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TMI Blog2016 (5) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... re the AO, but he failed to do so. Therefore, in our considered opinion, the AO has rightly disallowed these amounts out of the claim of assessee and the findings of the ld. CIT(A) in this regard are liable to be reversed. Depreciation on UPS - Held that:- Computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, UPS are the part of the computer system, they are entitled to depreciation at the higher rate of 60%. [2010 (8) TMI 58 - DELHI HIGH COURT] Provision for sale return - Held that:- Accountancy principle of conservatism, which has been duly recognized by the Courts, mandates that anticipated losses are to be provided for in the computation of income but it does not permit anticipated profits to be taken into account till the profits actually arise. Even an anticipated loss, even if it may not have crystallized in the relevant previous year, is to be allowed as a deduction in the computation of business profits. There is no dispute that sales have been returned in the subsequent year and this fact is kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case as well as in law, the Ld. CIT(A) has erred in giving relief in respect of bad debts written off to the tune of ₹ 19,50,453/- ignoring the fact that the details showing when the amounts were credited as income and other documentary evidences in support of the claim were not produced before the Assessing Officer. 3. On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in allowing depreciation on UPS to the extent of 60% instead of 25% as admissible on peripheral devices. Grounds raised in assessee s appeal : 1. That on the facts and circumstances the leaned Commissioner of Income Tax (Appeals)-XVII (hereinafter referred to as Learned CIT(A) ) erred in upholding order passed by the Ld. Assessing Officer which was bad in law. 2. The Learned CIT(A) has erred both in facts and law in upholding the disallowance of the provision on sales return created by the appellant during the subject year amounting to ₹ 22,73,735/-. 3. Without prejudice to the ground No. 2, the learned CIT(A) has grossly erred both on facts and in law in not adjudicating on ground No. 4 that the provision on sales return of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors in respect of the sales booked in financial year, the details of which were submitted before the AO (paper book pages 269, 277 to 289). The Assessing Officer disallowed the probable future expenditure on account of discount which is highly uncertain. The AO found that the Revenue expenditure can be allowed only when it is determined or as crystallized during the year. The contention of the assessee that creation of such provision is in common practice in the seed business is not acceptable due to the fact that the assessee itself has never claimed such provision in any earlier year. He accordingly disallowed the future discount and added back the same to the total income. 4. The learned CIT(A) allowed the claim of the assessee, stating that there was certainty that the assessee had to pay the discounts to various parties on the basis of discount schemes on the sales made during the year it was only the exact calculation part of it, which was finalized before filing of the return. He also considering the case laws relied upon by the AO as well as the ld. AR, noted that the ratio held by various courts on the issue of claim of provision for various expenditure is that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkmen (73 ITR 53) (SC) - Calcutta Co. Ltd. vs CIT (37 ITR 1) (SC) - Rotork Controls India Private Limited vs CIT (314 ITR 62) (SC) - CIT vs Vintec Corporation Pvt. Ltd. (278 ITR 337) [Delhi HC] Without prejudice to the above submission, in case your honour considers to not allow the expense for special discount in the relevant year under consideration (i.e. FY 2003-04), we humbly request before your honour to grant deduction of special discount in the subsequent year i.e. financial year 2004-05. 6. After considering the rival submissions and going through the materials on record and the orders of the authorities below, we find that the ld. CIT(A) has made a reasoned order, which needs no interference. The assessee has submitted the details before the ld. Assessing Officer of discounts given (Paper Book page 277 to 289) before finalization of return of income. The assessee had finalized the accounts for the F.Y. ending 31.03.2004, but the quantification was not ascertained and the provision was made. The liability was certain at the balance sheet date and the assessee has also discharged its liability before finalization of IT return. It means, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Engineers and Architects ) for a project to be undertaken by them with respect to construction of green house. As the project was discontinued, the same has been write off. Balance written off 601,457 Un reconciled balance in bank accounts for amounts deposited by customers but not credited to the bank account ( pertaining to customer deposits) Balance written oil 380,303 Un reconciled balance in bank accounts for amounts deposited customers but not credited to the bank account pertaining to customer deposits including other sundry balances Other sundry advances written off 309,503 Other Miscellaneous sundry balances written off Ashok Kumar 10,000 Advance given for trial production which could not be recovered, hence written off. Sher Pal Singh 38,500 -do- Satish Kumar. 11,000 -do- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into the profit and loss account. The ld. CIT(A) has deleted the addition to the extent of ₹ 19,50,453/- towards bad debts and upheld ₹ 6,90,000/- stating that it was a capital expenditure. He also relied on the case law cited by the assessee in the case of M/s. Morgan Securities Pvt. Ltd. and M/s. Auto Motors Ltd of the jurisdictional High Court. 8. The learned DR relied on the order of the Assessing Officer. The ld. AR of the assessee, on the other hand, submitted the requisite details before the AO (PB 180 208). He submitted that as per the assessee s business activities, he has given advances to the farmers for trial production of ₹ 6,59,193/-. However, the farmers could not supply the seeds against advance despite all possible efforts nor the said advances could be recovered. A sum of ₹ 6,01,457/- is related towards un-reconciled balance in the bank accounts for the amounts deposited by the customers, but not credited to the bank account (pertaining to customer deposit). The sum of ₹ 3,80,303/- is related to un-reconciled balance in the bank accounts for amounts deposited by the customers, but no credit to the bank account (pertaining to cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, the total claim of depreciation of ₹ 3,39,701/- on UPS was reduced by ₹ 1,41,542/-. As such, total depreciation was allowed at ₹ 2,97,13,838/- as against ₹ 2,99,11,997/- claimed by assessee. The ld. CIT(A) deleted the addition. 11. Having considered the submissions of both the parties, we find that in view of several judicial pronouncements relied upon by the assessee, the ld. CIT(A) has rightly allowed the claim of the assessee in this regard. Hon ble Delhi High Court in the case of CIT vs. Orient Ceramics and Inds. Ltd. (ITA No. 65 66 of 2011) has held as under : 13. The third issue pertaining to depreciation on UPS arises only in the Assessment Year 2005-06. The assessee had claimed depreciation on UPS @ 60% whereas the AO had allowed it @ 25% and on this basis, disallowance of 1,470 was made. The issue now stands covered by the judgment of this Court in the case of Commissioner of Income Tax vs. BSES Yamuna Powers Ltd. (in ITA No. 1267 decided on 31.08.2010) wherein it was held that the depreciation @ 60% on such items shall be allowed. 12. Similar view has been taken in several other decisions, relied upon by the assessee. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his business in a particular season, depends on monsoon/crop patterns/commercial crops and so on. Anticipating that the season would be good in all respects, seed companies sell the seeds to the distributors for onward sale to the farmers. In case of any contingency, the unsold stock would be returned back to the company by channel. This is an accepted practice in the seed industry. As per Accounting Standard 9, Revenue Recognition, issued by The Institute of Chartered Accountants of India, recognition of revenue in such circumstances depends on the substance of the agreement. For example, in the case of retail sales offering a guarantee of money back if not completely satisfied it may be appropriate to recognize the sale as well as to make a suitable provision for sales return, based on previous experience. Further, the appellant follows mercantile system of accounting. Accordingly, the appellant is required to account for expenses on an accrual basis i.e. as and when the expenses have been incurred. In compliance with the above mentioned Accounting Standard and Accounting principle, the appellant has created a provision for sales return. The appellant has made such provision as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine , there is no enabling provision now which permits the Assessing Officer to tinker with the profits computed in accordance with the method of accounting so employed under section 145 and as long as the mandatory accounting standards are duly followed. It is not even Assessing Officer's case that the mandatory accounting standards have not been followed. This analysis of Section 145, read with applicable accounting standards, apart, even on first principles, deduction in respect of anticipated losses, as a measure of prudent accounting principles, cannot be declined. It is only elementary that the accountancy principle of conservatism, which has been duly recognized by the Courts, mandates that anticipated losses are to be provided for in the computation of income but it does not permit anticipated profits to be taken into account till the profits actually arise. Even an anticipated loss, even if it may not have crystallized in the relevant previous year, is to be allowed as a deduction in the computation of business profits. There is no dispute that sales have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gains of a year; and in assessing the amount of the profits and gains of a year account must necessarily be taken of all losses incurred, otherwise you would not arrive at the true profits and gains. It was submitted that in Badridas Daga vs CIT (34 ITR 10) and Calcutta Co Ltd vs. CIT ( 37 ITR 1) the Supreme Court quoted the observations of Lord Russell and held that an item of loss or expenditure not falling within any of the express deductions may be allowed if it is deductible on ordinary principles of commercial accounting. The business losses, though they fall outside the purview of section 30 to 37 are allowable on ordinary commercial principles of computing profits, provided (i) the losses are of a non-capital nature and. (ii) they are not merely connected with the trade but are incidental to the trade itself. These principles were affirmed by the Supreme Court in Badridas Daga vs CIT (34 ITR 10), CIT vs Nainital Bank Ltd. (55 ITR 707) and Ramchandar Shivnarayan Vs CIT (111 ITR 263). As regards the deductibility of irrecoverable advances as business loss under section 28, the ld. AR relied on the following judicial precedents to support that advances which have bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 09.03.2004, the record reveals that neither the assessee claimed this expenditure in return of income nor any revised return claiming this expenditure was filed nor the Assessing Officer made any discussion in the assessment order for the year under appeal on this count. This claim was, however, made before the ld. CIT(A) by the assessee stating that during the assessment proceedings for the assessment year 2005-06, out of total claim of license fee paid, ₹ 25,00,000/- was disallowed by the AO vide order dated 28.12.2007 on the ground that the said amount was paid in A.Y. 2004-05 and hence, not allowable in A.Y. 2005-06. It was stated that once the said claim, being relatable to A.Y. 2004-05, was found not allowable in the A.Y. 2005-06, it has to be allowed in the year under appeal to which it relates. The ld. CIT(A) did not accept the claim of the assessee stating that such claim can be allowed either by way of return or revised return which the assessee failed to do. 22. In the brief synopsis of the case filed on 25.02.2016, the ld. AR of the assessee submitted that the AO while concluding the assessment proceedings for AY 2005-06, disallowed expenditure of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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