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2014 (9) TMI 278 - ITAT AHMEDABADDeduction on written off irrecoverable advances and other debit balances disallowed – Held that:- Majority of the amounts are stated to be towards EMDs of which the earliest amount outstanding is from the year 1997 and the last being outstanding from the year 2001 - the list also includes an amount shown against Amtrex Employees’ Welfare Trust, for which no details have been furnished in the statement - As far as EMD deposits are concerned, the submission of the assessee has not been controverted by the Revenue – relying upon Commonwealth Trust (India) Ltd. Versus Commissioner Of Income-Tax [1999 (11) TMI 58 - KERALA High Court] - the amounts towards EMDs., was having nexus with the business of the assessee and it needs to be allowed - with respect to the “Employees’ Welfare Trust” in the absence of any details, it has rightly been disallowed by the AO - with respect to the balance written amount, it contained various amounts which are shown to be not recoverable from the parties - it also includes certain amounts like provision for gratuity, salary payable, PF payable, staff loan etc. from which the full details thereof not placed – Decided partly in favour of assessee. Amount of donation disallowed while making computation – Held that:- The assessee pointed out to the break-up of the donation – and the amount was given to the society to comply with the social responsibility towards society and was not in the nature of donation - the payments were made on account of business expediency and social responsibility, and hence allowable as deduction - the major amount of donation is to the Red Cross society, and therefore, claimed as business expenditure –revenue did not controvert the submissions of the assessee – Decided in favour of assessee. Adjustment of royalty payment being international transaction – Held that:- The CIT(A) while deleting the addition has noted that facts of the case of the assessee in this year are identical to the earlier years and rightly held that the issue regarding payment of royalty at the rate of 3.75% to the AE by the assessee, as against the royalty at the rate of 3% by other group entities, it was explained by the assessee before the AO that the royalty at 3.75% was applied after reducing various expenses from ex-factory sale value of the concerned products - if the effective rate is considered, then the effective rate of royalty is less than the royalty paid by other AEs to Hitachi Limited i.e. parent company - only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with ex-factory sale value, without deducting various expenses, such as dealer commission, special commission, warranty etc., as has been noted by the CIT(A), then the effective rate worked out is only 2.3% on sale, as against 3% paid by other group entities – the order of the CIT(A) is upheld – Decided against revenue. Provision of obsolescence of inventory disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been rightly held that the assessee has claimed the amount as per the normal practice of valuation of closing stock as per the audited accounts and it is an omission on the part of the AO not to have dealt with this issue - CIT(A) has directed the AO to allow the claim of the assessee subject to the assessee furnishing the complete particulars in this regard, if necessary, with adequate proof - no interference is called for in the order of the CIT(A) because he has taken proper care to ensure that all the details and evidences are obtained and are examined by the AO and only thereafter, deduction is to be allowed, if the assessee is able to establish before the AO that such write off in respect of provision for obsolescence of inventory claimed by the assessee is in line with the accepted method of valuation of stock, i.e. at cost or market price, whichever is lower – Decided against revenue. Warranty expenses disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been rightly held that the assessee-company should scrutinise the historical trend of warranty provision made and the actual expenses incurred against it, and on this basis, a sensible estimate should be made - the expenses provided for by the assessee in respect of warranty should be allowed to the extent the provision is made on a scientific basis, as decided in M/s. Rotork Controls India (P) Ltd. Versus Commissioner of Income Tax, Chennai [2009 (5) TMI 16 - SUPREME COURT OF INDIA] – thus, the matter is to be remitted back to the CIT(A) for fresh decision – Decided in favour of revenue. Deduction for debit balance written off – Sum due from different parties allowable u/s 28 or 37 – Held that:- The Revenue authorities have disallowed the claim of the assessee for deduction for the debit balances written off which were due from different parties, on the ground that the same were not arising out of the sales made by the assessee - the loss incurred during the course of business and that the assessee has written off the amount from its accounts, as the same became irrecoverable – relying upon T.R.F. Ltd. Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] - in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable; it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee – Decided in favour of assessee. Deduction u/s 40(a)(ia) – Effect of amendment w.e.f. 1.4.2005 – Held that:- The claim of the assessee for further deduction was not before the CIT(A) or the AO, before passing their respective orders – thus, the matter is to be remitted back to the AO for considering admissibility or otherwise of the claim of the assessee – Decided in favour of assessee.
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