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2019 (2) TMI 1619 - AT - Income TaxDisallowance of bad debts - as per assessee sale tax component inter alia included in the sundry debtors written off to the P L A/c was in the nature of trade debt and hence allowable as deduction from the profits of the business - HELD THAT - Trading receipts of the assessee recorded in the books of accounts also includes a sum on account of sales tax. The assessee cannot claim deduction of the aforesaid sum without payment in view of the provision of section 43B. If the assessee had made the payment of sales tax then the debtor of the assessee has to pay back the said amount to the assessee and therefore it will assume the character of a debt in the hands of the assessee. If ultimately the customer does not pay this amount to the assessee it has to be regarded as bad debt written off and allowed as deduction u/s 36(1)(vii). In any event the deduction has to be allowed u/s 28 of the Act as a loss incidental to the business. We therefore direct the claim of the assessee to be allowed. Disallowance of royalty - 75% of the payments disallowed treating it to be capital in nature - as per assessee royalty was paid by the appellant in the course and for the purposes of business and was therefore revenue in nature - HELD THAT - . As relying on assessee s own case 2017 (4) TMI 1437 - ITAT KOLKATA the conclusions of the tribunal on the allowability of the aforesaid expenses as a revenue expenditure are contained in paragraph 9.3 to 9.7. The tribunal relied on the decision in the case of Bata India Ltd. 2014 (8) TMI 1178 - CALCUTTA HIGH COURT .The assessee is entitled to claim the entire royalty paid to DIC Asia Pacific PTE Ltd. Singapore and DIC Corporation Japan. The addition made by the AO is directed to be deleted. Disallowing the claim of normal depreciation additional depreciation u/s 32( 1 )(ii.) 32( 1 )(iia) - HELD THAT - Additional depreciation was claimed by the A multi gas detector mode selection mode -PGM-6228 12KL GO Storage Tank. The said object cannot be regarded by LIS as an office equipment or furniture The AO shall verify from records whether additional depreciation is pressed against the above plant or against some office equipment. If it is in respect of the former the claim shall be allowed. It would be just and proper to direct the AO to comply with the directions of the DRPabove and before doing so afford opportunity of being heard to the assessee. Disallowing deduction in respect actually paid towards leave encashment u/s 43B - assessee did not claim the aforesaid sum as deduction in the return of income - requirement for filing a revised return of income - HELD THAT - Hon ble Delhi High Court in the case of Jai parabolic Springs 2008 (4) TMI 3 - DELHI HIGH COURT has held that the appellate authorities under the Act were free to consider a claim made by an Assessee even in the absence of a revised return of income and that the requirement for filing a revised return of income as laid down in the case of Goetz India Ltd. 2006 (3) TMI 75 - SUPREME COURT is applicable only when a claim is made contrary to the return of income before the AO. In the case of Bharat Aluminium 2007 (5) TMI 228 - DELHI HIGH COURT has inter-alia ruled that assessee can file revised computation in the course of ongoing assessment proceedings under the Act without making recourse to revised return despite the fact that time limit for revising return under section 139(5) had expired. DRP ought to have examined the claim of the Assessee. We therefore set aside the directions of the DRP in this regard and remand to the AO for fresh consideration the claim of the Assessee. If the claim of the Assessee regarding actual payment is found to be correct then the Assessee should allowed the deduction.
Issues Involved:
1. Disallowance of bad debts related to the sales tax component. 2. Disallowance of 75% of royalty payments treating them as capital expenditure. 3. Non-allowance of normal and additional depreciation. 4. Non-allowance of deduction for leave encashment paid under Section 43B. Issue-wise Detailed Analysis: 1. Disallowance of Bad Debts Related to Sales Tax Component: The assessee, engaged in manufacturing and trading, claimed a deduction for bad debts, including a sales tax component of Rs. 3,34,330/-. The AO disallowed this, arguing that sales tax is a liability to the government, not a debt from trading transactions. The DRP upheld this view. The assessee cited the Supreme Court’s decision in Chowringhee Sales Bureau P. Ltd. vs CIT, arguing sales tax as part of trading receipts. The Tribunal concluded that if the sales tax was paid, it becomes a debt from the customer and, if written off, qualifies as a bad debt under Section 36(1)(vii). Alternatively, it can be allowed as a business loss under Section 28. The Tribunal directed the AO to allow the deduction. 2. Disallowance of 75% of Royalty Payments Treating Them as Capital Expenditure: The assessee paid royalties to its holding companies for technical know-how and brand usage. The AO treated 75% of this as capital expenditure, allowing only 25% depreciation. The DRP upheld this. The Tribunal noted that similar payments in earlier years were allowed as revenue expenditure. Referring to the ITAT’s decision in Bata India Ltd. and the Calcutta High Court’s decision in Timken India Ltd., the Tribunal found that the payments did not result in an enduring benefit or acquisition of capital assets. Therefore, the entire royalty should be treated as revenue expenditure. The Tribunal directed the AO to delete the disallowance. 3. Non-allowance of Normal and Additional Depreciation: The AO did not allow normal and additional depreciation on certain assets, treating them as furniture and fixtures instead of plant and machinery. The DRP directed the AO to verify whether the assets were plant and machinery or office equipment. The Tribunal directed the AO to comply with the DRP’s directions and verify the nature of the assets, allowing the appropriate depreciation. 4. Non-allowance of Deduction for Leave Encashment Paid under Section 43B: The assessee claimed a deduction for leave encashment paid, which was not claimed in the return of income. The AO, citing the Supreme Court’s decision in Goetze India Ltd., disallowed the claim as it was not made through a revised return. The DRP upheld this. The Tribunal noted that the restriction in Goetze India Ltd. applies only to the AO, not the appellate authorities. Citing the Delhi High Court’s decisions in Jai Parabolic Springs and Bharat Aluminium, the Tribunal held that the DRP should have considered the claim. The Tribunal remanded the issue to the AO for verification of the actual payment and allowed the deduction if the claim was found correct. Conclusion: The Tribunal allowed the appeal partly, directing the AO to allow the bad debt deduction, treat the royalty payments as revenue expenditure, verify and allow the appropriate depreciation, and reconsider the leave encashment deduction claim. The Tribunal emphasized adherence to legal precedents and proper verification of facts.
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