INDIAN POTASH LIMITED,CHENNAI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1, NEW DELHI

ITA 4113/DEL/2024

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The case involves cross appeals by Indian Potash Limited and the Deputy Commissioner of Income Tax (DCIT), Central Circle 1, against the order of the Commissioner of Income-tax (Appeals), Delhi. The appeals pertain to the assessment year 2018-19 and involve issues related to the disallowance of excess depreciation claimed on POS machines and SAP licenses, and the disallowance of bad debts. The Tribunal examined the legal provisions under the Income Tax Act, 1961, relevant case laws, and the facts presented by both parties. The Tribunal's decision was influenced by precedents set by the Delhi High Court, particularly regarding the depreciation rates applicable to POS terminals and the treatment of bad debts under mercantile accounting.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711989 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: Pr.CIT vs. Connaught Plaza Restaurant Pvt Ltd (2016) (9) TMI 1485
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DAYAINDER SINGH SIDHU
• Assessee Lawyers: AKSHAT JAIN
• Keywords: Question of law; Bad and doubtful debts; Depreciation

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’: NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No.4113/DEL/2024 (Assessment Year: 2018-19) Indian Potash Limited, vs. DCIT, Central Circle 1, 1st Floor, Seethakathi Business Centre, New Delhi. 684 – 690, Anna Salai Thousand Lights, Chennai – 600 006 (Tamil Nadu). (PAN : AAACI0888H) ITA No.4578/DEL/2024 (Assessment Year: 2018-19) DCIT, Central Circle 1, vs. Indian Potash Limited, New Delhi. 1st Floor, Seethakathi Business Centre, 684 – 690, Anna Salai Thousand Lights, Chennai – 600 006 (Tamil Nadu). (PAN : AAACI0888H) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Akshat Jain, CA Shri Rajat Jain, CA REVENUE BY : Shri Dayainder Singh Sidhu, CIT DR Date of Hearing : 05.06.2025 Date of Order : 23.07.2025 O R D E R PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. These cross appeals are filed by the assessee and Revenue against the order of ld. Commissioner of Income-tax (Appeals), Delhi – 23 [hereinafter referred to as ‘ld. CIT (A)] dated 10.07.2024 for Assessment Year 2018-19. Printed from counselvise.com 2 ITA No.4113/DEL/2024 ITA No.4578/DEL/2024 2. The Revenue has raised the following grounds of appeal :- “1. The order of ld. CIT (A) is not correct in law and facts. 2. Whether on the facts and circumstances of the case Ld. CIT (A) is justified in deleting the addition of Rs.88,67,868/- on account of disallowance of excess depreciation claimed on POS Machine. 3. Whether on the facts and circumstances of the case Ld. CIT (A) is justified in deleting the addition of Rs.70,55,840/- on account of disallowance of excess depreciation claimed on SAP License. 4. Whether on the facts and circumstances of the case Ld. CIT (A) is justified in deleting the addition of Rs.9,71,46,262/- on account of disallowance of excess bad debt claimed on which the company is not eligible for taking the benefit of claiming of subsidy by the Government of India for violation of subsidy by the Government of India for violation of norms set by the Ministry of Chemical & Fertilizers.” 3. The assessee has taken the following grounds of appeal :- “1. That on the facts and circumstances of the case, the Ld. CIT(A) erred in law in upholding disallowance of bad debts written off of Rs.25,90,391/- u/s 36(1)(vii) of the Act against which income offered in same financial year 2017-18 by misconstruing the provisions of Section 36(2) of the Act that income against said bad debts should be offered in earlier previous years only without appreciating that section 36(2) clearly states that deduction shall be allowed if amount of such debt has been taken into account in computing the income of the previous year in which the amount of such debt is written off or of an earlier previous year. 2. That on the facts and circumstances of the case, the Ld. CIT(A) erred in law in upholding disallowance of debts written off of Rs 25,90,391/- u/s 36(1)(vii) of the Act by arbitrarily alleging that no evidence was furnished to establish that debts were actually became bad and written off during the year without appreciating the fact that there is no requirement under section 36(2) to prove that debts were actually became bad. 3. That the grounds of appeal are independent and without prejudice to each other.” Printed from counselvise.com 3 ITA No.4113/DEL/2024 ITA No.4578/DEL/2024 4. With regard to ground no 2 raised by the Revenue, the issue of disallowance of Depreciation on POS machine, we observed that the assessing officer has made disallowance of excess deprecation of Rs.88,67,868/- on POS Machine by holding that POS machine is eligible for depreciation at the rate of 25% instead of 40%. At the time of hearing, Ld DR of the Revenue heavily relied on the findings of Assessing Officer. On the other hand, Ld AR of the assessee relied upon the findings of Ld. CIT(A) in Paras 5 to 9 of ld. CIT(A) order. He further relied upon the decision of Hon’ble Delhi High Court in the case of Pr.CIT vs. Connaught Plaza Restaurant Pvt Ltd (2016) (9) TMI 1485 wherein it is held that POS machine is eligible for depreciation @ 60/40%. 5. 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. Printed from counselvise.com 4 ITA No.4113/DEL/2024 ITA No.4578/DEL/2024 Given these circumstances, this court is of the opinion that no question of law, much less a substantial one arises for determination under section 260A.” 6. 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. 7. 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%. 8. 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 Printed from counselvise.com 5 ITA No.4113/DEL/2024 ITA No.4578/DEL/2024 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. 10. 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. Printed from counselvise.com 6 ITA No.4113/DEL/2024 ITA No.4578/DEL/2024 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;” 11. 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 Printed from counselvise.com 7 ITA No.4113/DEL/2024 ITA No.4578/DEL/2024 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. 12. 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. Sd/- sd/- (VIMAL KUMAR) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23.07.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "