ITAT allows 60% depreciation on POS machines, 40% on SAP license, and bad debt deduction under Section 36(2)

ITAT Delhi allowed depreciation on POS machines at 60% based on Delhi HC precedent, overturning AO's 25% rate. Depreciation on SAP license was upheld at 40%, consistent with prior judicial decisions. The tribunal also allowed bad debt deduction for unrecoverable subsidy amounts, rejecting AO's disallowance. It held that since the subsidy was credited as income under mercantile system, the unrecoverable portion qualifies as bad debt under section 36(2). All grounds raised by the assessee were allowed.

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ISSUES:

Whether depreciation on POS machines is allowable at 40% or 25%.Whether depreciation on SAP License is allowable at 40% or 25%.Whether bad debts claimed under section 36(1)(vii) are allowable when income from such debts is offered in the same financial year or earlier years, in light of section 36(2) of the Income Tax Act.Whether bad debts claimed are allowable when subsidy claims are rejected due to violation of government norms.Whether evidence is required to establish that debts have actually become bad for claiming deduction under section 36(1)(vii).

RULINGS / HOLDINGS:

Depreciation on POS machines is allowable at the higher rate of 40% (or 60% as per precedent), as POS machines qualify as computer equipment or peripherals for depreciation purposes; the lower rate of 25% is not applicable.Depreciation on SAP License, being computer software, is allowable at 40%, consistent with settled judicial precedents; the disallowance of excess depreciation on this ground is not justified.Bad debts written off under section 36(1)(vii) are allowable if the amount of such debt has been taken into account in computing income in the previous year in which the debt is written off or an earlier previous year, per section 36(2); the timing of income recognition (same year or earlier years) does not bar deduction if the debt was included in income.Bad debts claimed on subsidy amounts rejected due to violation of government norms are allowable as deduction if the subsidy was credited as income in earlier years and subsequently found unrecoverable; the disallowance on the basis of subsidy rejection is not sustainable.There is no statutory requirement under section 36(2) to furnish evidence that debts have actually become bad to claim deduction; mere compliance with income recognition and write-off provisions suffices.

RATIONALE:

The Court applied the Income Tax Act, 1961, specifically sections 36(1)(vii) and 36(2), and relied upon authoritative judicial precedents including the decision of the Hon'ble Delhi High Court in Pr. CIT vs. Connaught Plaza Restaurant Pvt Ltd, which held POS machines qualify for higher depreciation rates as computer equipment.The Court emphasized the mercantile system of accounting followed by the assessee, under which subsidies are credited as income on an accrual basis, and bad debts are allowable when such income is not realized, consistent with the statutory language of section 36(2).The Court rejected the Revenue's contention that bad debts claimed in the same year as income recognition are disallowable, interpreting section 36(2) as permitting deduction provided the debt was taken into account in computing income in the year of write-off or earlier.The Court noted no requirement under section 36(2) for proof that debts have "actually become bad" beyond accounting treatment, thus rejecting the Revenue's demand for additional evidence.No dissent or doctrinal shift was indicated; the Court's reasoning aligns with established legal principles and precedent.

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