TMI Blog2018 (4) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the purchase of application software is revenue in nature. See Amway India Enterprises case [2011 (11) TMI 4 - DELHI HIGH COURT]. Non grating deduction claimed u/s 35D - Held that:- As decided in assessee's own case for AY 2003-04 direct the AO to allow the deduction claimed by the assessee under section 35D for the year under consideration keeping in view the expenses eligible for such deduction as quantified by him in assessment year 1999-2000. Disallowance u/s 14A - allocating other expenditure and depreciation on H.O. assets to the exempt income - Held that:- we direct the AO to restrict the disallowance u/s 14A to 2% of the total exempt income of the assessee, in place of the disallowance made by the AO and the enhancement done by the Ld. CIT(A). - Decided partly in favour of assessee Additions for unutilised Modvat Credit to the closing stock - Held that:- There is no dispute that the purchases made by the assessee are accounted for net of MODVAT credit. In M/s Diamond Dye Chem Ltd. [2017 (7) TMI 616 - BOMBAY HIGH COURT] held the income was not generated to the extent of Modvat credit or unconsumed raw-material. Merely because the Modvat credit was irreversible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debts account is debited and the customer’s account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. - Disallowance to be deleted - Decided in favour of assessee - ITA No. 212/Mum/2008, ITA No. 4175/Mum/2010 And ITA No. 9184/Mum/2010 - - - Dated:- 19-3-2018 - SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) For The Assessee : Mrs. Arati Vissanji, AR For The Revenue : Ms. Pooja Swaroop, DR ORDER PER N.K. PRADHAN, AM The captioned appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-XXVI, Mumbai [in short CIT(A )]and arise out of the assessment completed u/s 143(3) of the Income Tax Act 1961 (the Act ). As common issues are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the Tribunal that the assets of Kavesar Unit having already entered the block of assets of the assessee, depreciation thereon could not be disallowed on the ground of non-user as the use of block of assets was to be considered and not the use of individual assets. Respectfully following the orders of the coordinate bench of this Tribunal on a similar issue in assessee s own case for assessment year 2000-01 and 2001-02, we delete the disallowance partly sustained by the Ld. CIT(A) on account of various expenses and depreciation in relation to Kavesar unit and allow ground No. 1 of the assessee s appeal. Facts being identical, we follow the above decisions of the Co-ordinate Bench and allow the 1st ground of appeal. 3. The 2nd ground of appeal The CIT(A) erred in disallowing the expenditure of ₹ 3,80,718/- on purchase of application software. 3.1 The AO disallowed the claim of expenditure of ₹ 3,80,718/- made by the assessee on account of purchase of computer software treating it as capital assets and thereby allowed depreciation @ 30% (half year) amounting to ₹ 1,14,215/-. 3.2 In appeal, the Ld. CIT(A) followed the order of his predece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration before the Tribunal in assessment year 1999-2000 and the same was decided, by the Tribunal in favour of the assesses by its order dated 21-09-20O6 passed in ITA No. 1330/Mum/2003 holding that the assessee was entitled to deduction under section. 35D. The issue, however, was restored by the Tribunal to the file of the AO for the purpose of quantifying the amount of deduction. As submitted by the Ld. counsel for the assessee, the AO has already quantified the amount eligible for deduction under section 35D in assessment year 1999-2000 as per the direction of the Tribunal. We, therefore, direct the AO to allow the deduction claimed by the assessee under section 35D for the year under consideration keeping in view the expenses eligible for such deduction as quantified by him in assessment year 1999-2000. Ground No. 2 of the assessee's appeal is accordingly treated as allowed. Facts being identical, we follow the above order of the Co-ordinate Bench and allow the 3rd ground of appeal. 5. We discuss below the 4th and 5th ground of appeal together as they address a common issue. The 4th ground of appeal The CIT(A) erred in enhancing the disallowance u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide order dated 08.01.2013 in CIT v. M/s Godrej Agrovet Ltd. (ITA No. 934 of 2011). As we are dealing with the assessment year 2004-05, following the above decisions, we direct the AO to restrict the disallowance u/s 14A to 2% of the total exempt income of the assessee, in place of the disallowance made by the AO and the enhancement done by the Ld. CIT(A). Thus the 4th 5th grounds of appeal are partly allowed. 6. The 6th ground of appeal The Ld. CIT(A) erred in a. sustaining the additions for unutilised Modvat Credit of ₹ 3,93,57,123/- to the closing stock. b. disregarding the fact that excise duty paid through purchases (on which modvat credit is available) is not debited to the profit and loss account. c. not following the decision of honourable Supreme Court in the case of Indo-Nippon Chemicals Co. Ltd. (261 ITR 275). 6.1 During the course of assessment proceedings, the assessee submitted before the AO that the unutilized MODVAT credit is ₹ 3,93,57,213/- as on 31.03.2004 vis-a-vis the unutilized MODVAT credit of ₹ 3,58,57,580/- as on 01.04.2003. The differential unutilized MODVAT credit is ₹ 34,99,633/-. The purchases are ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot amount to income which was liable to be taxed under the Act. It is also held that whichever method of accounting is adopted, the net result would be the same. 6. Considering the above, the amount of the un-utilized Cenvat credit could not have been directly added to the closing stock. 6.5.1 Facts being identical, we follow the above decision of the Hon ble Bombay High Court and delete the addition of ₹ 3,93,57,123/- made by the AO. Thus the 6th ground of appeal is allowed. 7. The 7th ground of appeal The CIT(A) erred in disallowing lease rentals to the extent of ₹ 13,53,519/- not debited to Profit Loss Account. Alternatively, without prejudice the CIT(A) ought to have allowed depreciation. 7.1 The assessee had paid lease rentals in respect of finance lease transactions and claimed ₹ 13,53,519/- as deduction in the computation of income. The AO disallowed the above sum of ₹ 13,53,519/- being capital portion of the lease rentals. 7.2 In appeal, The Ld. CIT(A) agreed with the reasons given by the AO and confirmed the above disallowance. 7.3 Before us, the Ld. counsel of the assessee submits that the assessee had taken cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead Gurgaon in connection with reviewing of plans for setting up manufacturing plants. 8.4 On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 8.5 We have heard the rival submissions and perused the relevant materials on record. We find that the aforesaid expenses do not create any new fixed asset or enhance the production capacity of the business. These expenses are for repairs and renovation of existing assets, hence should be allowed as deduction. Considering the nature of expenses, we delete the disallowance of ₹ 6,29,003/- made by the AO. Thus the 8th ground of appeal is allowed. 9. The 9th ground of appeal The CIT(A) erred in conforming (a) the inclusion of raw material sales in the total turnover of ₹ 86,47,908/-. (b) excluding 90% of insurance claim of ₹ 44,65,197/-, sales tax refund of ₹ 23,80,532/-, SAP recovery expenses of ₹ 65,00,000/-, lease rental of ₹ 7,28,91,108/- and Interest Received ₹ 52,97,140/- from the profits of the business for computing deduction u/s 80HHC. 9.1 The AO on a perusal of the computation of income found that the assessee had claimed deduction of ₹ 34,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in Business Profits, had to be deducted from Business Profits computed in terms of sections 28 to 44D of the Income-tax Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from Business Profits under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc., formed part of gross total income being Business Profits. But for the purposes of working out the formula and in order to avoid distortion of arriving export profits clause (baa) stood inserted to say that although incentive profits and independent incomes constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the Income-tax Act and every income may not be attributa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther hand, the Ld. DR supports the order passed by the Ld. CIT(A). 12.5 We have heard the rival submissions and perused the relevant materials on record. We find that the assessee had filed before the AO the relevant details on account of bad debts written off. We refer here to para 9.1 and 9.2 of the assessment order dated 31.12.2008 passed by the AO. In TRF Ltd . (supra), the Hon ble Supreme Court has held at para 4: This position in is well-settled. After 01.04.1989, 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. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debts account is debited and the customer s account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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