DEPUTY COMMISSIONER OF INCOME TAX, JHANDEWALAN EXTN. vs. INDIAN POTASH LIMITED, CHENNAI

Considered the rival submissions and material placed on record. We find that the Hon'ble Delhi High Court in the case of Pr. CIT Vs. Connaught Plaza Restaurant Pvt. Ltd. (supra) has considered the issue i.e. Higher rate of depreciation on POS Terminals and has upheld the decision of the Tribunal where it has been held that assessee is entitled to depreciation @ 60% on POS Terminals. The relevant observation of the Hon'ble High Court are as under: " The revenue's appeal urges that a substantial question of law arises i.e. whether P.O.S. terminal, is a computer or alternatively falls within the classification of computer peripherals and accessories for the purpose of depreciation. This court notices that for the relevant assessment year i.e. A. Y.2008-09 even though the Assessing Officer held that the equipment was neither computer not it could be computer accessories, the CIT(A) overturned that decision and held that the assessee was entitled to 60% depreciation. The CIT(A) was of the opinion that the equipment was akin to a computer. That determination has been concurred to the ITAT.

Since the issue under consideration is covered in favour of the assessee, we are inclined to dismiss the ground no.2 raised by the revenue.

With regard to ground no.3, on the issue of disallowance of excess Depreciation on SAP License, relevant facts are, the assessing officer has made disallowance of excess deprecation of Rs.70,55,840/- on SAP License by holding that depreciation on SAP License should be 25% instead of 40%. In appeal, Ld CIT(A) decided the issue under consideration in favour of the assessee. At the time of hearing, Ld DR of the Revenue heavily relied on the findings of AO. On the other hand, Ld AR relied on the findings of Ld CIT(A) and also relied upon the various case laws and submitted a case law compilation wherein it is held that SAP License being a computer software is eligible for depreciation @ 60% or 40%.

Considered the rival submissions and material placed on record. We observe that the issue under consideration is already settled by the various courts, therefore, we are in agreement with the findings of Ld. CIT(A) on this issue and find no infirmity in the order of Ld. CIT(A) in holding that depreciation on SAP License is allowable @ 40%. Therefore, the ground no.3 raised by the Revenue is dismissed. 9. With regard to ground no.4 of the Revenue and ground no.1 of assessee, on the issue of Disallowance of Bad debts claimed of Rs.9,97,37,000/-, the relevant facts are, the assessee is engaged in the import of fertilizers and entitled to receive subsidy from government in the form of reimbursement of freight incurred for the distribution of fertilizers. The assessee regularly books freight subsidy as income on an accrual basis in its books of accounts. During the year under consideration, the assessee has claimed bad debts of Rs.9,97,37,000/- for which the claim of subsidy was rejected by the Government, the relevant subsidy was already declared as income based on method of account followed by the assessee i.e., accrual method. The assessing officer has made disallowance of bad debts claimed of Rs.9,97,37,000/- by holding that assessee company is not eligible for taking the benefit of claim of subsidy by Government of India for violation of norms set by the Ministry of Chemical & Fertilizer. However, in appeal, the Ld. CIT(A) has allowed the bad debts amount of Rs.9,71,46,262/- out of total disallowance of Rs.9,97,37,000/- by holding that assessee on mercantile basis credited the amount of subsidy receipt as income in earlier years and subsequently the portion of same was not actually received by the assessee. Therefore, ld. CIT(A) allowed the claim by reference to the provisions of section 36(1)(vii) and 36(2) of the Income tax Act, 1961 (for short ‘the Act’). Further, the Ld. CIT(A) has sustained the balance addition of Rs.25,90,391/- by holding that since the assessee has offered the said amount of Rs.25,90,391/- as income in same year in which bad debts are claimed and not in any of the earlier years the same is not allowable.

Considered the rival submissions and material placed on record, we observe that the assessee follows the mercantile accounting system and recorded the subsidy and credited the amount of subsidy of Rs.9,71,46,262/- as income in earlier years and amount receivable from MPS of Rs.25,90,391/- in the previous financial year i.e. 2017–18. We observe that as per the provisions of section 36(2) of the Act, a deduction of bad debts shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. Relevant provision of section 36(2) is reproduced as under: “(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply— (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;”

Since, the assessee has claimed the amount of bad debts of Rs.9,97,37,000/- (i.e. Rs 9,71,46,262/- + Rs 25,90,391/-) as income in earlier years and previous financial year i.e. 2017–18, the same is allowable. We observe that the claim made by the assessee as bad debts is reasonable considering the fact that the assessee has accounted the subsidy regularly in the earlier years as well as in the year under consideration. In case the subsidy claim of the assessee is rejected due to any reason, the relevant subsidy is not recoverable, then the relevant subsidy can never be part of the income of the assessee. We have observed that the Ld CIT(A) has allowed the unrecoverable subsidy as bad debts relevant for the previous years, however, he sustained the disallowance of Rs.25,90,391/- on the basis that claim of the bad debts in same year in which the income so booked is not allowable. In our view, what is relevant for consideration are, whether the subsidy which was booked in the current year are recoverable or not. In case it is not recoverable, it does not matter, whether it is booked in the current year or earlier, the relevant unrecoverable subsidy has to be allowed as bad debts, in view of provisions of section 36 of the Act and there is no bar on the same. The assessee had the option to reverse the subsidy amount credited as income. Rather it initially booked the subsidy as income and the unrecovered amount was claimed as bad debts in the same year. Therefore, the ground no.3 raised by the Revenue on this issue is dismissed and ground no.1 raised by the assessee is allowed.

In the result, the appeal filed by the Revenue is dismissed and appeal filed by the assessee is allowed. Order pronounced in the open court on this 23rd day of July, 2025.