2010 (12) TMI 844 - AT - Income Tax

Addition - Bad debts - Refer to the decision of the Supreme Court in T. R. F. Ltd. v. CIT (2010 -TMI - 76626 - SUPREME COURT) in which it has been held that for allowance of bad debts, it is enough if bad debts are written off as irrecoverable in the accounts of the assessee and it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable - Decided in favour of assessee. Diminution in the value of investments - As per the decision of the hon ble Supreme Court in the case of CIT v. Cocanada Radhaswami Bank Ltd. 1965 -TMI - 49308 - SUPREME Court , held that the assessee is entitled to the claim of diminution in the value of securities which are held for the purpose of its business - Decided in favour of assessee. Long-term capital loss - Hence, the issue being covered in favour of the assessee by the order of the Tribunal in the assessee s own case for the assessment year 2005-06 - Observe that the computation done by the parties has not been assailed by providing any alternate computation ; and commercial transactions to run two separate legal entities, may be belonging to the same group, have to be dealt with as per law and cannot be thrown on that ground alone - Do not find any valid basis for disallowance of long-term capital loss by the Assessing Officer Decided in favour of assessee. Collaboration agreement - Royalty - Revenue expenditure or not - As per the decision of the hon ble Supreme Court in the case of Jonas Woodhead and Sons (India) Ltd. v. CIT 1997 -TMI - 5553 - SUPREME Court , found that their Lordships of the Supreme Court were actually considering a case of composite agreement which involved an agreement to implement a turnkey project right from providing design, etc. in establishing the factory and user of the technical know-how - Thereafter their Lordships of the Supreme Court have clearly held that payment made for the user of the logo is always revenue in nature - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition of Rs. 13,57,58,000 made towards bad debts.
2. Deletion of disallowance of Rs. 11,78,613 attributable to diminution in the value of investments.
3. Deletion of disallowance of Rs. 11,09,898 made towards long-term capital loss.
4. Deletion of addition of Rs. 3,12,60,000 made towards bad debts.
5. Direction to allow royalty of Rs. 47,85,125 as revenue expenditure instead of Rs. 11,96,281 allowed as depreciation.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 13,57,58,000 Made Towards Bad Debts:
The assessee claimed total bad debts of Rs. 83,24,39,801, but the Assessing Officer disallowed Rs. 13,57,58,000 on the grounds that the entire bad debts were not written off in the books maintained under the Companies Act. The Tribunal noted that the assessee maintained separate accounts for income-tax purposes and had written off the bad debts as per section 36(1)(vii) of the Act. The Tribunal upheld the deletion of the disallowance by the Commissioner of Income-tax (Appeals), referencing its own previous decisions and the Supreme Court judgment in T.R.F. Ltd. v. CIT, which stated that it is sufficient if bad debts are written off in the accounts of the assessee.

2. Deletion of Disallowance of Rs. 11,78,613 Attributable to Diminution in the Value of Investments:
The assessee claimed a deduction for the diminution in the value of Government securities held to meet statutory liquidity ratio (SLR) requirements. The Assessing Officer disallowed the claim, arguing that the securities were investments and their income was exempt under section 10(34) of the Act. The Tribunal found that these securities were held as part of the business to satisfy statutory requirements and not as idle investments. Citing Supreme Court decisions in CIT v. Cocanada Radhaswami Bank Ltd. and United Commercial Bank v. CIT, the Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to allow the deduction.

3. Deletion of Disallowance of Rs. 11,09,898 Made Towards Long-Term Capital Loss:
The assessee incurred a loss on the sale of shares to a group concern and claimed it as a long-term capital loss. The Assessing Officer disallowed the claim, suspecting circular trading and lack of transparency in the sale value determination. The Tribunal noted that the shares were unquoted and the sale was necessitated by Reserve Bank of India directions to divest non-core activities. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to allow the claim, referencing its previous favorable decision for the assessee in the assessment year 2005-06.

4. Deletion of Addition of Rs. 3,12,60,000 Made Towards Bad Debts:
In a similar case for a different assessee within the same group, the Tribunal applied the same reasoning as in the first issue. The bad debts were written off in the books maintained for income-tax purposes but not in the books maintained for company law purposes. The Tribunal dismissed the Revenue's ground, upholding the deletion of the disallowance by the Commissioner of Income-tax (Appeals).

5. Direction to Allow Royalty of Rs. 47,85,125 as Revenue Expenditure Instead of Rs. 11,96,281 Allowed as Depreciation:
The assessee paid royalty to use a logo and claimed it as revenue expenditure. The Assessing Officer treated it as capital expenditure and allowed depreciation. The Tribunal found that the payment was for non-exclusive use of the logo, based on turnover, and not a lump-sum payment. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to treat the payment as revenue expenditure, referencing the Supreme Court decision in Jonas Woodhead and Sons (India) Ltd. v. CIT, which distinguished between capital and revenue expenditure for the use of logos.

Conclusion:
Both appeals of the Revenue were dismissed, with the Tribunal upholding the deletions and directions made by the Commissioner of Income-tax (Appeals). The Tribunal's decisions were based on established precedents and the specific facts of the cases.

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