2011 (5) TMI 1055 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of disallowance of advertisement expenses.
2. Setting off of carry forward loss and depreciation.
3. Bad debt written off.
4. Carry forward of losses and depreciation consequent to the merger.

Summary:

1. Deletion of Disallowance of Advertisement Expenses:
In the appeal for A.Y 2001-02, the Revenue contested the deletion of disallowance of advertisement expenses amounting to Rs. 1,13,79,438/-. The Assessing Officer (AO) had disallowed this amount, stating that the assessee claimed advertisement expenses in a dual manner without a proper basis for treating some as deferred revenue expenditure. The CIT(A) deleted this amount based on additional evidence not previously presented to the AO. The Tribunal found that the CIT(A) did not follow Rule 46A of the Income-tax Rules, which requires giving the AO an opportunity to confront the additional evidence. Therefore, the issue was restored to the AO for verification.

2. Setting Off of Carry Forward Loss and Depreciation:
The second issue for A.Y 2001-02 involved the setting off of carry forward loss and depreciation. The CIT(A) had directed the AO to determine the correct quantum of brought forward loss and allow it as per law. The Tribunal found no grievance for the Department as the CIT(A) merely set aside the issue for accurate determination. Hence, no interference was warranted.

3. Bad Debt Written Off:
In the appeal for A.Y 2002-03, the first issue was the bad debt written off amounting to Rs. 5,69,40,649/-. The AO questioned the actual bad debt occurrence and the actions taken for recovery. The CIT(A) allowed the claim, referencing the Supreme Court's decision in CIT vs TRF Ltd, which states that post-1st April 1989, it is sufficient if the bad debt is written off in the accounts. The Tribunal agreed, noting the AO had not examined whether the debt was written off in the accounts, and thus, the CIT(A)'s deletion of the addition was upheld.

4. Carry Forward of Losses and Depreciation Consequent to the Merger:
The second issue for A.Y 2002-03 concerned the carry forward of losses and depreciation due to the merger of M/s TTK Medical Devices Ltd with the assessee. The CIT(A) allowed the carry forward benefits, noting the assessee fulfilled the conditions u/s 72A read with Rule 9C, except for maintaining 50% production in the 5th year, for which an application was pending with CBDT. The Tribunal referenced its earlier decision in the assessee's case, which supported the CIT(A)'s decision. Therefore, this ground of the Revenue was not allowed.

Conclusion:
The appeal for A.Y 2001-02 was partly allowed for statistical purposes, and the appeal for A.Y 2002-03 was partly allowed.