2012 (6) TMI 9 - AT - Income Tax

Disallowance of depreciation - assessee company claimed the depreciation on the re-valued amount of trade mark, but the A.O disallowed the same on the reason that M/s. Balaji Pens Pvt. Ltd. (the assignor) had voluntarily agreed as on the date of assignment to M/s. Veekay Industries ( assignees) along with the actual of the said trade mark Pik which was registered for the token consideration of Rs. 100 matter remanded to CIT(A) for fresh adjudication in the light of the direction given in the preceding years i.e. A.Y. 1999-00 to 2004-05 Disallowance - assessee has debited the donation of Rs. 39,200/- to the Profit & Loss Account . The A.O was of the opinion that the same was not allowable. The assessee contended that the company is labour intensive and manufacturing writing instruments. The assessee s unit is based in Gujarat and to carry on the business smoothly by maintaining harmonious relations has given donations on various occasions to encourage the workers as well as the local people on the occasion like Navaratri etc., The assessee contended that the same expenditure is allowable u/s. 37(1) Held that - expenditure was incurred for maintaining the healthy relations with the worker and peoples in the locality but at the same time, nothing is disputed that the said were the donations. no interference is called for and we accordingly confirm the disallowance Bad debts/balance written off by treating it as a capital loss - assessee has debited to the Profit & Loss A/C. an amount of Rs. 2,96,135/- on account of bad debts/balance written off - assessee explained that the said amount represented the amount advanced to Balaji Pens Pvt. Ltd., for machinery and as the machinery was not supplied, and hence, the un-recovered amount was written of treating the same as an expenditure for the purpose of business u/s. 39(1) of the Act. The A.O rejected the claim of the assessee on the reason that the amount was paid for purchase of the machinery and therefore, any loss incurred on a/c of same is a capital loss Held that - In the case of Anjani kumar Co. Ltd. (2002 (7) TMI 44 (HC), the appellant had written off the advances made to the agriculturists for purchase of the agricultural land and the land was to be acquired to set up a factory but ultimately that was not materialized and the agriculturists to whom the advance was given also refused to give the amount. On the above facts, their Lordships held that the same has to be treated as a revenue expenditure. allow the ground taken by the assessee and delete the addition of Rs. 2,96,135/- treating the same as a revenue expenditure u/s. 37(1) of the Act as admittedly, no capital asset came into existence Disallowance of Employees Contribution to PF and ESIC - payment of the Employees Contribution to P.F./E.S.I.C beyond the Grace period - A.O made the disallowance u/s. 36(1)(va) as he was of the opinion that the Employees Contribution to PF/ESIC even if made before filing of the return of income is not covered u/s. 43B of the I.T. Act Held that - In the case of Alom Extrusion Ltd.( 2009 (11) TMI 27 (SC)), the issue before their Lordship was whether the omission of second proviso to Section 43B of the I.T. Act 1961 by the Finance Act 2003 operated w.e.f. 1.2.2004 or whether it operated retrospectively w.e.f. 1.4.1988. In the said case also, the issue was concerning the contribution payable by the employer to the P.F/Superannuation Fund or any other Fund of welfare of the employees. decision in favour of the Assessee, assessee s appeal is partly allowed for the statistical purposes

Summary

Issues:
1. Disallowance of depreciation on Trade Marks.
2. Disallowance of donation.
3. Treatment of bad debts/balance written off as a capital loss.
4. Disallowance of Employees Contribution to PF and ESIC.

Issue 1: Disallowance of depreciation on Trade Marks:
The appellant challenged the disallowance of depreciation on Trade Marks amounting to Rs. 64,47,656 for the A.Y. 2005-06. The Tribunal noted that the Trade Mark was assigned for a nominal amount and transferred to the appellant as part of a business takeover. The AO disallowed the depreciation, which was confirmed by the CIT(A). The Tribunal observed a recurring issue related to Explanation-3 to Section 43(1) and decided to restore the matter to the CIT(A) for fresh adjudication based on previous directions. Ground No. 1 was allowed for statistical purposes.

Issue 2: Disallowance of donation:
The disallowance of a donation of Rs. 39,200 was contested by the appellant, claiming it was for maintaining relations with workers and locals. However, the Tribunal found that the donations were not allowable expenditures as they were not supported by any agreement or clause. The disallowance was upheld as the donations were not proven to be for maintaining industrial relations. Ground No. 3 & 4 were dismissed.

Issue 3: Treatment of bad debts/balance written off as a capital loss:
Regarding the bad debts/balance written off of Rs. 2,96,136, the appellant explained that it was an unrecovered amount advanced for machinery, treated as a revenue expenditure. The AO considered it a capital loss, a decision upheld by the CIT(A). The Tribunal, following a similar case precedent, allowed the ground taken by the appellant and deleted the addition, treating the amount as a revenue expenditure under Section 37(1) of the Act.

Issue 4: Disallowance of Employees Contribution to PF and ESIC:
The disallowance of Rs. 43,721 for Employees Contribution to PF and ESIC was challenged by the appellant, citing a Supreme Court decision. The AO disallowed the amount under Section 36(1)(va) for not meeting Section 43B requirements. The Tribunal, referencing the Supreme Court decision, allowed the ground taken by the appellant and deleted the addition. The appeal was partly allowed for statistical purposes.

This detailed analysis of the judgment provides insights into the legal reasoning and outcomes for each issue addressed by the Tribunal.