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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R.S. SYAL & SHRI PARTHA SARATHI CHAUDHURY
PER R.S. SYAL, VP: This appeal by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals)-5, Pune on 19-02-2016 in relation to the assessment year 2011-12. 2. The first ground is general, which was not pressed by the ld. AR. The same, therefore, stands dismissed as ‘Not pressed’. 3. The second ground is against the confirmation of disallowance of Rs.20,16,975/- being expenditure incurred on replacement of Digital print heads.
VGA Digital Printers Pvt. Ltd.,
The assessee is engaged in Digital Printing. During the year under consideration, a sum of Rs.46,46,080/- was incurred on gross basis towards replacement of print head of the Digital Print Machine, that had got damaged. Out of this gross amount, insurance claim was received for Rs.26,29,105/- and the remaining amount of Rs.20,16,975/- was claimed as deduction.
The AO did not allow the deduction by treating it as a capital expenditure of enduring nature, which came to be affirmed in the first appeal. Aggrieved thereby, the assessee has approached the Tribunal.
We have heard both the sides and gone through the relevant material on record. It is seen that the Digital Print Machine of the assessee got damaged during the operations and a major component, being, print heads of it had to be replaced. This resulted into incurring of net expenditure of Rs.20,16,975/-. It is not a case of an old machinery having been replaced with a new one. Rather, the Digital Print Machine remained as such but only its component, which got damaged, had to be replaced resulting into the expenditure. It is only an expenditure in the nature of ‘current repair’ without which the machine could not have operated resulting into halting of the assessee’s business
VGA Digital Printers Pvt. Ltd., operations. By no stretch of imagination, this amount can be construed as a capital expenditure. We, therefore, overturn the impugned order on this score and direct to grant deduction for the amount under consideration. This ground is allowed.
Ground No.3 of the appeal is against the confirmation of disallowance of Rs.60,15,400/- towards Salary and Bonus to Directors.
The facts anent to this issue are that the assessee paid salary and bonus to directors amounting to Rs.67,23,600/- as against Rs.43,41,600/- paid in the preceding year. The AO made disallowance of Rs.60,15,400/- by considering the amount paid over and above a sum of Rs.7,08,200/-, as per table given on page 11 of the assessment order, as unwarranted. The ld. CIT(A) confirmed the disallowance.
Having heard the rival submissions and gone through the relevant material on record, it is seen that the assessee paid total remuneration of Rs.67,23,600/- to three directors. A sum of Rs.43.41 lakhs was paid in the preceding year. The assessee complied with the requirements of the Companies Act, 1956 for enhancing salary and bonus to the directors. Not only that, the assessee advanced reasons before the AO which led to increase in VGA Digital Printers Pvt. Ltd., the salary of directors. The AO had made out a case that if the assessee company had paid dividend instead of remuneration to directors, such payment would have been fetched more tax. In our considered opinion, there is no question of changing the character of transaction from payment of salary to the possible payment of dividend, resulting into potential higher inflow of tax.
If the view of the authorities below is taken to a logical conclusion, then every payment of salary and bonus to directors would call for disallowance because in any case the payment of amount to the them in the shape of dividend would fetch more tax. Obviously, it is a not a correct position in law. Since the assessee justified the payment of such salary and bonus to directors and also complied with the necessary provisions under the Companies Act, 1956 in this regard, we are satisfied that no case has been made out for any disallowance. The impugned order on this score is overturned and the disallowance is deleted.
The next ground against the disallowance of Rs.1,29,167/-, being, claim towards Gratuity Fund was not pressed by the ld. AR. The same is, therefore, dismissed as ‘not pressed’.
VGA Digital Printers Pvt. Ltd.,
The last effective ground is against the confirmation of disallowance of Rs.19,22,610/- towards Bad Debts.
The facts apropos this ground are that the assessee wrote off a sum of Rs.19,22,610/-, being, the amount receivable from Reliance Communications Ltd. after lot of e-mail correspondence with the company, including, Mr. Anil Ambani for recovery of outstanding amounts. The AO did not allow the deduction on the ground that the assessee was still continuing business transactions with the company. The ld. CIT(A) affirmed the decision of the AO, against which the assessee has come up in appeal before the Tribunal.
Having heard both the sides and gone through the relevant material on record, it is found as an admitted position that the assessee did write off Rs.19,22,610/- as Bad Debt in its books of account. Mere writing off the amount as bad debt is sufficient for claiming deduction u/s.36(1)(vii). There is no requirement to specifically demonstrate and prove that the amount had become bad debt, as has been canvassed by the authorities below. In case any recovery is made thereafter against the bad debt written off, such an amount is chargeable to tax. Since the assessee in the instant case wrote off Rs.19.22 lakh in its accounts as bad debt, in VGA Digital Printers Pvt. Ltd., our considered opinion, the same is eligible for deduction. We order accordingly. The impugned order is overturned on this score.
No additional ground was pressed by the ld. AR, which hereby stand dismissed.
In the result, the appeal is partly allowed. Order pronounced in the Open Court on 14th December, 2022.