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2016 (5) TMI 1016 - ITAT DELHI

2016 (5) TMI 1016 - ITAT DELHI - TMI - Addition of bad debts/advances written off - Held that:- We find that the advances were given to the farmers before start of the farming season for buying back trial seeds produced by them in their farm lands. On perusal of the records and submissions of the assessee, the same seeds were not suitable for sale in the market and hence, were not procured from the farmers. Therefore, the assessee has written off to the advance in the ordinary course of business .....

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the Chartered Accountant. Therefore, the assessee could substantiate its claim before 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 .....

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ccount 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 known before the date of finalization of accounts. Therefore, there is no point in first taking into account income on sales, which never reached finality, and then accounting for loss on sales return in .....

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ject was not materialized and the advance given to the architects for setting up of the project, could not be recovered. In view of this, the assessee has written off the same in the books of account as bad debts/advances written off in the ordinary course of business. In presence of these facts this expenditure was allowable as business expenditure and cannot be treated as capital expenditure as observed by the ld. CIT(A)

Expenditure towards payment as license fees - Held that:- Once .....

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a Kapoor, Advocate ORDER Per L.P. Sahu, Accountant Member: These are cross appeals filed by the Revenue and the assessee against the order dated 16.03.2009 of ld. CIT(A)-XVII, New Delhi for the assessment year 2004-05. The Revenue and the assessee have raised following grounds in their respective appeals: Grounds raised in Revenue s appeal : 1. On the facts and circumstances of the cae as well as in law, the Ld. CIT(A) has erred in deleting the addition on account of provision for special discou .....

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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 a .....

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d in law in upholding the disallowance of the amount of bad debts/advances written off of ₹ 690,000 during the subject year, treating the payment as capital in nature. 5. That the learned CIT(A) has grossly erred both on facts & in law in not allowing the appellant s claim of ₹ 25,00,000 for payment towards license fees in the assessment year 2004-05 on the ground that said claim is neither raised in original return or revised return. In this regard, the Ld. CIT(A) failed to appr .....

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on of ₹ 1,13,30,942/- on account of provision for special discount, are that the assessee credited provision for special discount in its books of account for the above amount, as the seed companies have to pass on various discounts to distributors, retailers and consumers. The Company has offered discounts to its customers from 2% to 80% depending upon the season, crop pattern and other market dynamics. The Zonal sales team of the assessee declared various discounts to the marketing channe .....

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ot available as on 31.03.2004.During the assessment proceedings, based on actual data as received post March 31, 2004, subsequent adjustment were made to arrive at the actual special discount granted to the distributors 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 .....

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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 provision made by the assessee should be ascertainable. The Revenue has challenged th .....

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by BBSPL in the past. As a measure to align itself with the revenue recognition and accounting policy principles adopted by the Bayer Group, of which the appellant is a part, it has created the provision in the captioned AY. • The appellant follows mercantile system of accounting. As per this system, liabilities attached to the sales, which can be determined with a fair degree of reasonableness are required to be shown in the Profit & Loss Account for that year. Following this principl .....

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ntly. • In comparison to the 'provision for warranty', which has been consistently held as an allowable expense by many courts, the provision for special discount, as created by the appellant, is based on more realistic grounds as the same is directly related to sales of the appellant and has been discharged in the subsequent year. • Further, this issue has been settled in the assessee's own case in the favour of the assessee by the Hon'ble ITAT, Mumbai for AY 2007-08 v .....

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bull; 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 .....

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y of the assessee. The ITAT in the case of the assessee has allowed the similar claim in A.Y. 2007-08 vide order dated 08.02.2012 (ITA No. 7123/Mum./2011). The observations of the Hon ble ITAT are as under : 11. Having heard the rival contentions and having perused the material on record, we are inclined to uphold the grievance of the assessee on this issue as well. Once the DRP holds that the provision has been made on a reasonable basis, a finding which cannot be challenged by the Assessing Of .....

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f claim in the year in which is made. Learned Departmental Representative has contended that the provision cannot be allowed at all and has pointed out that the provision is not made on reasonable basis, but all these things are irrelevant now because the DRP has given a finding which cannot be challenged by the Assessing Officer. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impu .....

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ebts were credited to the profit and loss account along with supporting evidences. The assessee company filed the details as under : Particulars Rs. Description/Reasons for written off A+E Consultants 690,000 Advances given to the A+E Consultants ( i.e. 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 am .....

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al Singh 38,500 -do- Satish Kumar. 11,000 -do- Vijay Pal Singh, Aligarh 8000 -do- Chander Boss, Gurgaon 11,000 -do- Bhupindcr Singh, Gurgaon 10,000 -do- Anil Kumar Katiyar, FRKBD 10,000 -do- Dev Pal Singh Rana, Agra 8,000 -do- Mahavir Singh, A, Mandi 8,693 -do- Ramji Lal Yadav, Morena 65,000 -do- Ram Nivas Sharma, Morena 332500 -do- Ram Lakhan Sharma, Morena 10000 -do- Dewakar Parasher, Gwalior 28,000 -do- Akshay Kumar, Bhind 10,000 -do- Jagdish Sharma , Bhind 10,000 -do- Keshav Sing Rajput, Gwa .....

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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 subm .....

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03/- 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 customers deposits including other sundry balances). The above amounts have been written off due to it being directly related to the business loss. ₹ 3,09,503/- is related towards other Misc. sundry balance written off. He stated that bad debts/advances were on account of non-recoverability of debtors in the ordinary course of business. The .....

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the records and submissions of the assessee, the same seeds were not suitable for sale in the market and hence, were not procured from the farmers. Therefore, the assessee has written off to the advance in the ordinary course of business, relating to such non-saleable seeds at the end of the year. Therefore, it fit to be allowed as business expenditure of ₹ 6,59,193/-. However, as far as the remaining amounts of ₹ 6,01,457/-, ₹ 3,80,303/- and ₹ 3,09,503/- are concerned, .....

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) in this regard are liable to be reversed. Accordingly, this ground of Revenue deserves to be partly allowed. 10. Coming to the last issue involved in Revenue s appeal, the brief facts are that the assessee claimed depreciation on UPS at the rate of 60% considering the same as computer peripherals. The AO observed that the UPS is not integral to computers and is capable of being used independently, cannot be allowed to fetch depreciation as computer peripherals and therefore, applying the depre .....

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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 .....

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ief facts pertaining to first issue regarding provision for sale return of ₹ 22,73,735/-, are that during the year under appeal, the assessee claimed a sum of ₹ 22,73,735/- as provision for sales return. On being asked to explain the same, the assessee explained that the provision for discount and sales return was accounted for as a provision for expenses. These expenses were actually incurred during the previous year and accounted for on the basis of actual bills/details received af .....

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d to that extent it is contingent. Even otherwise also, in accrual system of accounting an expenditure is allowable only when it is incurred for it has been crystallized. In the past, such provision was never created by the assessee. The ld. CIT(A) upheld the order of the AO. 14. The learned AR of the assessee submitted that the provision for sale return was accounted for as a provision for expenses and these expenses were actually incurred during the year. This provision for sales return is not .....

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-wise details were produced before the Assessing Officer (PB 272, 303). The seed business is a seasonal business and the success of this 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 .....

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antile 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 a certain percentage of the sales, based on the past year sales return of various crops, strength of its product portfolio and market dynamics and not merel .....

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nd, relied on the orders of the authorities below. 16. After considering the rival submissions and perusing the entire material on record before us, we find that the issue under consideration is covered by the decision of ITAT, Mumbai Bench in the case of assessee in ITA No. 7123/M/2011 for the assessment year 2007-08 dated 08.02.2012 wherein the co-ordinate Bench has observed as under : 16. Section 145 of the Income Tax Act, as it stands now, inter alia lays down that business income has to be .....

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ication no. 9949 dated 25th January 1996, inter alia provides that "provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information". This approach requires all anticipated losses to be taken into account in computation of income taxable under the head 'profits and gains from business and profession'. Unlike in the pre amended section, as it stood .....

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cordance 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 accoun .....

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ear and this fact is known before the date of finalization of accounts. Therefore, there is no point in first taking into account income on sales, which never reached finality, and then accounting for loss on sales return in the subsequent year i.e. in which sales return did take place. In our considered view, the approach of the assessee is in consonance with the well settled accountancy principles and the Assessing Officer was not justified in rejecting the same. The disallowance for provision .....

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with respect to construction of green house. The project was discontinued and the amount paid to the architects could not be recovered which was claimed as bad debts/advance. The AO disallowed the same stating that it is an expenditure of capital nature and it could not be allowed as debts/advances written off. The ld. CIT(A) upheld the order of the AO stating that the same was capital in nature on account of the projects to be undertaken. 18. The learned AR of the assessee argued that it is we .....

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though there was no special allowance for bad debts in 1922 Act as it then stood. Lord Russell delivering the judgment of the Board said : "Although the Act nowhere in terms authorises the deduction of bad debts of a business, such a deduction is necessarily allowable. 'What are chargeable to income- tax in respect of a business are the profits and 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, ot .....

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nary 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 ju .....

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9 ITR 108 (Cal.). 19. The learned DR, on the other hand, relied on the orders of the authorities below. 20. After hearing the submissions of both the sides and perusing the material on record, we find that the advance was given to A+E Consultants for setting up a construction of green house. This project was not materialized and the advance given to the architects for setting up of the project, could not be recovered. In view of this, the assessee has written off the same in the books of account .....

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uiring the agricultural land to setup a factory, but when the agricultural land was not acquired, no capital asset came into existence, therefore, there is no question of allowing depreciation on such asset. If any asset is acquired and if it is a benefit of enduring nature, then of course the assessee cannot get the deduction of amount for acquisition of land as revenue expenditure. When land was not acquired, no capital asset has been acquired, therefore, the payment of ₹ 52,489 is to be .....

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xpenditure 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 .....

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