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TMI Blog2009 (3) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2000-01 allowed depreciation on the reduced WDV on the ground that the depreciation was an allowable deduction in view of the Explanation 5 to section 32 inserted by the Finance Act, 2001, with effect from April 1, 2002, it being clarificatory in nature and, therefore, had a retrospective effect. He also held that by not charging the depreciation the assessee changed method of accounting which was not bonafide. 3. The CIT (Appeals) allowed the depreciation on the original WDV as claimed by the assessee by relying upon the decision of Supreme Court in the case of CIT vs. Mahendra Mills 243 ITR 56 (SC)which held that the newly inserted Explanation 5 was prospective in nature and would take effect only on and from 1st April, 2002 and would not be applicable to prior earlier years. 4. We have heard the parties and considered the rival submissions. Depreciation is allowed under section 32(1)(ii) at such percentage of the WDV of the block of assets as may be prescribed. Section 43(6)(c)(ii) defines WDV to mean the WDV of the block of assets in the immediately preceding prevision year as reduced by the depreciation actually allowed in respect of that block of assets in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which occurred in the transit of the goods. According to the assessee, the breakage and pilferage are not certain and clearly non-contingent. The Assessing Officer did not allow the claim of the assessee as, according to him, the provision was contingent in nature as the breakage may or may not occur. He also noted that out of the total provision of transit breakage of ₹ 6,40,338/-, only a sum of ₹ 2,874/- represented actual claim reimbursed to the distributor in the subsequent year on account of transit shortages which is an evidence that provision made was only contingent and not based on scientific basis. 7. The CIT (Appeals) allowed the claim of the assessee in appeal for assessment year 2001-02by observing in paragraph 6 as under: "6. Ground No. 7 deals with the disallowance of ₹ 6,40,338/- being the provision for transit breakages. During the course of assessment proceedings the assessee was asked to explain the nature and basis of calculating transit shortages of ₹ 6,40,338/- as appearing in the details of 'sales and marketing expenses' which details were submitted. It was also submitted that the amount of ₹ 6,40,338/- appearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurred in respect of similar transaction entered earlier in the said regions during the relevant year. It must be noted that this is a year end provision and is thus made on a scientific basis. The contention of the appellant is that the provision was reversed once the shipment reached its destination and only the actual breakage was debited to the account. This method for accounting of the transit of the breakages is being followed by the appellant year after year. The reliance placed by the appellant on the Apex Court decision in the case of Bharat- Earth Movers Ltd. also reinforces his contention. The plea of the appellant is therefore, liable to be allowed and the same accordingly succeeds." 8. He however upheld the disallowance in the next three years of appeal. 9. We have heard the parties and considered the rival submissions. The assessee had given details for provision of transit breakage as under: A.Y. Total amount debited to Transit Breakage and Shortage Account Actual Provision Amount Provision reserved in next year Amount Addition made by the Assessing Officer Remarks 2001-02 6,40,338 2,874 6,37,464 6,37,464 6,40,338 2002-03 10,46,164 5,33,376 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is ₹ 10 per case, in case of Goa it is ₹ 15 per case and in the case of Karnataka it is ₹ 15 per case, How the amount of ₹ 10 or ₹ 15 per case arrived at is anybody's guess. In any case, this chart also does not show as to on what experience it was determined that the rate of breakage in rupees would be ₹ 10, ₹ 9.5 and ₹ 15 in respect of these three places. Again this provision is based from first day of the accounting year till the last day of the accounting year whereas the breakage is known within a period of 15 to 30 days and which, as stated in the earlier chart, was much less than the provision made by the assessee. In these circumstances, the provision cannot be said to be based on any scientific basis nor on actual experience of the assessee or its sister concern. In the circumstances the provision cannot be allowed as a deduction. 10. The reliance by the assessee on the judgment of Bharat Earth Movers vs. CIT 245 ITR 428 (SC) and the Special Bench decision of Calcutta Bench of the Tribunal in the case of JCIT vs. ITC Limited 299 ITR 341 (SB)cannot be of any help to the assessee as in all these the provision was made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinction could be made with regard to allowing the same if the payment is made before the last date of filing the return. The Assessing Officer is, therefore, directed to allow the claim of deduction of the employees' contribution made by the assessee if the payments are made before the due date of filing the return. 16. The next dispute in the assessee's appeal for assessment years 2002-03 and 2003-04 is for adding unascertained liabilities - (i) provision for bad debts; and (ii) transit breakages while computing profit under section 115JB of the Act. The Assessing Officer disallowed these two liabilities holding that the amount was set aside for meeting unascertained liabilities and had to be added back. CIT (Appeals) upheld the order of the Assessing Officer, 17. We have heard the parties and considered the rival submissions. As regards the provision for doubtful bad debts, the issue is now covered by the decision of the Hon'ble Supreme Court in the case of CTI vs. HCL Comnet Systems 305 ITR 409 (SC). We accordingly direct the Assessing Officer to reduce the provision for bad debts while computing the book profit under section 115J. As regards transit breakage is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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