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2014 (5) TMI 37 - AT - Income TaxDisallowance of bad debts Held that - The assessee has filed party-wise details of sales made to these persons income accounted for and the reasons for the amount written off as bad debts Relying upon T.R.F Limited Vs. CIT 2010 (2) TMI 211 - SUPREME COURT - it is not necessary for the assessee to establish that the debts in fact has become the irrecoverable - It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee - the assessee has filed the details before the CIT(A) but it has not been appreciated thus the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Disallowance of claim of additional depreciation Addition of MODVAT u/s 145A of the Act Held that - The assessee was required to furnish the details of machinery or plant and increase in the installed capacity of production to claim additional depreciation - The assessee shall be given one more opportunity to furnish complete particulars including installed capacity details of machinery etc. -The assessee shall also submit a certificate from the Chartered Engineer regarding the installed capacity so that the requirement of the AO can be satisfied in this regard thus the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Claim of deduction u/s 35(1)(iv) of the Act Capital expenses on research and development Held that - Following CIT Vs. Deltron Ltd. 2007 (9) TMI 132 - HIGH COURT DELHI - while considering the assessee s claim for deduction u/s 35(1) on account of expenditure on scientific research the AO is not the prescribed authority in this matter and is not competent to determine as to whether the machinery was for research and development purposes or not - the CIT(A) was justified in holding that the AO could not have disallowed the expenditure without following the procedure laid down u/s 35(3) thus there is no reason to interfere in the order of the CIT(A) Decided against Revenue.
Issues Involved:
1. Disallowance of bad debts. 2. Disallowance of additional depreciation. 3. Addition of MODVAT under Section 145A. 4. Disallowance of deduction under Section 35(1)(iv) for capital expenditure on research and development. Detailed Analysis: 1. Disallowance of Bad Debts: The assessee, a private limited company engaged in manufacturing and marketing engineering goods, claimed bad debts totaling Rs. 22,09,681/-. The Assessing Officer (AO) disallowed Rs. 2,95,317/- due to insufficient details and Rs. 16,93,442/- under Section 36(vii) for lack of documentation. The CIT(A) confirmed the disallowance of Rs. 2,95,317/- and Rs. 2,20,966/-, which led to the assessee's appeal. The Tribunal found that the assessee had provided detailed reasons and party-wise sales details for the bad debts. Citing the Supreme Court's decision in T.R.F Limited Vs. CIT, it was noted that post-1989, it is sufficient if the bad debt is written off in the accounts. Thus, the Tribunal restored the matter to the AO for a fresh decision, ensuring the assessee is given a fair hearing. 2. Disallowance of Additional Depreciation: The AO disallowed the assessee's claim for additional depreciation of Rs. 36,96,726/- due to a lack of bills and installation reports proving the new industrial undertaking status. The CIT(A) upheld this disallowance. The Tribunal referred to a similar issue in the assessee's case for the assessment year 2004-05, where the matter was remanded to the AO with directions to allow the assessee to furnish complete particulars and a Chartered Engineer's certificate. Following this precedent, the Tribunal restored the issue to the AO for a fresh decision. 3. Addition of MODVAT under Section 145A: The AO added Rs. 32,43,539/- to the closing stock as MODVAT credit. The CIT(A) upheld this addition. The Tribunal referred to its previous decision in the assessee's case for the assessment year 2003-04, where a similar issue was remanded to the AO to follow the guidelines given in the Hawkins Cookers Ltd. case. Consequently, the Tribunal restored this issue to the AO for a fresh decision in line with the earlier directions. 4. Disallowance of Deduction under Section 35(1)(iv): The AO disallowed the assessee's claim of Rs. 44,75,136/- for capital expenditure on a CNC wire cut machine used for research and development, arguing it was a normal plant and machinery. The CIT(A) reversed this decision, noting that the AO did not follow Section 35(3), which mandates referring technical matters to the Department of Scientific and Industrial Research. The Tribunal upheld the CIT(A)'s decision, citing the Delhi High Court's ruling in CIT Vs. Deltron Ltd., which stated that the AO is not competent to determine the use of machinery for research and development without referring to the prescribed authority. Thus, the Tribunal found no reason to interfere with the CIT(A)'s order. Conclusion: The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. The matters of bad debts, additional depreciation, and MODVAT addition were remanded to the AO for fresh consideration, while the deduction under Section 35(1)(iv) was upheld in favor of the assessee.
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