the provision was excessive and not based on scientific grounds or actual experience, thus reversing the CIT (Appeals) decision for the assessment year 2001-02 and upholding the disallowance for the subsequent years.

3. Disallowance of Brand Registration Expenses:
In the assessment year 2002-03, the assessee incurred Rs. 3,90,000 on brand registration expenses, which the Assessing Officer disallowed as capital in nature. The CIT (Appeals) allowed Rs. 1,90,000 as revenue in nature but confirmed the disallowance of Rs. 2,00,000 due to lack of receipts. The Tribunal upheld the disallowance, as the assessee did not produce any evidence.

4. Employees' Contribution to Provident Fund u/s 43B:
The Assessing Officer disallowed the employees' contribution to the provident fund, citing late payment beyond the 15th of the month. The CIT (Appeals) allowed the employer's contribution but not the employees' contribution. The Tribunal, following the decision in CIT vs. Sabari Enterprises and other precedents, directed the Assessing Officer to allow the deduction if the payments were made before the due date of filing the return u/s 139(1).

5. Adding Unascertained Liabilities While Computing Profit u/s 115JB:
The final issue involves adding unascertained liabilities, specifically provision for bad debts and transit breakages, while computing profit u/s 115JB. The Assessing Officer disallowed these liabilities, and the CIT (Appeals) upheld the decision. The Tribunal directed the Assessing Officer to reduce the provision for bad debts, following the Supreme Court decision in CIT vs. HCL Comnet Systems. However, the Tribunal upheld the disallowance of transit breakages, as the provision was not made on a scientific basis.

Conclusion:
In the result, all the appeals were disposed of as per the above findings.