M/s SML Isuzu Ltd., Chandigarh V. Addl. CIT, Chandigarh

ITA 1156/CHANDI/2013

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9578 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 11-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S PHANI KISHORE
• Keywords: Rule of consistency; Proportionate interest; Bad and doubtful debts; Competent authority; Revised return; Revenue expenditure; Capital expenditure
• Section: 250; 264

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , . . . . , BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ./ ITA NO.1156/CHD/2013 / ASSESSMENT YEAR : 2008-09 M/S SML ISUZU LTD. (FORMERLY KNOWN AS M/S SWARAJ MAZDA LTD.), SCO: 204-205, SECTOR 34-A, CHANDIGARH. THE ADDL.CIT, RANGE IV, CHANDIGARH. ./ PAN NO.AACCS2991P / APPELLANT / RESPONDENT & ./ ITA NO.1193/CHD/2013 / ASSESSMENT YEAR : 2008-09 THE D.C.I.T., CIRCLE-4(1), CHANDIGARH. M/S SML ISUZU LTD. (FORMERLY KNOWN AS M/S SWARAJ MAZDA LTD.), SCO: 204-205, SECTOR 34-A, CHANDIGARH ./ PAN NO.AACCS2991P / APPELLANT / RESPONDENT /ASSESSEE BY : SHRI AJAY VOHRA, SR.ADV. ! / REVENUE BY : SHRI G.S.PHANI KISHORE, CIT DR ' # $ /DATE OF HEARING : 29.05.2019 %&'( $ /DATE OF PRONOUNCEMENT: 02.07.2019 ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 2 /ORDER PER SANJAY GARG, JUDICIAL MEMBER : THE PRESENT ARE CROSS APPEALS, ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH [HEREINAFTER REFERRED TO AS CIT(A)], DATED 22.10. 2013 RELATING TO ASSESSMENT YEAR 2008-09, PASSED U/S 250 (6) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT). 2. SINCE BOTH THE APPEALS AROSE OUT OF THE SAME ORD ER OF THE CIT(A) INVOLVING IDENTICAL FACTS AND CIRCUMSTAN CES AND THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DIS POSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E. FIRST WE TAKE UP THE APPEAL OF THE ASSESSEE IN ITA NO.1156/CHD/2013 . ITA NO.1156/CHD/2013(ASSESSEES APPEAL) : 3. THE ASSESSEE IN THIS APPEAL HAS TAKEN THE FOLLOW ING GROUNDS: 1. THAT THE LD. CIT (A) IS NOT JUSTIFIED IN CONFIR MING THE ASSESSMENT MADE BY THE LD. A. 0. U/S 143 (3) BY HOLDING THAT ASSESSMENT IS NOT BARRED BY LIMITATION , ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 3 WHEREAS THE ASSESSMENT MADE BY THE LD. A. O. U/S. 143 (3) IS BARRED BY LIMITATION AND BE QUASHED. 2.A) THAT THE LD. CIT (A) IS NOT JUSTIFIED IN CONF IRMING THE ADDITION OF RS.10,12,24,416/- BY HOLDING THAT THE S AID EXPENDITURE WAS TREATED AS PRE-OPERATIVE EXPENDITUR E BY THE APPELLANT. HOW CAN THE APPELLANT CLAIM EXPENDITURE AS REVENUE EXPENDITURE, ONCE IT HAS ITS ELF NAMED AND HAS CLAIMED IT AS PRE-OPERATIVE EXPENDITURE. B) THAT WITHOUT PREJUDICE TO ABOVE, THE APPELLANT DISPUTES THE QUANTUM OF ADDITION. 3.A) THAT THE LD. CIT (A) IS NOT JUSTIFIED IN CONF IRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.1,80,52,000/- ON ADHOC BASIS. B) THAT WITHOUT PREJUDICE TO ABOVE, TH E APPELLANT DISPUTES THE QUANTUM OF DISALLOWANCE. 4. THAT THE APPELLANT CRAVES LEAVE FOR ANY ADDITIO N, DELETION OR AMENDMENT IN THE GROUNDS OF APPEAL ON O R BEFORE THE DISPOSAL OF THE SAME. GROUND NO.1: 4. AT THE OUTSET, THE LD.COUNSEL FOR THE ASSSESSEE HAS SUBMITTED THAT AS PER THE INSTRUCTIONS OF HIS CLIEN T, HE DOES NOT WANT TO PRESS GROUND NO.1. HENCE, GROUND NO.1 R AISED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. GROUND NO.2: 5. VIDE GROUND NO.2, THE ASSESSEE HAS AGITATED THE CONFIRMATION OF ADDITION MADE BY THE A.O. IN RESPEC T OF PRE- OPERATIVE EXPENDITURE INCURRED BY THE ASSESSEE FOR ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 4 EXPANSION OF ITS BUSINESS BY WAY OF SETTING UP A NE W DIVISION FOR ADDITIONAL MODELS OF COMMERCIAL VEHICL ES. 6. THE BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT T HE ASSESSEE HAS BEEN ENGAGED IN THE BUSINESS OF DESIGN ING, DEVELOPMENT, MANUFACTURE, ASSEMBLING, MARKETING AND DISTRIBUTION OF COMMERCIAL VEHICLES. IN THE PREVIOU S YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION , THE ASSESSEE, TO EXPAND ITS EXISTING PORTFOLIO OF COMME RCIAL VEHICLES, HAD SET UP A NEW DIVISION WITHIN ITS EXIS TING PREMISES FOR MANUFACTURING ADDITIONAL MODELS OF COMMERCIAL VEHICLES I.E. LUXURY BUS BODIES WITH NEW DESIGN AND TECHNOLOGY. THE ASSESSEE FOR THE ABOVE NEW DIVI SION INCURRED THE FOLLOWING EXPENDITURE DURING THE YEAR: A TOTAL CAPITAL WORK-IN-PROGRESS = RS.8090.59 LACS NET OF AMOUNT RECOVERED FROM SALE = RS. 81.57 L ACS OF VEHICLES 7. THE ASSESSEE CAPITALIZED ALL THE AFORESAID EXPEN DITURE NET OF SALE REALIZATION UNDER THE HEAD CAPITAL WOR K-IN- PROGRESS. THE ASSESSEE ACCORDINGLY FILED ITS ORIGI NAL RETURN OF INCOME ON 28.9.2008 DECLARING THE AFORESAID EXPE NDITURE AS CAPITAL IN NATURE. HOWEVER, LATER ON, THE ASSESS EE FILED A REVISED RETURN ON 26.3.2009 CLAIMING ADDITIONAL DED UCTION ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 5 OUT OF THE CAPITAL WORK-IN-PROGRESS DECLARED IN EAR LIER RETURN TREATING CERTAIN EXPENDITURE AS REVENUE EXPE NDITURE (AMOUNTING TO RS.10,12,24,416/-) INCURRED ON ACCOUN T OF PERSONNEL COSTS, ADMINISTRATIVE EXPENSES AND OTHER MANUFACTURING EXPENSES INCURRED DURING THE PRE- COMMERCIAL OPERATION PERIOD. IN THE ASSESSMENT ORDE R THE A.O. DISALLOWED THE AFORESAID EXPENDITURE ON THE GR OUND THAT THERE WAS EXPANSION OF THE BUSINESS WHICH HAD NOT COMMENCED COMMERCIAL OPERATIONS DURING THE YEAR AND HENCE, EXPENDITURE INCURRED COULD NOT BE ALLOWED AS REVENUE EXPENDITURE. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAD ITSELF CAPITALIZED THE AFORESAID EXPEN SES AS PART OF CWIP IN THE ORIGINAL RETURNS AND, THEREFORE , ADMITTED THAT THE SAID EXPENDITURE WAS CAPITAL IN N ATURE. THE A.O. THUS HELD THAT THE EXPENSES TOWARDS EXPANS ION OF THE BUSINESS WERE NOT ALLOWABLE AS REVENUE DEDUCTIO N. 8. ON APPEAL, THE CIT(A) VIDE ORDER DATED 22.10.201 3 CONFIRMED THE ACTION THE A.O. IN TREATING THE EXPEN SES INCURRED AS CAPITAL IN NATURE. 9. BEFORE US, THE LD.COUNSEL FOR THE ASSSESSEE HAS SUBMITTED THAT THE IMPUGNED EXPENDITURE WAS INCURRE D BY THE ASSESSEE THOUGH, DURING THE PRE-COMMERCIAL OPER ATION ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 6 PERIOD, HOWEVER, THE SAME WAS INCURRED FOR THE EXPA NSION OF ALREADY EXISTING BUSINESS OF THE ASSESSEE AND FU RTHER THAT THE SAID EXPENDITURE WAS PURELY REVENUE IN NAT URE AND NOT RELATING TO SETTING UP OF THE PLANT. THE LD.COU NSEL FOR THE ASSSESSEE IN THIS RESPECT HAS RELIED UPON THE F OLLOWING DECISIONS TO STRESS THE POINT THAT THE REVENUE EXPE NDITURE INCURRED FOR SETTING UP OF A NEW UNIT, WHICH IS A P ART OF EXISTING BUSINESS OF THE ASSESSEE, IS ALLOWABLE AS A BUSINESS DEDUCTION: 1) SETABGANJ SUGAR MILLS LTD. VS. CIT, 41 ITR 272 2) PRODUCE EXCHANGE CORPORATION LTD. VS. CIT, 77 ITR 739 3) VEECUMSEES VS. CIT, 220 ITR 185 (SC) 4) DCIT VS. CORE HEALTH CARE LTD., 298 ITR 194 (SC) 5) DCIT VS. GUJARAT ALKALIES & CHEMICALLS PVT. LTD., 299 ITR 85 (SC) 6) CIT VS. MONNET INDUSTRIES LTD, 221 CTR 266 (DEL.HC)- AFFIRMED BY SC-350 ITR 304 7) CIT VS. ESCORTS AUTO COMPONENTS, 323 |ITR 11 (P&H) 8) CIT VS. MODI INDUSTRIES LTD. (NO.3), 200 ITR 341 (DEL.) 9) CIT VS. RELAXO FOOTWEARS LTD., 293 ITR 231 (DEL.) ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 7 10) CIT VS. USHA IRON & FERRO METAL CORP LTD., 296 ITR 140 (DEL) 11) CIT VS. PRIYA VILLAGE ROAD SHOWS LTD.: 332 ITR 594 (DEL) 12) INDO RAMA SYNTHETICS LTD.: 333 ITR 18 (DEL) 13) CIT VS. HAVELLS INDIA LTD. : 352 ITR 376 (DEL) 14) CIT V. TRIVENI ENGINEERING AND INDUSTRIES LIMITED.: 181 TAXMAN 5 (DEL.) 15) CIT VS. RANE (MADRAS) LTD.: 293 ITR 459 (MAD.) 16) PREM SPINNING & WEAVING MILLS CO. LTD. VS. CIT: 98 ITR 20 (ALL.) 17) KASHIRAM RAMGOPAL VS. CIT : (1988) 36 TAXMAN 305 (MP) 18) ADDL. CIT VS. ANILINE DIE STUFFS & PHARMACEUTICALS PVT. LTD.: 130 ITR 843 (BOM.) 19) CIT VS. ALEMBIC GLASS INDUSTRIES LTD.: 103 ITR 716(GUJ.) 20) RAINBOW DYESTUFF LTD. V. CIT: 213 ITR 560 (GUJ.) 21) KESORAM INDUSTRIES & COTTON MILLS VS. CIT : 196 ITR 846 (CAL.) 22) CCIT VS. SENAPATHY WHITELY LTD.: 101 CTR 31 (KAR.) 23) JAY ENGINEERING WORKS LTD. VS. CIT: 311 ITR 405 (DEL. HC) 24) CIT V. GHANASHYAM STEEL WORK LTD.: LEX ID 390033 (GUJ.) ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 8 25) CIT V. SAKTHI SUGARS LTD.: 339 ITR 400 (MAD.) 26) GLAXO SMITHKLME CONSUMER HEALTHCARE LTD V. ACIT: 112 TTJ 94 (CHD) 27) RAYMOND LIMITED V. JCIT: ITA NO.6243/BOM/ 1995 (MUM) 28) DCIT VS. MAGNETIC METER SYSTEMS INDIA LTD.: 13 ITR (T) 43 (CHEN.) 29) ACIT VS. JUPITER CORPORATE SERVICES LTD.: 6 ITR (TRIB.) 264 (AHMD.) 10. THE LD.COUNSEL FOR THE ASSSESSEE HAS FURTHER SUBMITTED THAT THE NEW UNIT WAS SET UP IN THE SAME PREMISES WHICH WAS EXPANSION OF THE ALREADY COMMENC ED BUSINESS OF THE ASSESSEE SET UP TO MANUFACTURE THE ADDITIONAL MODELS OF COMMERCIAL VEHICLES TO ENHANCE THE EXISTING PORTFOLIO OF THE ASSESSEE AND TO INCREASE ITS EXISTING PRODUCTION CAPACITY. THERE WAS A COMMON CO NTROL AND MANAGEMENT IN RESPECT OF THE ALREADY EXISTING U NITS AS WELL AS THE NEW UNIT SET UP IN THE SAME PREMISES. T HAT THE EXPANSION OF THE FACILITIES WAS FUNDED PARTLY THROU GH BANK LOANS AND PARTLY THROUGH INTERNAL ACCRUALS OF THE E XISTING UNITS. EVEN THE EXISTING DEALER NETWORK IS BEING US ED TO SELL THE NEW MODELS OF VEHICLES. 11. THE LD. DR, ON THE OTHER HAND, HAS SUBMITTED TH AT THE AFORESAID EXPENDITURE HAS RIGHTLY BEEN DISALLO WED BY THE ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 9 A.O. AS THE SAME RELATES TO PRE-OPERATIVE PERIOD OF THE NEW UNIT AND THE SAME CANNOT BE ALLOWED AS REVENUE EXPENDITURE. 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. WE FI ND THAT IN SOME OF THE CASE LAWS CITED BY THE LD.COUNSEL FO R THE ASSSESSEE, THE FACTS WERE DIFFERENT. HOWEVER, THE D ECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF JAY ENGINEERING WORKS LTD. (SUPRA) IS FOUND APPLICABLE WHEREIN IT HAS HELD THAT WHERE A NEW UNIT SET UP IS ONLY AN EXPANSION OF THE BUSINESS OF THE ASSESSEE, THE PRE- OPERATIVE REVENUE EXPENDITURE INCURRED BY THE ASSESSEE ON THE SAID PROJECT WILL BE ALLOWABLE EXPENDITURE. THE FACTS OF THE CASE ARE SQUARELY COVERED BY THE AFORESAID DECISION OF T HE HON'BLE DELHI HIGH COURT. THE LD. DR COULD NOT BRIN G ANY CONTRARY DECISION TO THE ABOVE PROPOSITION OF LAW L AID DOWN BY THE HON'BLE DELHI HIGH COURT. EVEN THERE IS NO D ENIAL OF THE FACT THAT THE EXPENDITURE CLAIMED BY THE ASSESS EE IS OTHERWISE REVENUE IN NATURE AND NOT RELATING TO THE SET UP OF THE PLANT. IN VIEW OF THIS, THIS GROUND OF APPEA L IS HEREBY ALLOWED AND DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE IS ORDERED TO BE DELETED. ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 10 GROUND NO.3: 13. VIDE GROUND NO.3 THE ASSESSEE HAS AGITATED THE CONFIRMATION OF DISALLOWANCE OF INTEREST AMOUNTING TO RS.180.52 LACS ON ADHOC BASIS. 14. THE BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE AVAILED LONG TERM LOAN OF RS.60 CRORES FROM ALLAHABAD BANK PRIMA RILY FOR FINANCING ITS EXPANSION ACTIVITIES AND INCURRED INTEREST EXPENDITURE AGGREGATING TO RS.3.73 CRORES, OUT OF W HICH INTEREST AMOUNTING TO RS.3.55 CRORES WAS CAPITALIZE D BY THE ASSESSEE BASED ON ACTUAL UTILIZATION OF FUNDS. THE REMAINING AMOUNT OUT OF THE INTEREST EXPENDITURE WA S CLAIMED AS REVENUE EXPENDITURE. THE A.O., HOWEVER, TOOK THE FIGURES OF OPENING CAPITAL WORK-IN-PROGRESS AND CLOSING CAPITAL WORK-IN-PROGRESS AND CALCULATED THE INTERES T EXPENDITURE @ 10% ON THE AVERAGE INVESTMENT ON CAPI TAL WORK-IN-PROGRESS AND CALCULATED THE SAME AT RS.535. 97 LACS. AFTER REDUCING THE INTEREST ALREADY CAPITALIZ ED OF RS.355.45 LACS, THE A.O. MADE THE ADDITION OF RS.18 0.52 LACS INTO THE INCOME OF THE ASSESSEE UNDER THE PROV ISO TO SECTION 36(1)(III) OF THE ACT. ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 11 15. THE LD.CIT(A) CONFIRMED THE DISALLOWANCE SO MAD E BY THE A.O. 16. BEFORE US, THE LD.COUNSEL FOR THE ASSSESSEE HA S SUBMITTED THAT DURING THE YEAR THE ASSESSEE HAD AVA ILED LOAN OF RS.60 CRORES. OUT OF THE AFORESAID LOAN, A SUM OF RS.51.06 CRORES WAS UTILIZED FOR THE PURPOSE OF CAP ITAL EXPANSION AND FURTHER A SUM OF RS.4.07 CRORES WAS U TILIZED FOR REPAYMENT OF SHORT TERM LOANS WHICH WERE ALSO T AKEN FOR THE PURPOSE OF CAPITAL EXPENDITURE. HENCE, THE ASSE SSEE UTILIZED TOTAL AMOUNT OF RS.55.13 CRORES OUT OF THE LOAN FUNDS AND CAPITALIZED THE PROPORTIONATE INTEREST EXPENDITURE OF RS.355.45 LACS OUT OF THE TOTAL INTE REST EXPENDITURE INCURRED OF RS.373.75 LACS. HE, THEREFO RE, HAS SUBMITTED THAT THE A.O. WITHOUT APPRECIATING THE AB OVE FACTUAL POSITION HAS MADE A DISALLOWANCE ON ADHOC B ASIS, WHICH EVEN EXCEEDS THE TOTAL AMOUNT OF INTEREST EXPENDITURE INCURRED BY THE ASSESSEE OF RS.3.73 CRO RES. 17. THE LD. DR COULD NOT REBUT THE AFORESAID FACTUA L ASPECTS. ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 12 18. IN VIEW OF THE ABOVE DISCUSSION, SINCE THE ASSE SSEE ALREADY CAPITALIZED THE INTEREST EXPENDITURE AS PER ACTUAL UTILIZATION, THERE WAS NO JUSTIFICATION FOR ADHOC DISALLOWANCE MADE BY THE A.O., WHICH EVEN EXCEEDS T HE ACTUAL INTEREST EXPENDITURE INCURRED BY THE ASSESSE E. IN VIEW OF THIS, THE DISALLOWANCE ON THIS ISSUE IS RES TRICTED TO THE EXTENT OF SUO MOTO CAPITALIZED BY THE ASSESSEE AND THE ADDITION MADE BY THE A.O. IS ORDERED TO BE DELETED. GROUND NO.4: 19. GROUND NO.4 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 20. IN VIEW OF OUR ABOVE OBSERVATIONS, THE APPEAL O F THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 21. NOW COMING TO THE APPEAL OF THE REVENUE IN ITA NO.1193/CHD/2013 . ITA NO.1193/CHD/2013(REVENUES APPEAL) : 22. THE REVENUE IN THIS APPEAL HAS TAKEN THE FOLLOW ING GROUNDS: ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 13 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF T HE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,87,66,884/- MADE BY THE A.O. UNDER SECTION 145A BY INCLUDING EXCISE DUTY IN CLOSING STOCK OF WORK IN PROGRESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.37,00,000/- MADE' BY THE AO ON ACCOUNT OF EXCESS CLAIM OF WARRANTY THAN ACTUAL UTILIZATION WHICH IS MERELY A PROVISION AND LIABILI TY OF CONTINGENT NATURE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,10,21,222/ -MADE BY THE AO ON ACCOUNT OF BAD DEBTS WRITTEN OFF ESPECIALLY WHEN THE RECEIVABLE WERE ON ACCOUNT OF DUES FROM GOVERNMENT/SEMI GOVERNMENT ORGANIZATIONS. 5. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD OR IS DISPOSED OFF. GROUND NO.1: 23. GROUND NO.1 IS GENERAL IN NATURE AND HENCE, DOE S NOT REQUIRE ANY ADJUDICATION. GROUND NO.2: 24. VIDE GROUND NO.2, THE REVENUE HAS AGITATED THE ACTION OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE A.O. U/S ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 14 145 OF THE ACT BY INCLUDING EXCISE DUTY IN CLOSING STOCK OF WORK-IN-PROGRESS. 25. AT THE OUTSET, THE LD.COUNSEL FOR THE ASSSESSEE HAS SUBMITTED THAT THE ISSUE RAISED IN THIS APPEAL IS S QUARELY COVERED BY THE COMMON ORDER OF THE TRIBUNAL DATED 14.5.2018 IN THE OWN CASE OF THE ASSESSEE PASS ED IN ITA NO.1234/CHD/2011 & OTHERS RELATING TO ASSESSMENT YE ARS 2005-06 TO 2007-08. 26. WE HAVE GONE THROUGH THE AFORESAID ORDER OF THE TRIBUNAL (SUPRA) AND FOUND THAT THE TRIBUNAL UNDER IDENTICAL FACTS VIDE PARA 30 OF THE ORDER DATED 14. 5.2018 (SUPRA), PASSED IN ITA NO.79/CHD/2009 MADE THE FOLL OWING OBSERVATIONS: '30. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. IN T HE CASE IN HAND, THE ASSESSEE HAS NOT PAID ANY EXCISE DUTY ON THE CLOSING WORK IN PROGRESS AND HENCE THERE WAS NO QUE STION OF LOADING ANY EXCISE DUTY ON ESTIMATION BASIS. EVE N OTHERWISE, IF THE VALUE OF EXCISE DUTY HAS TO BE IN CLUDED IN THE CLOSING STOCK THEN THE VALUE OF EXCISE DUTY HAS ALS O TO BE INCLUDED IN THE OPENING STOCK AND IN THAT EVENT THE RE WOULD BE NO DIFFERENCE IN THE RESULT OF THE VALUE OF THE OPENING STOCK AND CLOSING STOCK. RELIANCE IN THIS RESPECT IS PLAC ED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF 'PUROLA TOR INDIA LTD. ' (SUPRA) AND OF ALLAHABAD HIGH COURT IN THE C ASE OF 'CIT VS. SANGAM STRUCTURAL LTD.' (2013) 35 TAXMANN.COM 1 48 (ALL). ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 15 27. IN VIEW OF THIS, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS. NO CONTRARY DECISION HAS BEEN BROUGHT BEFORE US BY THE DEPARTMENT. WE, THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND AND THE SAME IS DISMISSED. GROUND NO.3: 28. VIDE GROUND NO.3, THE ASSESSEE HAS AGITATED THE DECISION OF THE CIT(A) IN DELETING THE ADDITION OF RS.37 LACS MADE BY THE A.O. ON ACCOUNT OF PROVISION FOR WARRAN TY. 29. THE BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DEBITED TO THE PROFIT & LOSS ACCOUNT THE PROVISION ON ACCOUNT OF W ARRANTY CLAIM AMOUNTING TO RS.303 LACS. ON BEING ASKED TO E XPLAIN THE ASSESSEE EXPLAINED THAT THE ASSESSEE WAS ENGAGE D IN THE BUSINESS OF MANUFACTURING AND DISTRIBUTION OF COMMERCIAL VEHICLES. THAT THE ASSESSEE WAS UNDER TH E OBLIGATION TO REPLACE/RECTIFY THE DEFECTIVE PARTS O R OTHER MANUFACTURING DEFECTS OCCURRING DURING THE SPECIFIE D PERIOD OF USAGE OF PRODUCTS BY THE CUSTOMERS. THAT THE WAR RANTY PERIOD VARIED ACCORDING TO THE NATURE OF PRODUCT AN D ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 16 MARKET PRACTICES. THE ASSESSEE FURTHER EXPLAINED TH AT THE PROVISION FOR THE YEAR UNDER CONSIDERATION WAS CALC ULATED ON THE BASIS OF AVERAGE ACTUAL WARRANTY COST OF PRE VIOUS THREE YEARS. THE A.O., HOWEVER, DID NOT AGREE WITH THE ABOVE CONTENTION OF THE ASSESSEE AND DISALLOWED THE PROVISION FOR WARRANTY EXPENSES TO THE EXTENT OF RS .37 LACS HOLDING THAT THE SAME WAS EXCESS PROVISION OF WARRA NTY MADE WITH A VIEW TO LESSEN THE PROFITS OF THE YEAR. THE A.O. NOTED THAT THE AVERAGE PROVISION FOR WARRANTY FOR 5 YEARS FROM 2004-05 TO 2007-08 AMOUNTED TO RS.270.50 LACS AND AVERAGE ACTUAL CLAIMS DURING THE SAID PERIOD AMOUNT ED TO RS.223.25 LACS, RESULTING IN EXCESS CLAIM OF AMOUNT OF RS.47.25 LACS. THE A.O. FURTHER NOTICED THAT FOR TH E RELEVANT YEAR, THE PROVISION MADE EXCEEDED THE ACTUAL CLAIM BY RS.37 LACS AND HENCE, PROCEEDED TO MAKE DISALLOWANC E OF THE SAID AMOUNT. 30. ON APPEAL AGAINST THE AFORESAID ORDER, THE LD.C IT(A) DELETED THE DISALLOWANCE OF RS.37 LACS MADE BY THE A.O. BY HOLDING THAT THE ASSESSEE HAD WORKED OUT THE PROVIS ION OF WARRANTY ON THE BASIS OF A SCIENTIFIC METHOD, WHICH HAD CONSISTENTLY BEEN FOLLOWED FOR THE LAST SEVERAL YEA RS. ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 17 31. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THERE IS NO DISPUTE THAT THE PROVISION OF WARRANTY WAS AN ALLOW ABLE DEDUCTION. THE A.O., HOWEVER, HAS HELD THAT THE PRO VISION OF WARRANTY AS CLAIMED BY THE ASSESSEE WAS EXCESSIV E. THE LD.COUNSEL FOR THE ASSSESSEE IN THIS ASPECT HAS INV ITED OUR ATTENTION TO A CHART TO SHOW THAT THE ASSESSEE HAS CALCULATED THE PROVISION FOR WARRANTY ON A VERY SCI ENTIFIC BASIS, BY CONSIDERING THE AVERAGE ACTUAL WARRANTY C OST OF PREVIOUS THREE YEARS PER VEHICLE SOLD. WE HAVE GONE THROUGH THE AFORESAID CHART. THE ASSESSEE IN THIS CHART HAS MENTIONED THE WARRANTY PROVISION CREATED FOR FINANC IAL YEARS 2005-06, 2006-07 AND 2007-08. THE WARRANTY PROVISION WAS CREATED BY TAKING THE AVERAGE WARRANT Y PER VEHICLE. THE ASSESSEE CREATED THE WARRANTY PROVISIO N OF RS.291 LACS FOR FINANCIAL YEAR 2005-06, OF RS.272 L ACS FOR FINANCIAL YEAR 2006-07 AND OF RS.303 LACS FOR FINAN CIAL YEAR 2007-08(THE RELEVANT ASSESSMENT YEAR UNDER CONSIDER ATION). AGAINST THE AFORESAID PROVISION, THE TOTAL WARRANTY CLAIM RECEIVED RELEVANT TO FINANCIAL YEAR 2005-06 IN SUBS EQUENT YEAR WAS RS.368 LACS. SIMILARLY, FOR FINANCIAL YEAR 2006-07, THE TOTAL WARRANTY CLAIM RECEIVED IN SUBSEQUENT YEA RS WAS RS.357 LACS AND FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. FOR FINANCIAL YEAR 2007-08, THE TOTAL ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 18 WARRANTY CLAIM RECEIVED WAS RS.383 LACS, WHICH WAS MORE THAT THE PROVISION CREATED. THE CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE WAS A SCIENTIFIC METHOD. MOREOVER, THE PROVISION FO R WARRANTY CREATED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE DEPARTMENT TILL ASSESSMENT YEAR 2007-08. HENCE, BAS ED ON THE PRINCIPLE OF CONSISTENCY AS WELL AS CONSIDERING THAT THE PROVISION WAS CALCULATED BY ADOPTING A CONSISTENT M ETHOD, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CI T(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE. THIS GROUND OF APPEAL IS ACCORDINGLY, DISMISSED. GROUND NO.4: 32. VIDE GROUND NO.4, THE REVENUE HAS AGITATED THE ACTION OF THE CIT(A) IN DELETING THE ADDITION OF RS.1.10 C RORES MADE BY THE A.O. ON ACCOUNT OF BAD DEBTS WRITTEN OF F. 33. THE A.O. NOTED THAT THE ASSESSEE HAD WRITTEN OF F A SUM OF RS.165.66 LACS AS BAD DEBTS OUT OF THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT. OUT OF THE AFORESAID AMO UNT, AN AMOUNT OF RS.1.10 CRORES PERTAINED TO THE AMOUNT RECOVERABLE FROM GOVERNMENT AGENCIES. THE A.O. HELD THAT THE AMOUNT RECOVERABLE FROM THE GOVERNMENT COULD NO T BE ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 19 HELD TO BE BAD DEBT AS IT WOULD AMOUNT TO LABELING THE GOVERNMENT AS BANKRUPT. HE, THEREFORE, DISALLOWED T HE DEDUCTION OF BAD DEBTS WRITTEN OFF TO THE TUNE OF R S.1.10 CROROES. HOWEVER, THE LD.CIT(A) DELETED THE ADDITIO N SO MADE BY THE A.O. OBSERVING THAT SINCE THE ASSESSEE HAD WRITTEN OFF THE CLAIM OF BAD DEBTS AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT, HENCE THE DISALLOWANCE WAS NOT WARRANTED. 34. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE MA IN REASON FOR THE DISALLOWANCE OF THE AFORESAID BAD DE BTS BY THE A.O. WAS ON THE GROUND THAT THE BAD DEBTS IN QU ESTION WERE RELATING TO THE AMOUNT RECOVERABLE FROM THE GOVERNMENT, WHICH THE ASSESSEE COULD NOT RECOVER AN D THAT IT COULD NOT BE SAID THAT THE GOVERNMENT HAD BECOME BANKRUPT. 35. THE LD.COUNSEL FOR THE ASSSESSEE HAS SUBMITTED THAT THE SUPPLIES WERE MADE BY THE ASSESSEE TO THE GOVER NMENT DEPARTMENTS DURING PAST YEARS. ABOUT 95% TO 98% OF THE PAYMENT WAS RECEIVED AGAINST THE DELIVERY OF VEHICL ES/SPARE PARTS. HOWEVER, THE BALANCE 2% TO 5% OF THE PAYMENT WAS TO BE RELEASED BY THE GOVERNMENT AFTER FINAL INSPEC TION AND ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 20 ISSUING OF SATISFACTORY INSPECTION REPORT BY THE AP PROPRIATE AUTHORITY OF THE CONCERNED DEPARTMENTS TO THE CONCE RNED ACCOUNTING WINGS OF CENTRAL GOVERNMENT. THE LD.COUN SEL FOR THE ASSSESSEE HAS FURTHER SUBMITTED THAT IN RES PECT OF CERTAIN CASES, THE BALANCE PAYMENT RANGING FROM 2% TO 5%, AS NOTED ABOVE, WHICH WAS TO BE RELEASED SUBJECT TO CERTAIN FORMALITIES, GOT STUCK BECAUSE OF VARIOUS REASONS I NCLUDING NON-RECEIPT OF INSPECTION REPORT BY THE COMPETENT AUTHORITY. THE ASSESSEE COULD NOT RECOVER OUTSTANDI NG AMOUNTS DESPITE BEST EFFORTS. THE LD.COUNSEL FOR TH E ASSSESSEE HAS FURTHER SUBMITTED THAT SOMETIMES THE VALUE OF THE EFFORTS, TIME AND EXPENDITURE REQUIRED TO BE INCURRED FOR THE CLEARANCE/PURFORMANCE OF THE FORMALITIES IS MORE THAN THE ACTUAL AMOUNT DUE AND CONSIDERING THE FACT THAT THERE WAS NO LIKELIHOOD OF RECOVERY, OUTSTANDING AM OUNT AGGREGATING TO RS.1.10 CRORES WAS WRITTEN OFF BY TH E ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSIDERA TION. 36. THE LD. DR, ON THE OTHER HAND, HAS SUBMITTED TH AT THE A.O. RIGHTLY DISALLOWED THE AFORESAID BAD DEBTS AND WRITE OFF OF BAD DEBTS PERTAINING TO OUTSTANDING AMOUNT A GAINST THE GOVERNMENT. ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 21 37. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. WE FI ND FORCE IN THE CONTENTION OF THE LD.COUNSEL FOR THE A SSSESSEE THAT SOME TIMES DUE TO CERTAIN DIFFICULTIES/IMPEDIM ENTS, IT IS NOT POSSIBLE TO COMPLETE THE REQUISITE FORMALITI ES AND EVEN SOMETIMES IT IS BEYOND THE CONTROL OF THE ASSE SSEE TO GET THE NECESSARY APPROVAL AND FURTHER THAT SOMETIM ES THE VALUE OF THE REQUIRED TIME AND EFFORTS APPLIED FOR THE RECOVERY OF DUES IS MORE THAN THE ACTUAL AMOUNT RECOVERABLE AND HENCE, IN THE OVERALL BUSINESS INTE RESTS, IT IS DEEMED PRUDENT TO WRITE OFF SUCH DEBTS. THE ASSE SSEE IN THIS CASE HAS WRITTEN OFF BAD DEBTS AS THERE WAS NO LIKELIHOOD OF RECOVERY OF THE AFORESAID OUTSTANDING AMOUNT. IN VIEW OF THIS, WE DO NOT FIND ANY JUSTIFICATION O N THE PART OF THE A.O. TO MAKE THE IMPUGNED DISALLOWANCE MEREL Y BECAUSE THE RECOVERY WAS OUTSTANDING AGAINST THE GOVERNMENT. THIS GROUND OF APPEAL OF THE REVENUE IS , THEREFORE, DISMISSED. GROUND NO.5: 38. GROUND NO.5 RAISED BY THE REVENUE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. ITA NOS.1156 & 1193/CHD/2013 A.Y.2008-09 22 IN VIEW OF OUR DISCUSSION MADE ABOVE, THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS ACCORDINGLY, DISMISSED. 39. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1156/CHD/2013 IS PARTLY ALLOWED AND THE APPEAL O F THE REVENUE IN ITA NO.1193/CHD/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.07.2019. SD/- SD/- . . . . (DR. B.R.R. KUMAR) (SANJAY GARG ) ACCOUNTANT MEMBER / JUDICIAL MEMBER &' /DATED: 02.07.2019 * * &) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $ 0 , 123/4 / DR, ITAT, CHANDIGARH 6. /3 5# / GUARD FILE &) ' / BY ORDER, ! / ASSISTANT REGISTRAR P