2024 (3) TMI 1394 - AT - Income Tax

Disallowance on account of reversal of Provisions towards bad debts - HELD THAT - As decided in own case 2023 (7) TMI 1150 - ITAT DELHI Provision was created in the earlier year and it was written back in that year is not in dispute. CIT(A) has admitted that the issue in hand is a case of reversal of provision of which income has already been offered in the earlier year. Therefore, we fail to understand why the addition has been sustained by the CIT(A). Disallowance of Traffic Challans - HELD THAT - The very same issue in hand has been decided by the Co-ordinate Bench of the Tribunal in Assessee s own case for Assessment Year 2009-10 and 2010-11 2023 (6) TMI 393 - ITAT DELHI as relying on Bharat C Gandhi 2011 (3) TMI 278 - ITAT, MUMBAI held wherein payment of compounding fee for violation of provision under the Motor Vehicles Act, 1988 and Rules thereunder has held that such expenditure is allowable as business expenditure under section 37(1) of the Act. As in this case assessee has not been asked to produce the Traffic Challans before making the addition, with a view to render substantial justice, we deem it fit to remand the matter to the file of the A.O. to verify the documents produced by the Assessee and decide the issue afresh. Disallowance on account of Deposit from customers - HELD THAT - Similar issue regarding disallowance of deposit from customers has been considered by the Tribunal in Assessee s own case in Assessment Year 2010-11 2023 (6) TMI 393 - ITAT DELHI held that onus is on the revenue to bring on record tangible evidence to show that liability has ceased to exist, especially when it is continued to be shown in the books of accounts of the assessee. Thus, considering from all possible angles, neither provisions of section 41(1) of the Act apply Assessing Officer fails nor provisions of section 41(2) and 43(6) of the Act CITA fails . This ground by the assessee is allowed. Addition on account of inventory loss and leakages - HELD THAT - The similar issue in Assessee s own case for Assessment Year 2010-11 2023 (7) TMI 1150 - ITAT DELHI and 2017-18 2023 (9) TMI 1635 - ITAT DELHI has been decided by the Co-ordinate Bench of the Tribunal in favour of the assessee and against the Revenue as held write off of inventory is based on actual loss and not on estimation. Therefore, in our considered view, the ld. CIT(A) was correct in allowing the same as business expenditure. Disallowance of Repair Maintenance (Others) - HELD THAT - Identical issue came for consideration by the Tribunal in Assessee s own case for Assessment Year 2010-11 2023 (7) TMI 1150 - ITAT DELHI held that difference of 18% between 53% and 38% has no logic without pointing out any error or defect in the books of account which are audited and no adverse inference has been pointed out by the auditors. Allowability of Staff Welfare Expenses - CIT(A) while deleting the disallowance found that the A.O. made the ad-hoc disallowance in a routine manner without giving any logic reason and without rejecting the books of accounts - HELD THAT - We find no error or infirmity in the said finding and the conclusion of the Ld. CIT(A) and find no merit in the Ground No. 3 of the order of the CIT(A) as the disallowance has been made without pointing any deficiency in the books of accounts of the assessee and the disallowance has been made on ad-hoc basis without rejecting the books of accounts. No such disallowance has been made in the past, thus, we find no merit in the Ground No. 3 of the Revenue. Delayed payment of PF/ESI - HELD THAT - As the issue of belated payment of PF/ESI are covered against the Assessee by the Judgment in the case of Checkmate Services (P.) Ltd 2022 (10) TMI 617 - SUPREME COURT we find merit in the Ground of the Revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily addresses the following legal issues:

• Whether the disallowance of the reversal of provisions towards bad debts was justified.
• Whether the disallowance of expenses incurred for traffic challans was appropriate.
• Whether the disallowance of deposits from customers as cessation of liability under Section 41(1) of the Income Tax Act was valid.
• Whether the deletion of additions made by the Assessing Officer (AO) on account of inventory losses, repair and maintenance, and staff welfare expenses was correct.
• Whether the deletion of the addition related to delayed payment of Provident Fund (PF) and Employees' State Insurance (ESI) contributions was justified.

2. ISSUE-WISE DETAILED ANALYSIS

Reversal of Provisions towards Bad Debts

• Legal Framework and Precedents: The Income Tax Act does not permit double taxation of the same income. The assessee argued that the provision was already taxed when created and should not be taxed again upon reversal.
• Court's Interpretation: The Tribunal relied on its previous decision for the assessment year 2010-11, where similar disallowance was deleted, supporting the assessee's claim.
• Key Evidence and Findings: The Tribunal found that the provision was indeed taxed in earlier years, and its reversal should not be taxed again.
• Conclusion: The disallowance was deleted, allowing the assessee's claim.

Disallowance of Traffic Challans

• Legal Framework and Precedents: Section 37(1) of the Income Tax Act disallows expenses incurred for purposes that are offenses or prohibited by law.
• Court's Interpretation: The Tribunal followed its earlier decisions, allowing such expenses as they were deemed compensatory rather than penal.
• Key Evidence and Findings: The Tribunal noted that similar disallowances were not made in previous years and were allowed by the Tribunal in earlier cases.
• Conclusion: The disallowance was deleted, favoring the assessee.

Disallowance of Deposits from Customers

• Legal Framework and Precedents: Section 41(1) deals with the cessation of liabilities. The AO argued that the deposits were no longer liabilities.
• Court's Interpretation: The Tribunal found no evidence of cessation of liability and noted that the deposits were shown in the books as liabilities.
• Conclusion: The disallowance was deleted, supporting the assessee's position.

Deletion of Additions on Inventory Losses, Repair and Maintenance, and Staff Welfare

• Legal Framework and Precedents: The AO made ad-hoc disallowances without specific evidence or rejecting the books of accounts.
• Court's Interpretation: The Tribunal found the disallowances unjustified as they were made without pointing out specific deficiencies.
• Conclusion: The Tribunal upheld the CIT(A)'s deletion of these disallowances.

Delayed Payment of PF/ESI Contributions

• Legal Framework and Precedents: The Supreme Court's decision in Checkmate Services (P.) Ltd. established that such delays are not allowable.
• Court's Interpretation: The Tribunal applied this precedent, ruling against the assessee.
• Conclusion: The addition by the AO was sustained.

3. SIGNIFICANT HOLDINGS

• The Tribunal held that the reversal of provisions towards bad debts should not be taxed again, citing its previous decision in the assessee's favor.
• Traffic challans were deemed compensatory and not penal, allowing them as business expenses.
• Deposits from customers were not considered as ceased liabilities under Section 41(1), and the related disallowance was deleted.
• The Tribunal found no merit in the ad-hoc disallowances made by the AO for inventory losses, repair and maintenance, and staff welfare expenses, upholding the CIT(A)'s deletions.
• The delayed payment of PF/ESI contributions was ruled against the assessee, following the Supreme Court's decision in Checkmate Services (P.) Ltd.

Order Pronouncement: The Tribunal allowed the assessee's appeals for the assessment years 2011-12 and 2013-14, partly allowed the appeal for 2012-13 for statistical purposes, dismissed the revenue's appeal for 2011-12, and partly allowed the revenue's appeal for 2013-14.