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2019 (1) TMI 1913 - AT - Income TaxLiability for damaged goods under the head other expenses - HELD THAT - Issue decided in favour of assessee in its own case 2016 (7) TMI 1465 - GUJARAT HIGH COURT provision is a liability which can be measured only by using a substantial degree of estimation and that a provision is recognized when (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation and (c ) reliable estimate can be made of the amount of the obligation - if these conditions are not met, no provision can be recognized. Therefore, we are of the view that the CIT(A) and the Tribunal have rightly disallowed the addition made by the Assessing Officer. We do not find any error in the same. Depreciation on account of non-compete territory rights i.e. goodwill @ 25% - HELD THAT - As decided in own case 2013 (5) TMI 610 - ITAT AHMEDABAD issue decided in favour of assessee. Written off advances in its P L a/c related to advances to suppliers for purchase of material, staff advances, security deposit etc. - AO observed that only bad debt incurred due to sale of produce were allowable as an expense and in the instant case of the assessee the nature of expenses do not fall within the purview of section 36(1)(Viii), therefore, he has disallowed these expenses and added to the total income of the assessee - HELD THAT - As observed that as per the ledger account of the assessee in the case of M/s Sellora Enterptise it had purchased finish goods on principle to principal basis and also paid to the supplier on their behalf. The assessee was purchasing the goods since April 2006 from the said party and also paid to the supplier on their behalf, however, the balance turned to debit which was not paid by the said party therefore it was written off in the books. In respect of staff loan the assessee has advanced loan during the period of services of the employees and monthly recovery of loan was also made from the salary paid but the company could not recovered final settlement amount against due to resignation of its employees. Therefore, the company has written off of the unrecovered amount. The assessee has also given security deposit relating to the house for the staff which could not be recovered as the employees have not paid the maintenance and electricity therefore security deposit were forfeited which was written off by the assessee. After considering the detailed findings of the Ld. CIT(A) we observed that the impugned advances made in the ordinary course of business were written off when these were irrecoverable . In the light of the above facts and after considering the detailed finding of the learned CIT elaborated with judicial findings we do not find any error in the decision of ld. CIT(A) on this issue. Accordingly, this ground of the revenue is also dismissed. Addition u/s 41(1) - Outstanding sundry creditors - HELD THAT - After considering the decision of on the Hon ble jurisdictional High Court of Gujarat in the case of Commissioner of income tax -3 versus Bhogilal Ramjibhai Atara 2014 (2) TMI 794 - GUJARAT HIGH COURT it is noticed that there was nothing on record to suggest that there was a remission or cessation of liability that too during the previous year relevant to the assessment year in the case of the assessee. In the light of the above facts, material on record and detailed finding of the learned CIT appeal we considered that outstanding were disputed liability was not ceased to exist, therefore, we do not find any infirmity in the decision of the Ld. CIT(A) therefore the appeal of the revenue is dismissed. Disallowance u/s 14A r.w.r. 8D - as per assessee interest free funds of the company including reserves were utilized towards purchase of investment yielding tax free dividend, therefore, the question of entire disallowance of interest etc. did not arise - HELD THAT - With the assistance of the learned consul we have gone through the material on record and have noticed that assessee had submitted comparative statement of tax-free income and taxfree investment and the learned CIT appeal afters taking into consideration such undisputed information has rightly directed the assessing officer to recalculate the disallowance u/s. 14A r.w. Rule 8D correctly after taking into consideration the correct figure submitted by the assessee. In the light of the above facts and circumstances we do not find any infirmity in the decision of learned CIT appeal therefore this ground of appeal of the revenue is dismissed. Disallowance on account of administrative expenses incurred towards earning exempt income - HELD THAT - As noticed that assessee was having sufficient interest free fund as against the investment made on which exempt income was earned. We have gone through working of disallowance made u/s. 14A r.w. Rule 8D of the I.T. Rule and it is noticed that major part of the disallowance was made by the assessing officer to the amount of ₹ 20,57,946/- being 0.5% of the average investment for administrative expenditure. After considering the nature of investment made in the form of Bonds securities we are of the view that it will be appropriate to restrict the disallowance on account of administrative expenses incurred towards earning exempt income.
Issues Involved:
1. Verification of actual expenditure incurred by the assessee for damaged goods provision. 2. Deletion of addition on account of non-compete territory rights (goodwill). 3. Deletion of addition on account of advances written off. 4. Deletion of addition on account of sticky creditors under section 41(1) of the Act. 5. Recalculation of disallowance under section 14A of the Act as per the figures submitted by the assessee. Issue-wise Detailed Analysis: Ground No. 1: Verification of Expenditure for Damaged Goods Provision The assessee had debited ?1,56,13,031 as liability for damaged goods. The Assessing Officer (AO) disallowed this claim, citing past disallowances and ongoing appeals. The CIT(A) allowed the appeal, directing the AO to verify the actual expenditure incurred in the subsequent year. If the expenditure exceeded the provision, the AO was to delete the quantum addition. This decision was upheld by referencing past ITAT and High Court decisions favoring the assessee. Ground No. 2: Deletion of Addition on Non-Compete Territory Rights The AO disallowed the assessee's claim of ?15,32,979 as depreciation on non-compete territory rights (goodwill), arguing that it was not allowed in earlier years. The CIT(A), referencing past ITAT decisions, allowed the appeal, directing the deletion of the addition. The ITAT upheld this, noting that the AO had accepted similar claims in prior years without appeal. Ground No. 3: Deletion of Addition on Advances Written Off The AO disallowed ?45,00,077 written off as advances, arguing they did not qualify under section 36(1)(vii) of the Act. The CIT(A) allowed the appeal, stating the advances were business-related and thus allowable as business losses. The ITAT upheld this decision, noting the advances were made in the ordinary course of business and were written off when irrecoverable. Ground No. 4: Deletion of Addition on Sticky Creditors under Section 41(1) The AO added ?66,04,526 to the total income, arguing that the liabilities had ceased to exist. The CIT(A) disagreed, stating the AO had not provided evidence that the liabilities had ceased or been remitted. The ITAT upheld this, referencing the Gujarat High Court decision in Bhogilal Ramjibhai Atara, which required evidence of remission or cessation of liability. Ground No. 5: Recalculation of Disallowance under Section 14A The AO disallowed ?53,89,696 under section 14A, applying Rule 8D. The CIT(A) directed the AO to recalculate the disallowance, considering the assessee's correct figures. The ITAT upheld this, noting the CIT(A) had properly considered the assessee's interest-free funds and the nature of investments. Other Appeals and Cross Objections: - Appeals ITA Nos. 2397/Ahd/2015, 3666/Ahd/2015, and 3667/Ahd/2015 filed by the revenue were dismissed. - Appeal ITA 2334/Ahd/2015 filed by the assessee was partly allowed, with the disallowance on administrative expenses reduced to ?7 lakhs. - Cross Objections No. 4/Ahd/2016 and 5/Ahd/2016 filed by the assessee were dismissed as not pressed. Conclusion: The ITAT dismissed the revenue's appeals, partly allowed the assessee's appeal, and dismissed the assessee's cross objections. The decisions were based on past ITAT and High Court rulings, proper verification of expenses, and consideration of the nature of business transactions.
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