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TMI Blog2010 (12) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... 305(SC) in favour of the assessee. Learned Departmental Representative, however, dutifully relied upon the orders of the authorities below. Once the representatives fairly accepts that the issue is covered by the Hon'ble Supreme Court judgement in the case of Ajanta Pharma Ltd (supra), there cannot be any good reason to uphold the disallowance in question. Respectfully following the decision of the Hon'ble Supreme Court(supra), we uphold the grievance of the assessee and direct the Assessing officer to grant deduction of Rs. 78,85,986/- on account of deduction u/s. 80 HHC in computation of book profit under section 115JB as was claimed by the assessee. 4. Ground No.1 is thus allowed. 5. Ground No.2 relates to disallowance of Rs. 37,254/- u/s.14A on an estimated basis. This ground was not pressed, therefore, the same is dismissed as not pressed. 6. In Ground No.3 and 4, the assessee has raised the following grievance: "3. The ld. CIT (A) was not justified in not allowing a deduction of Rs. 3,22,94,771/- in respect of expenditure on catalysts, in line with the stand taken by the department in the earlier years. This claim is without prejudice to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the year and as such the deduction ought to have been allowed for Rs.21.03 lakhs. He relied on some decisions in support of his case. In the alternative, it was pleaded that since the proceedings for AY 1996-97 are open by virtue of these appeals, the disallowance made in the succeeding year for the expenses relatable to the instant year be allowed. 33. We find that the assessee is a company maintaining its accounts on mercantile basis. Under this system of accounting the expenses are allowed as deduction on the basis of accrual notwithstanding the date of payment. The important thing to be considered is the timing of crystalisation of the liability and not when the actual payment is made. In contrast, in the cash system of accounting the deduction is allowed towards expenses as and when payment is made irrespective of the time of the accrual of liability. The disputed amount represents the cases in which the liability was incurred by the assessee in the preceding year but the bills were received in the current year. As the assessee was entitled to claim deduction for these amounts in the year in which these were incurred, being the preceding year and not the present ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing grievance: "The ld CIT (A) was not justified in not allowing a deduction of Rs. 25,84,492/- in respect of least rentals in line with the stand taken by the Department in the earlier years. This claim is without prejudice to the claim made by the appellant in respect of lease rentals in the earlier years." 17. Ground No.3 is similar to Ground No.4 taken in the assessment year 2002-03 above. In line with our decision in para 7 above, Ground No.3 is dismissed as infructuous. 18. Ground No.4 relates to confirmation of disallowance of Rs. 1,65,08,264/- out of bad debts and Ground No. 5 relates to reduction in the deduction u/s. 80M by Rs. 44,720/-. These grounds were not pressed; therefore, same are dismissed as not pressed. 19. In the result, appeal is partly allowed. ITA No.539/M/2008: AY: 2004-05: 20. Ground Nos.1 and 2 are as follows:- "1. The ld CIT (A) was not justified in confirming the disallowance of expenses of Rs.1,56,558/- on the ground that the same are prior period expenses. 2. The ld CIT (A) was not justified in not directing that the expenses in A.Y. 2005-06 be allowed as a deduction for this year. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to establish that the amount has actually become bad in order to be eligible for deduction as bad debt. Aggrieved, the assessee carried the matter in appeal before the CIT (A) but without any success. The CIT (A) was of the view that since the assessee has not made attempts to prove that the debts had become bad and recovery of these dues was posing difficulty, the claim was rightly declined by the AO. The assessee is not satisfied and is in further appeal before us. 28. We have heard the learned representatives, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 29. There is no dispute about the fact that the amounts have been written off in the previous year. The dispute is confined to the question whether the assessee has brought on record reasonable evidence to substantiate that the amount written off has actually become bad and incapable of being recovered from the debtors concerned. On these facts and particularly in view of the Hon'ble Supreme Court judgement in the case TRF Ltd vs CIT (323 ITR 397), wherein, the Hon'ble Supreme Court has held that a mere write off of the debt is enough to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et value to a sister concern". The assessee's argument that it was a large company and payment was tax neutral from the group perspective was also brushed aside by the CIT (A) observing that "The AO need not go into the entire realm of the group's tax planning before a decision to disallow a sum u/s.40A(2)(b) is reached". The assesse is not satisfied by the stand so taken by the CIT (A) and is in further appeal before us. 33. We have heard the rival contentions and material available on record. We have noted that assessee's claim regarding variation in the quality standard have not been controverted by any of the authorities below and are simply brushed aside. The question of ascertaining the fair market value for the purpose of disallowance u/s.40A(2)(b) must take into account the relevant factors such as quality, and, of course commercial factors, such as reliability and timely supply. Any comparison which does not take into account the quality of the product is clearly on a superficial level and cannot be a reason good enough for resorting the disallowance on the ground that payment is excessive or unreasonable vis-à-vis fair market value. It is also important to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been asserted by CIT (A) is clearly excessive in the present case. He points out that in the immediately preceding year, the quantum of disallowance is 2% and the assesse has not raised any grievance against the same. He submits that he has no objection to the same quantum being adopted in the current year as well. Learned Departmental Representative, on the other hand, relied upon the orders of the authorities below. 38. We see substance in the learned counsel's plea in view of the fact that the disallowance @ 2% from dividend income has been reached finality in other years and in view of the fact that the disallowance @ 10% for the proportionate management expenditure indeed appears to be excessive inasmuch as no reasons have been assigned by any of the authorities below to demonstrate any direct expenses incurred for earning the dividend income or to demonstrate that such a higher percentage of overall expenditure can indeed be attributed to the activities relating to earning of dividend income-particularly it is not even the case of the revenue that any borrowed funds have been used in making the investment. We, therefore, direct the Assessing Officer to restrict t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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