2013 (3) TMI 798 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance on account of Modvat credit u/s 145A.
2. Disallowance u/s 14A for expenses incurred for earning dividend income.
3. Rejection of claim for leave encashment.
4. Depreciation rate on moulds (plastics).
5. Disallowance of bad debts.

Summary:

1. Disallowance on account of Modvat credit u/s 145A:
The assessee changed its accounting method from inclusive to exclusive and claimed that the profit amounting to Rs. 5,38,41,518/- is not assessable for A.Y. 2005-06. The Assessing Officer (AO) and CIT(A) did not accept this contention. For A.Y. 2006-07, the assessee's grievance was the AO's failure to grant relief of Rs. 12,43,44,020/- on account of unutilized Modvat credit. The Tribunal directed the AO to recalculate the value of inventory by excluding excise duty on goods not cleared from the factory and to allow deductions u/s 43B for taxes paid before the due date of filing the return.

2. Disallowance u/s 14A for expenses incurred for earning dividend income:
For A.Y. 2005-06 and 2006-07, the AO disallowed expenses u/s 14A. The CIT(A) applied Rule 8D, which was contested as it is applicable from A.Y. 2008-09 as per the Bombay High Court's decision in Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT. The Tribunal restored the issue to the AO for re-adjudication as per the aforementioned decision.

3. Rejection of claim for leave encashment:
The assessee inadvertently disallowed Rs. 1,84,50,950/- as leave encashment and later claimed that only Rs. 57,73,382/- should be disallowed. The AO rejected this claim as it was not filed in a revised return. The Tribunal directed the AO to verify the claim and provide appropriate relief, following the Bombay High Court's decision in CIT vs. Pruthvi Brokers & Shareholders (P) Ltd.

4. Depreciation rate on moulds (plastics):
The AO reduced the depreciation rate on moulds from 30% to 25%, which was upheld by CIT(A). The Tribunal noted that the assessee consistently claimed 30% depreciation in the past and cited judicial precedents supporting this rate. The Tribunal allowed the assessee's claim for 30% depreciation.

5. Disallowance of bad debts:
The AO disallowed bad debts of Rs. 1,47,93,001/- as they were less than one year old. The Tribunal, citing the Bombay High Court's decision in CIT vs. Star Chemical (Bombay) Pvt. Ltd. and the Supreme Court's decision in T.R.F. Ltd., held that writing off bad debts in the books is sufficient for deduction. The Tribunal directed the AO to allow the claim.

Conclusion:
Both appeals were partly allowed with directions for re-adjudication and verification by the AO on specific issues. The order was pronounced in the open court on 13.3.2013.