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Issues:
1. Whether bad debts and depreciation constitute 'expenditure' or only notional outgoings? 2. Whether bad debts and depreciation are qualified for weighted deduction under section 35C(1)(b) of the Income-tax Act? 3. Whether the shortfall towards contribution to pension fund is allowable in full for the assessment year 1973-74? Analysis: Issue 1 & 2: The controversy revolves around whether bad debts and depreciation qualify as expenditure under section 35C(1)(b) of the Income-tax Act, allowing for weighted deduction. Initially, the Income-tax Officer permitted the deduction claimed by the assessee for both financial years. However, upon reassessment, the deductions were reduced by 20% above actual expenses, contending that bad debts and depreciation were not cash expenditures but notional losses. The Tribunal ruled in favor of the assessee, stating that bad debts and depreciation do constitute expenditure under section 35C and are eligible for weighted deduction. The section provides for a weighted deduction of 120% of the actual expenditure incurred for providing goods or services to agriculturists. The use of vehicles and machinery directly connected to services provided qualifies as expenditure under the section. Previous judgments have upheld that depreciation on machinery used for providing services constitutes expenditure under section 35C. As for bad debts, although no direct case was cited, the nature of the debt arising from providing goods on credit aligns with the section's objectives. The deduction under section 35C precludes claiming it under any other provision of the Act, emphasizing the equivalence of expenditure and deduction in this context. Therefore, both bad debts and depreciation are deemed as expenditure and qualify for weighted deduction under section 35C(1)(b). Issue 3: Regarding the shortfall towards contribution to the pension fund for the assessment year 1973-74, the assessee rectified a previous error in calculating the contribution amount, resulting in a payment of Rs. 1,75,434 towards arrears. The Income-tax Officer initially disallowed the deduction, citing a lack of a definite basis for the payment. However, the Tribunal ruled in favor of the assessee, recognizing the payment as a contribution on a definite basis as per the staff pension scheme. The payment was a result of a mistaken short-payment in previous years and aligned with the prescribed limits and conditions under section 36(1)(iv) of the Income-tax Act. Therefore, the assessee is entitled to claim a deduction for this payment. The Tribunal's decision in this regard was upheld, affirming that the payment qualifies as a contribution on a definite basis and is deductible under section 36(1)(iv) of the Act. In conclusion, the court ruled in favor of the assessee on all three issues, affirming that bad debts, depreciation, and the shortfall towards the pension fund contribution constitute expenditure and are eligible for the respective deductions under the Income-tax Act.
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