TaxTMI 
TaxTMI 
2016 (5) TMI 1016
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.... respect of bad debts written off to the tune of Rs. 19,50,453/- ignoring the fact that the details showing when the amounts were credited as income and other documentary evidences in support of the claim were not produced before the Assessing Officer. 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 and law in upholding the disallowance of the provision on sales return created by the appellant during the subject year amounting to Rs. 22,73,735/-. 3. Without prejudice to the ground No. 2, the learned CIT(A) has grossly erred both on facts and in law in not adjudicating on ground No. 4 that the provision on sales return of Rs. 22,73,735/- should have been allowed as a deduction in the subsequent assessment year i.e. 2005-06. 4....
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..... The Assessing Officer disallowed the probable future expenditure on account of discount which is highly uncertain. The AO found that the Revenue expenditure can be allowed only when it is determined or as crystallized during the year. The contention of the assessee that creation of such provision is in common practice in the seed business is not acceptable due to the fact that the assessee itself has never claimed such provision in any earlier year. He accordingly disallowed the future discount and added back the same to the total income. 4. The learned CIT(A) allowed the claim of the assessee, stating that there was certainty that the 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 the action of the ld. CIT(A) by way of ground No. 1 in its ....
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.... (278 ITR 337) [Delhi HC] * 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 needs no interference. The assessee has submitted the details before the ld. Assessing Officer of discounts given (Paper Book page 277 to 289) before finalization of return of income. The assessee had finalized the accounts for the F.Y. ending 31.03.2004, but the quantification was not ascertained and the provision was made. The liability was certain at the balance sheet date and the assessee has also discharged its liability before finalization of IT return. It means, it was a foreseen liability 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 ....
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....ount ( pertaining to customer deposits) Balance written oil 380,303 Un reconciled balance in bank accounts for amounts deposited customers but not credited to the bank account pertaining to customer deposits including other sundry balances Other sundry advances written off 309,503 Other Miscellaneous sundry balances written off Ashok Kumar 10,000 Advance given for trial production which could not be recovered, hence written off. Sher Pal 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, Gwalior 15,000 -do- Ram Sewak Chouhan, Orena 17,000 -do- Devilal Verma, Sheopur 12000 -do- Patel Andaji Hariji, Gujarat 7500 -do- Goswaimi Jaswant Puri, Gujrat 7,500 -do- Parsa....
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....re 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 Rs. 6,59,193/-. However, as far as the remaining amounts of Rs. 6,01,457/-, Rs. 3,80,303/- and Rs. 3,09,503/- are concerned, it is evident from record that the AO has given sufficient opportunities to the assessee to furnish basic details as to in which year, the entries were passed to substantiate the claim. The books of account of the assessee are audited by 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. 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....
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....es return cannot be treated as expense in the first place and even if it is so considered, the same cannot be pertaining to the year in question as the sales return in the relevant year's sale are totally uncertain in view of the market dynamics etc. This is the provision for uncertain obligation and 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 merely a adhoc provision and was determined/accounted for on the basis of actual bills/details received after the balance sheet date, but before closing/finalization of accounts. It was credited on the basis of information received in subsequent year with respect to sales made during the subject year. However, the actual quantification was done after the balance sheet date. Actual information wa....
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....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 computed "in accordance with the cash or mercantile system of accounting as regularly employed by the assessee". The only rider to this statutory requirement regarding method of accounting is that "the Central Government may notify, in the official gazette from time to time, accounting standards" and the applicable accounting standards will have to be followed by the assessee in the method of accounting followed. One of these mandatory accounting standard, notified vide notification 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 before 1.4.1997, which provided tha....
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.... and Architects) for a project to be undertaken by them 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 well settled principle that the list of allowances enumerated in section 30 to 37 is not exhaustive and an item of loss or expenditure incidental to business may be deducted in computing 'profits and gains' even if it does not fall within any of the these sections. This is so because the tax is on 'profits and gains' and computed on ordinary commercial principles. This was established by Privi Council case CIT vs. Chitnavis (59 IA 290/6 ITC 453) where a bad debt was held to be an admissible deduction 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 : ....
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....ry 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). The claim of the assessee is also found supported by the decision of Hon'ble Rajasthan High Court in the case of CIT vs. Anjani Kumar Co. Ltd. (2003) 259 ITR 114 (Raj.) wherein the Hon'ble Court has held as under : "The admitted facts are that the advance was paid for acquiring 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 Rs. 52,489 is to be allowed as business loss. We agree with the view taken by the Tribunal. No interference is called for." In view of this, we find no justification to support the order of the ld. CIT(A) on this issue. Accordingly, this ground of assessee's appeal....