2016 (5) TMI 1456 - AT - Income Tax

50% depreciation on plastic crates claimed by the assessee - Held that - In assessee s own case for the earlier assessment year, we are of the view that plastic crates used by the assessee in its business are coming under the separate block of containers made of glass or plastic used as refills eligible for 50% depreciation. Therefore, we direct the A.O. to allow 50% depreciation as claimed by the assessee. Disallowance of bad debts u/s 36(1)(vii) - Held that - Since assessee failed to prove the debt and the resultant income has been offered to tax in the earlier period, the assessee cannot claim bad debt. Once the debt has been written off in the books of accounts by passing necessary journal entries, the assessee need not to prove that the debt has become bad in the financial year. The assessee has fulfilled the conditions laid down in the provisions of sec. 36(1)(vii) by written off the debts in the books of accounts. CIT(A) after considering the explanations furnished by the assessee and also taken into account the remand report of the A.O. allowed bad debt claim out of the total bad debts claim - Decided against revenue

Summary

Issues Involved:
1. Depreciation on plastic crates.
2. Disallowance of bad debts.

Issue-wise Detailed Analysis:

1. Depreciation on Plastic Crates:

The primary issue under consideration was whether plastic crates used by the assessee in its business qualify for 50% depreciation as containers made of glass or plastic used as refills. The assessee claimed 50% depreciation on plastic crates as per the rates prescribed under the Income Tax Act. The Assessing Officer (A.O.) restricted the depreciation to 25%, arguing that plastic crates fall under the normal block of plant and machinery.

The CIT(A) and ITAT had previously allowed 50% depreciation on plastic crates in earlier assessment years (2001-02 and 2002-03). The CIT(A) followed this precedent and directed the A.O. to allow 50% depreciation. The revenue appealed, citing the Supreme Court's decision in Goetz India Ltd. vs. CIT, which mandates that claims for deductions should be made through a revised return.

However, the ITAT upheld the CIT(A)'s decision, stating that the CIT(A), being an appellate authority, can entertain new claims based on facts available at the time of assessment. The ITAT concluded that plastic crates used by the assessee fall under the separate block of containers made of glass or plastic used as refills, eligible for 50% depreciation.

2. Disallowance of Bad Debts:

The second issue was the disallowance of bad debts claimed by the assessee. The A.O. disallowed the claim, stating that the assessee failed to prove that the debts were taken into account in computing income in earlier periods, as required under section 36(1)(vii) of the Income Tax Act.

The assessee argued that the bad debts were written off in the books of accounts as irrecoverable, which suffices under section 36(1)(vii). The CIT(A) considered the additional evidence and the A.O.'s remand report, allowing a partial claim of ?6,87,061/- out of the total ?30,05,782/- claimed as bad debts.

The ITAT found merit in the assessee's argument that once debts are written off in the books, there is no need to prove that they have become bad. The ITAT upheld the CIT(A)'s decision to allow the partial claim of bad debts, finding no error or infirmity in the order.

Conclusion:

The ITAT dismissed the revenue's appeals, affirming the CIT(A)'s decisions to allow 50% depreciation on plastic crates and a partial claim of bad debts. The order was pronounced in the open court on 31st May 2016.