Mumbai tribunal allows depreciation on obsolete assets, bad debts, MODVAT adjustments under section 145A, deletes penalty for defective notice

The ITAT Mumbai allowed several claims by the assessee while dismissing revenue's appeals. The tribunal permitted depreciation on obsolete assets, bad debts written off, and MODVAT adjustments under section 145A, following consistency principle from previous years. Brokerage expenses were allowed under house property income head. The tribunal partially allowed leave encashment expenses, remitting the matter to AO for verification. Section 80HHC deductions were largely upheld, including export commission at 12.5% arm's length price and foreign exchange gains. Penalty under section 271(1)(c) was deleted due to defective notice without striking off irrelevant portions. The tribunal followed precedents from coordinate benches and HC decisions, emphasizing consistency in tax treatment across assessment years.

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Issues Involved:

1. Disallowance of Estimated Depreciation on Obsolete Assets.
2. Disallowance of Bad Debts/Advances.
3. Adjustment of Modvat Relating to Closing Stock.
4. Disallowance of Brokerage.
5. Disallowance of Repairs Expenditure.
6. Disallowance under Section 40A(2)(a)(b).
7. Disallowance of Leave Encashment Payment.
8. Inclusion of Interest under Section 244(1A).
9. Enhancement of Long-Term Capital Gain.
10. Curtailment of Deduction under Section 80HHC.
11. Adjustment under Section 92C(4).
12. Disallowance of Write-off of Tender and Security Deposits.
13. Disallowance of Software Expenses.
14. Application of Section 50C for Capital Gains.
15. Penalty under Section 271(1)(c).

Summary:

1. Disallowance of Estimated Depreciation on Obsolete Assets:
The Tribunal observed that the issue of depreciation on obsolete assets was previously decided in favor of the assessee by the Coordinate Bench for similar assessment years. Respectfully following the precedent, the Tribunal allowed the assessee's claim for depreciation on obsolete assets.

2. Disallowance of Bad Debts/Advances:
The Tribunal noted that the issue of bad debts had been adjudicated in favor of the assessee in earlier years. It was held that once the conditions of section 36(1)(vii) were fulfilled, the assessee's claim should be allowed. Therefore, the disallowance was deleted.

3. Adjustment of Modvat Relating to Closing Stock:
The Tribunal found that the issue of Modvat adjustment had been decided in favor of the assessee in previous years. It was directed that the adjustment should be made to both the opening and closing stock as per the provisions of section 145A. The issue was restored to the Assessing Officer with similar directions.

4. Disallowance of Brokerage:
The Tribunal upheld the findings of the lower authorities that brokerage expenses related to rental premises should be considered under the head "Income from House Property" and not "Income from Business or Profession." The net result would be the same as the expenses would be allowed under the appropriate head.

5. Disallowance of Repairs Expenditure:
The assessee's claim for repairs expenditure was dismissed as not pressed.

6. Disallowance under Section 40A(2)(a)(b):
The Tribunal observed that the issue of disallowance under section 40A(2) was decided in favor of the assessee in subsequent years. It was held that the assessee's arrangement for purchasing Rabipur vaccine at 60% of the selling price was commercially justified. The disallowance was deleted.

7. Disallowance of Leave Encashment Payment:
The Tribunal remitted the issue back to the Assessing Officer to determine the provisions outstanding in the books of the assessee and disallow the same during the year while allowing the actual claim on the basis of payment.

8. Inclusion of Interest under Section 244(1A):
The Tribunal followed the decision of the Special Bench in Avada Trading Co. Pvt. Ltd. v. ACIT, holding that interest on refund under section 244A(1) would be assessable in the year it is granted. The issue was decided in favor of the revenue.

9. Enhancement of Long-Term Capital Gain:
The Tribunal noted that the issue of fair market value as on 01.04.1981 for computing long-term capital gain had been decided against the assessee in earlier years. The enhancement of long-term capital gain was upheld.

10. Curtailment of Deduction under Section 80HHC:
The Tribunal directed the Assessing Officer to allow the DEPB claim and sustain the additions made on sales tax refund and bad debts as per the Tribunal's directions in earlier years.

11. Adjustment under Section 92C(4):
The Tribunal followed the precedent and deleted the adjustment made to the arm's length price of export commission paid to the associated enterprises. It was held that the commission paid at 12.5% was commercially justified.

12. Disallowance of Write-off of Tender and Security Deposits:
The Tribunal allowed the write-off of tender and security deposits as business expenditure, noting that these were outstanding for a long period and had become irrecoverable.

13. Disallowance of Software Expenses:
The Tribunal did not specifically address this issue in the summary provided.

14. Application of Section 50C for Capital Gains:
The Tribunal upheld the assessee's contention that the sale consideration for the development rights should be based on the value as on the date of the Memorandum of Understanding (MOU) and not the stamp duty value at the time of transfer. The Assessing Officer was directed to adopt the full value of consideration at Rs. 8.62 crores as per the MOU.

15. Penalty under Section 271(1)(c):
The Tribunal quashed the penalty orders under section 271(1)(c) for various assessment years, following the decision of the Hon'ble Bombay High Court in Mohd. Farhan A. Shaikh v. DCIT, which held that penalty notices must specify the limb under which the penalty is proposed. The notices issued in the assessee's case were found to be vague and not specifying the charge.

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