Plasser India Pvt. Ltd. Vs JCIT (ITAT Delhi)
Suspicion, Technicalities & Guesswork Cannot Replace Evidence-Delhi ITAT Demolishes Ad-Hoc Tax Additions
In a comprehensive ruling involving multiple disallowances, the Delhi ITAT granted major relief to Plasser India Pvt. Ltd. and strongly disapproved arbitrary, ad-hoc and technically driven additions made by the Assessing Officer without proper inquiry or supporting material.
The assessee, engaged in manufacturing and supplying railway track maintenance machines and spare parts to Indian Railways, had faced several additions including disallowance of 80G donations, trade payables, guarantee charges, royalty, technical fees, software write-offs, warranty provisions and bad debts.
One of the key issues related to software licences purchased from Sage Software Solutions which were never put to use and later written off as obsolete. While the lower authorities treated the expenditure as capital in nature and denied deduction, the ITAT held that once the software licences had become unusable and commercially irrelevant, there was no purpose in retaining them in the balance sheet. The Tribunal observed that the fact that the software was never actually put to use was not decisive and allowed the write-off.
The Tribunal also upheld deletion of disallowance under section 80G where the AO had denied deduction merely because certain technical particulars were allegedly absent in donation receipts. The ITAT noted that donations were made through account-payee instruments and the genuineness of the donee institutions was never disputed.
On the issue of ₹1.01 crore ad-hoc disallowance of trade payables, the Tribunal strongly criticised the AO for making a flat 5% addition without identifying even a single bogus creditor. The assessee had already furnished addresses, ledger accounts and supporting documents of major creditors. The ITAT held that additions based purely on suspicion and conjecture without independent verification are unsustainable in law.
Relief was also granted in respect of bank guarantee charges paid to Indian banks and associated enterprises for furnishing guarantees to Indian Railways. The Tribunal accepted that such charges were routine business expenditure and did not result in creation of any capital asset or enduring benefit.
The ITAT further upheld deletion of massive disallowances relating to royalty and technical service fees paid to associated enterprises. The Bench observed that similar payments had been accepted in earlier years and even Transfer Pricing Officers had found them to be at arm’s length. It also held that once a transaction falls within transfer pricing jurisdiction, the AO cannot independently determine its allowability without proper TP reference.
On the issue of warranty provisions, the Tribunal followed the Delhi High Court ruling in the assessee’s own case and the Supreme Court decision in Rotork Controls India Pvt. Ltd., reiterating that scientifically estimated warranty provisions based on past experience are allowable deductions.
Regarding bad debts written off relating to deductions made by Indian Railways from bills, the ITAT restored the matter for limited verification under section 36(2), while reiterating the Supreme Court principle in TRF Ltd. that post-1989, actual proof that debt became bad is not necessary once it is written off in books.
Ultimately, the Tribunal allowed the assessee’s appeal and dismissed the Revenue’s appeal, reaffirming that tax assessments cannot be driven by ad-hoc percentages, procedural nit-picking or unsupported assumptions when documentary evidence is already on record.
FULL TEXT OF THE ORDER OF ITAT DELHI
