The Delhi High Court upheld the order of the Income Tax Appellate Tribunal (ITAT) wherein it was held that training expenses on skill development were not to be disallowed treating it as a deferred expense. Ve Commercial Vehicles Ltd, the appellant/revenue seeks to assail the order dated 30.04.2020 passed by the Income Tax Appellate Tribunal [“Tribunal”]. Mr Ruchir Bhatia, senior standing counsel, who appeared on behalf of the appellant/revenue argued about the deduction claimed by the respondent/assessee vis-à-vis bad debts and the deduction claimed by the respondent/assessee towards training expenses.
It was contended that the only reason that the bad debts were disallowed by the Assessing Officer (AO) was that although the debts were bad, they had been acquired by the respondent/assessee from its predecessor-in-interest i.e., Eicher Motor Limited (EML) which was not permissible as per the provisions of Section 36(1) (vii) read with Section 36(2) of the Income Tax Act, 1961. The Commissioner of Income Tax [ “CIT(A)”] via his order dated 20.11.2015 has ruled in favour of the respondent/assessee. The Tribunal has sustained this view. in view of the judgment rendered by the Supreme Court in Commissioner of Income Tax v. T. Veerabhadra Rao and in CIT v. Times Business Solution Ltd, the court held that the disallowance concerning bad debts amounting to Rs.5,96,20,438/- was correctly deleted. The AO had treated the training expenses as a third kind of expense, i.e., deferred revenue expenditure, which was based on the conclusion that the training expenses incurred by the respondent/assessee were expenses which resulted in the skill development of the technicians.
The AO allowed as a deduction only a part of the expense amounting to Rs. 1,15,22,490/- in the AY in issue, i.e., 2011-12. The remaining amount, i.e., Rs. 2,30,44,980/- was disallowed. The Commissioner of Income Tax (Appeals ) (CIT(A)), in an appeal preferred by the respondent/assessee, reversed this view, broadly on the ground that the Act did not recognize the concept of deferred revenue expenditure and the Tribunal sustained this view. The Tribunal held that under Section 37 of the Act, the entire expenditure would have to be allowed. A division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia upheld that the view taken by the Tribunal is correct in light of the judgement in CIT(A) vs. Samsung India Electronic Limited. The Court closed the petition as the impugned order requires no interference.