Dy. Commissioner of Income Tax , Circle-17(2), Hyderabad V. Vijai Electricals Limited , Hyderabad

ITA 1191/Hyd/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5204 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2016-2017
• Appeal Filed On: 25-07-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR PANDEY
• Keywords: Revenue expenditure; Set aside
• Section: 28; 143(1); 201; 43; 72; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO. 1191/H/2019 ASSESSMENT YEAR: 201 6 - 17 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 17(2), HYDERABAD VS. VI J AI ELECTRICALS LTD., HYDERABAD. PAN - AAACV7259B (APPELLANT) (RESPONDENT ) REVENUE BY: SHRI SUNIL KUMAR PANDEY ASSESSEE BY: SHRI S. RAMA RAO DATE OF HEARING: 1 9 /01/2021 DATE OF PRONOUNCEMENT: 29 /01/2021 O R D E R PER BENCH : T H IS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF CIT(A) 5 , HYDERABAD, DATED 2 4 / 0 5 / 201 9 RELATING TO AY 20 1 6 - 17 ON THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID.CIT(A) IS CORRECT I N ALLOWING DELAYED PAYMENT OF ESI AND PF OUT OF EMPLOYEES CONTRIBUTION A S EXPENDITURE IN CONTRAVENTION OF THE SPECIFIC PROVISIONS ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 2 - : OF SECT ION 36(1 )(VA) OF THE INCOME TAX ACT, 1961 AND ALSO AS PER THE CBOT CIRCULAR NO.22/2015? 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID.CIT(A) IS CORRECT IN ALLOWING THE PROVISIONS FOR RECTIFICATION EXPENSES AS ALLOWABLE REVENUE EXPENDITUR E WHEN AS PER ACCOUNTING PRINCIPLES, ONLY PROVISIONS WHICH IS AN ASCERTAINED LIABILITY AND HAS BEEN CALCULATED BASED ON TECHNICAL/ SCIENTIFIC ESTIMATES IS AN ALLOWABLE EXPENDITURE? 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID.CIT(A) IS CORRECT IN ALLOWING THE EXPENDITURE NOT INCURRED DURING THE PREVIOUS YEAR WHEN AS PER PROVISIONS OF THE INCOME TAX ACT, 1961, THE EXPENDITURE INCURRED ONLY DURING THE YEAR WAS ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'? 4. ANY OTHER GROUNDS ADMISSIBLE DURING APPEAL PROCEEDINGS. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF TRANS FORMERS, FILED ITS RETURN OF INCOME FOR THE AY 2016 - 17 ON 03/10/2016 ADMITTING NIL INCOME, WHICH WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE, AGAINST WHICH, THE ASS ESSEE FURNISHED THE INFORMATION S . ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 3 - : 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 1,79,62,364/ - TOWARDS PF CONTRIBUTION AND RS. 15,15,338/ - TOWARDS ESI CONTRIBUTION IN THE P&L ACCOUNT. OUT OF THE ABOVE CONTRIBUTIONS, PF CONTRIBUTION AMOUNT TOTALING TO RS. 79,79,429/ - AND ESI CONTRIBUTION TOTALING TO RS. 5,22,318/ - WERE REMITTED TO THE RELEVANT FUND BEYOND THE DATE AS SPECIFIED IN THE SPECIFIED ACT OF SECTION 36(1)(VA) OF THE ACT. THEREFORE, RE FERRING TO THE SAID PROVISIONS, THE AO OBSERVED THAT THE SUMS RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AND CREDITED TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND ON OR BEFORE THE DUE DATE IS TO BE ALLOWED AND SINCE, THE ASSESSEE REMITTED THE SAID AMOUNT S BEYOND THE DUE DATES IN THE RELEVANT FUND, THE AO DISALLOWED THE SAID AMOUNTS AND ADDED TO THE INCOME RETURNED BY THE ASSESSEE APPLYING THE PROVISIONS OF SECTION 36(1)(VA) RWS 2(24(X) OF THE ACT. 2.2 THE AO ALSO NOTED THAT THE ASSESSEE INCURRED EXPENDI TURE TOWARDS RECTIFICATION EXPENSES TO THE EXTENT OF RS. 1,24,68,613/ - , WHICH WAS ADJUSTED AGAINST THE ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 4 - : PROVISION OF EARLIER YEARS TO THE TUNE OF RS. 52,16,263/ - . THE EXCESS OF EXPENDITURE OVER THE PROVISION OF RS. 72,52,349/ - AND THE CURRENT YEAR PROVISI ON OF RS. 82,03,722/ - WHICH WORKED OUT TO RS. 1,54,56,071/ - WAS DEBITED TO P&L ACCOUNT. WHEN THE AO ASKED TO SHOW CAUSE AS TO WHY RECTIFICATION PROVISION AMOUNTING TO RS. 82,03,723/ - SHOULD NOT BE DISALLOWED IN THE ABSENCE OF PROPER DOCUMENTARY EVIDENCE SU PPORTING THE CLAIM OF THE ASSESSEE, THE ASSESSEE SUBMITTED DETAILS OF RECTIFICATION EXPENSES. SINCE THE ASSESSEE HAS NOT FURNISHED ANY TECHNICAL/SCIENTIFIC ESTIMATES FOR THE PROVISION MADE DURING THE PREVIOUS YEAR, THE AO OPINED THAT THE PROVISION MADE BY THE ASSESSEE IS CONTINGENT IN NATURE AND IS NOT AN ASCERTAINED LIABILITY AND AS PER THE PROVISIONS OF THE ACT, THE EXPENDITURE INCURRED ONLY DURING THE YEAR WAS ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROF ESSION. IN VIEW OF THE ABOVE OBSERVATIONS, THE AO DISALLOWED THE AMOUNT OF RS. 82,03,723/ - TOWARDS PROVISION FOR RECTIFICATION AND ADDED TO THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 5 - : 3. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE CIT( A) ALLOWED THE APPEAL OF THE ASSESSEE BY DELETING THE DISALLOWANCES MADE BY THE AO IN THE ASSESSMENT ORDER. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD. DR, BESIDES RELYING ON THE ORDER OF AO, SUBMITTED T HAT THE ASSESSEE HAS NOT DEPOSITED THE CONTRIBUTIONS RECEIVED FROM THE EMPLOYEES AS PER THE RESPECTIVE ACT, WHICH OUGHT TO HAVE BEEN DEPOSITED BY THE ASSESSEE WITHIN THE SPECIFIED DATES. HE SUBMITTED THAT IF THE EMPLOYEES CONTRIBUTIONS ARE NOT REMITTED BY THE DUE DATES AS PRESCRIBED UNDER EXPLANATION TO SECTION 36(1)(VA) WHICH IS 15 TH DAY OF THE NEXT MONTH FOR DIFFERENT PAYMENTS, EVEN IF PAID BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME U/S 139(1). REFERRING TO SECTION 2(24)(X), THE LD. DR SUBMITTED THAT AS PER SUB - SECTION 36(1)(VA), ASSESSEE SHALL BE ENTITLED TO THE DEDUCTION I N COMPUTING THE INCOME REFERRED TO IN SECTION 28 WITH RESPECT TO ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES TO WHICH THE PROVISIONS ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 6 - : OF SUB - CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACC OUNTS IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. LD. DR ALSO SUBMITTED THAT THE CASE LAW RELIED ON BY THE CIT(A) IN HIS ORDER IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 6. THE LD. AR, ON THE OTHER HAND, RELYING ON THE ORDER OF CIT(A) SUBMITTED THAT THE CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE AO TOWARDS PF AND ESI CONTRIBUTIONS AFTER CONSIDERING THE FACTS OF THE CASE BY FOLLOWING THE HONBLE HIGH COURTS DECISIONS, ON WHICH RELIANCE PLACED BY THE ASSESSEE, WHICH WERE MENT IONED AT PAGE 5 OF CIT(A)S ORDER. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE PAYMENTS PERTAINING TO EMPLOYEES CONTRIBUTIONS TO PF & ESI BEFORE THE DATE OF FILING OF THE RETURN OF INCOME, THEREFORE, THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES, WE ARE OF THE VIEW THAT THE DIRECTION OF THE ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 7 - : CIT(A) IS NOT PROPER AS THE ASSESSEE HAS NOT COMPLIED WITH THE PROVISIONS OF SECTION 36(1)(VA), DUE TO WHICH THE AO TREATED THE EMPLOYEES CONTRIBUTION TOWARDS PF & ESI OF RS. 85,01,747/ - AS INCOME U/S 2(24)(X) RWS 36(1)(VA) OF THE ACT. IN THIS CONNECTION, WE REFER TO SECTION 2(24)(X), 36(1)(VA) AND SECTION 43 WHICH READ AS U NDER: SECTION. 2 (24) (X) PROVIDES THAT AMOUNTS RECEIVED BY AN ASSESSEE FROM EMPLOYEES TOWARDS PF CONTRIBUTIONS ETC SHALL BE INCOME. SECTION. 36 (1) (VA) PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LEGISLATION, THE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION. 43B. NOTWITHSTANDING ANYTHING CONT AINED IN ANY OTHER PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A) ANY SUM PAYABLE B Y THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BEING IN FORCE, OR (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES, OR (C) ANY SUM REFERRED TO IN CLAUSE (II) OF SUB - SECTION (1) OF SECTION 36 , OR (D) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATION, IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR BORROWING, OR (E) ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR ADVANCES FROM A SCHEDULED BANK 55 [OR A CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK] IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR ADVANCES, OR (F) ANY SUM PAYABL E BY THE ASSESSEE AS AN EMPLOYER IN LIEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE, OR (G) ANY SUM PAYABLE BY THE ASSESSEE TO THE INDIAN RAILWAYS FOR THE USE OF RAILWAY ASSETS, ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 8 - : AFTER CAREFUL READING OF THE AFORESAID SECTION, WE ARE OF THE CONSIDERED OPI NION THAT THE ISSUE INVOLVED IN THIS CASE IS SQUARELY COVERED UNDER SECTION 36(1)(VA) OF THE ACT. IN THIS CONNECTION, WE ALSO REFER TO THE PRESS NOTE BY PIB REGARDING EPFOS WITHDRAWS GRACE PERIOD OF 5 DAYS FOR DEPOSITING THE DUES FROM FEBRUARY, 2016, DATE D 12 TH JANUARY, 2016, WHICH READS AS UNDER: PRESS INFORMATION BUREAU GOVERNMENT OF INDIA MINISTRY OF LABOUR & EMPLOYMENT 12 - JANUARY - 2016 EPFO'S WITHDRAWS GRACE PERIOD OF 5 DAYS FOR DEPOSITING THE DUES FROM FEBRUARY, 2016 EMPLOYEES PROVIDENT FUND ORGANISATION(EPFO) HAS WITHDRAWN GRACE PERIOD OF 5 DAYS FOR DEPOSITING THE DUES WITH EFFECT FROM FEBRUARY ,2016. EPFO HAS EARLIER ISSUED A CIRCUL AR ON 8TH JANUARY, 2016 TO THIS EFFECT. IN A COMMUNICATION TO EMPLOYERS ,EPFO HAS INFORMED THAT THE DUES FOR THE MONTH OF JAN, 2016 ARE TO BE PAID BY 15TH FEBRUARY 2016. IN VIEW OF AVAILABILITY OF TECHNOLOGICAL TOOLS TO THE EMPLOYERS, THE CONCESSION OF 5 D AYS HAS OUTLIVED ITS BASIC PURPOSE AND UTILITY. ACCORDINGLY, THE CONCESSION OF GRACE PERIOD OF 5 DAYS AVAILABLE TO THE EMPLOYERS FOR DEPOSITING THE CONTRIBUTION AND OTHER DUES HAS BEEN WITHDRAWN. EMPLOYERS ARE REQUIRED TO PAY THE CONTRIBUTIONS AND ADMINI STRATIVE CHARGES WITHIN FIFTEEN DAYS OF CLOSE OF EVERY MONTH AS PER THE PROVISIONS OF EPF & MP ACT 1952 UNDER THREE SCHEMES NAMELY EMPLOYEES' PROVIDENT FUNDS SCHEME (EPFS), 1952, EMPLOYEES' PENSION ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 9 - : SCHEME (EPS), 1995 AND EMPLOYEES' DEPOSIT LINKED INSURANCE SCHEME (ED US), 1 976.A GRACE PERIOD OF 5 DAYS WAS ALSO ALLOWED IN ADDITION TO THE STATUTORY PROVISIONS. THIS GRACE PERIOD OF 5 DAYS WAS ALLOWED IN VIEW OF THE PRACTICE OF MANUAL PROCESSING OF CALCULATION OF WAGES AND DUES OF THE EMPLOYEES AT THE END OF E MPLOYERS. THE REMITTANCES OF THE DUES IN THE BANK ALSO REQUIRED ADDITIONAL TIME IN THE MANUAL SETUP. RECENT TECHNOLOGICAL ADVANCEMENT, HAVE EMPOWERED EMPLOYERS TO COMPUTE THE WAGES AND LIABILITIES THROUGH AID OF COMPUTERS. FACILITY NOW EXISTS TO FILE ELE CTRONIC CHALLAN - CUM - RETURN (ECR) AND REMITTANCE OF DUES THROUGH INTERNET BANKING. THIS HAS SUBSTANTIALLY REDUCED THE PROCESS AND TIME TAKEN IN CALCULATION OF PF DUES AND ITS REMITTANCES IN THE BANK. THE CONCESSION OF 5 DAYS HAS OUTLIVED ITS BASIC PURPOSE AND UTILITY. ACCORDINGLY, THE CONCESSION OF GRACE PERIOD OF 5 DAYS AVAILABLE TO THE EMPLOYERS FOR DEPOSITING THE CONTRIBUTION & OTHER DUES IS WITHDRAWN. THIS SHALL APPLY FROM FEBRUARY, 2016 FOR DEPOSITING CONTRIBUTIONS FOR THE MONTH OF JANUARY, 2016 THA T IS PAYABLE IN THE MONTH OF FEBRUARY, 2016.THE EMPLOYERS WIL L THEREFORE NEED TO DEPOSIT THE REMITTANCES WITHIN 15 DAYS OF CLOSE OF EVERY MONTH FROM FEBRUARY, 2016. THE FIELD OFFICES OF EPFO ARE BEING ASKED TO SENSITIZE LARGE ESTABLISHMENTS THAT EMPLOY M ORE THAN 500 EMPLOYEES, ALL PSUS AND IMPORTANT ESTABLISHMENT IN THIS REGARD, THROUGH LOCAL PRESS RELEASES, EMAILS AND AT APPROPRIATE FORUMS. FROM THE ABO VE PRESS NOTE, IT IS CLEAR THAT EARLIER THERE WAS 5 DAYS GRACE PERIOD FOR REMITTING HAS ALSO BEEN WITHDRAWN WITH EFFECT FROM FEBRUARY, 2016. WE ALSO FOUND FROM THE ORDER OF CIT(A) THAT IN MANY INSTANCES, THE ASSESSEE HAS ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 10 - : DEPOSITED AFTER 15 DAYS OF THE FOLL OWING MONTHS. THEREFORE, TO MEET THE ENDS OF JUSTICE, WE REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH AS PER THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARAT HOTELS LTD., ITA NO. 271/2005, VID E ITS ORDER DATED 6 TH SEPTEMBER, 2018 WHEREIN THE HONBLE COURT HAS HELD AS UNDER: 8. HAVING REGARD TO THE SPECIFIC PROVISIONS OF THE EMPLOYEES PROVIDENT FUNDS ACT AND ESI ACT AS WELL AS THE CONCERNED NOTIFICATIONS WHICH GRANTED A GRACE PERIOD OF 5 DAYS (WHICH APPEARS TO HAVE BEEN LATE WITHDRAWN RECENTLY ON 08.01.2016), WE ARE OF THE OPINION THAT THE ITAT S DECISION IN THIS CASE WAS NOT CORRECT. THE ASSESSEE UNDOUBTEDLY WAS ENTITLED TO CLAIM THE BENEFIT AND PROPERLY TREAT SUCH AMOUNTS AS HAVING BEEN DULY DEPOSITED, WHICH WERE IN FACT DEPOSITED WITHIN THE PERIOD PRESCRIBED (I.E. 15 + 5 DAYS IN THE CASE OF EPF AND 21 DAYS + ANY OTHER GRACE PERIOD IN TERMS OF THE EXTENT NOTIFICATION). AS FAR AS THE AMOUNTS CONSTITUTING DEDUCTIONS FROM EMPLOYEES SALARIES TOWARDS THEIR CONTRIBUTIONS, WHICH WERE MADE BEYOND SUCH STIPULATED PERIOD, OBVIOUSLY THE ASSE SSEE WAS NOT ENTITLED TO CLAIM THE DEDUCTION FROM ITS RETURNS. 9. IN VIEW OF THIS DISCUSSION, THE REVENUE S APPEAL IS PARTLY ALLOWED. THE AO IS DIRECTED TO EXAMINE THE CONTRIBUTIONS MADE WITH REFERENCE TO THE DATES WHEN THEY WERE ACTUALLY MADE AND GRANT RE LIEF TO SUCH OF THEM WHICH QUALIFIED FOR SUCH RELIEF IN TERMS OF THE PREVAILING PROVISIONS AND NOTIFICATIONS. WE ALSO CLARIFY THAT THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION IN TERMS OF SECTION 36(1)(VA) OF THE ACT. THEREFORE, THE AO IS DIRECTED TO DECIDE THE ISSUE IN LINE WITH THE ABOVE DECISION AFTER GIVING REASONABLE OPPORTUNITY OF ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 11 - : HEARING T O THE ASSESSEE IN THE MATTER. THUS, GROUND NO. 1 RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. AS REGARDS GROUND NO S. 2 & 3, REGARDING RECTIFICATION EXPENSES, LD. DR SUBMITTED THAT THE AO WAS NOT SATISFIED WITH THE PROCEDURE FOLLOWED BY THE ASSESSEE AND, THEREFORE, HE DISALLOWED THE CLAIM OF THE ASSESSEE. 9. THE LD. AR, ON THE OTHER HAND RELYING ON THE ORDER OF CIT(A) SUBMITTE D THAT THE CIT(A) WAS CONVINCED AND AGREED WITH THE SCIENTIFIC SYSTEM ADOPTED BY THE ASSESSEE IN RESPECT OF RECTIFICATION EXPENSES AND ACCORDINGLY, ALLOWED THE CLAIM OF THE ASSESSEE. HE, THEREFORE, PRAYED FOR CONFIRMING THE ORDER OF THE CIT(A) ON THIS ISSU E. 9. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, THE CIT(A) ALLOWED THE PROVISION FOR RECTIFICATION EXPENSES BY HOLDING THAT THE PROVISION IS MADE ON A SCIENTIFIC BASIS AGAINST THE SALES WHICH HAVE BEEN ACCOUNTED AS INCOME FOR THE YEAR AND TH EREFORE THE SAME HAS TO BE ALLOWED AS A ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 12 - : REVENUE EXPENDITURE AND THE SAME CANNOT BE CONSIDERED AS A CONTINGENT LIABILITY. HIS OBSERVATIONS IN HIS ORDER ARE AS UNDER: THE GROUND NO.2 IS REGARDING DISALLOWANCE OF PROVISION FOR RECTIFICATION EXPENSES OF RS. 82,03,723/ - . IT IS SEEN THAT THE APPELLANT HAS BEEN MAKING THESE PROVISIONS FOR PAST MANY YEARS AND THE SAME HAS BEEN ALLOWED TO THE APPELLANT AS REVENUE EXPENDITURE. THE RECTIFICATION EXPENSES ARE NOTHING BUT A PROVISION MADE BY THE APPELLANT ON ACCOUNT OF THE PRODUCT WARRANTY TO RECTIFY THE PRODUCTS WHICH FAIL OVER A PERIOD OF TIME. THE WARRANTY PROVISION HAS BEEN CALCULATED ON THE BASIS OF PAST EXPERIENCE AND ON T HE BASIS OF THE TESTS CONDUCTED BY THE APPELLANT ON AN IN HOUSE BASIS. THE APPELLANT HAS FURNISHED THE CHART, WHEREIN THE METHOD HAS BEEN CONSISTENTLY FOLLOWED FROM A.Y. 2009 - 10. (CHART EXTRACTED AT PAGE 9 OF HIS ORDER) THE APPELLANT CALCULATES THE INTERN AL RATE OF FAILURE WHICH ARE DEPICTED AGAINST EACH OF VARIOUS RATING OF TRANSFORMERS PRODUCE AND THE SAME IS FACTORED FURTHER BY A FIGURE OF 0.65, TO ARRIVE AT THE EXPECTED RATA OF FAILURE PER ANNUM. IT IS SEEN THAT THE WARRANTY EXPENSES ARE FURTHER BASED ON THE PERIOD OF WARRANTY GIVEN WHICH VARIES FROM A PERIOD OF 12 MONTHS TO 72 MONTHS DEPENDING ON THE KIND OF PRODUCT AS PER THE KVA RATING AND THE SUPPLY AGREEMENT. THE RECTIFICATION EXPENSES SO ARRIVED ARE ON A SCIENTIFIC BASIS AND HAS BEEN CONSISTENTL Y FOLLOWED BY THE APPELLANT OVER THE YEARS AND ONLY IN THIS YEAR THE SAME HAS BEEN DISALLOWED. THE ABOVE PROVISION IS MADE ON A SCIENTIFIC BASIS AGAINST THE SALES WHICH HAVE BEEN ACCOUNTED AS INCOME ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 13 - : FOR THE YEAR AND THEREFORE THE SAME HAS TO BE ALLOWED A S A REVENUE EXPENDITURE AND THE SAME CANNOT BE CONSIDERED A CONTINGENT LIABILITY IN VIEW OF THE ABOVE DISCUSSION. THE WARRANTY PROVISION HAS BEEN CALCULATED ON THE BASIS OF PAST EXPERIENCE AND ON THE BASIS OF THE TESTS CONDUCTED BY THE APPELLANT ON AN I N HOUSE BASIS. THE ASSESSEE HAS FURNISHED THE CHART, WHEREIN THE METHOD HAS BEEN CONSISTENTLY FOLLOWED FROM A.Y. 2009 - 10. (CHART EXTRACTED BY CIT(A) AT PAGE 9 OF HIS ORDER) . THE CIT(A) DISCUSSED THE ISSUE ELABORATELY BEFORE ALLOWING THE CLAIM OF THE ASSESS EE. OUR VIEW IS ALSO SUPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA(P) LTD. VS. CIT, CHENNAI, REPORTED IN [2019] 180 TAXMAN 422 (SC) THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND UPHOLDI NG THE SAME, WE DISMISS THE GROUND RAISED BY THE REVENUE IN THIS REGARD. 10. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON JANUARY, 2021 ( SATBEER SINGH GODARA ) ( LAXMI PRASAD SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDE RABAD, DATED : JANUARY, 20 2 1 ITA NO. 1191 /HYD/1 9 VIJAI ELECTRICALS LTD., HYD. . : - 14 - : K V C OPY TO : 1 DCIT, CIRCLE 1 7 (2), 9 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 2 M/S VIJAI ELECTRICALS LTD., 6 - 3 - 648/1 AND 2, RAJBHAVAN ROAD, SOMAJIGUDA, HYDERABAD 500 082 3 CIT(A) 5 , HYDERABAD. 4 PR. CIT - 5 , HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.