Atlas Capco (India) Ltd, Pune V. DCIT, Pune

ITA 1424/PUN/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3116 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 1996-1997
• Appeal Filed On: 02-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A S SINGH
• Keywords: Capital asset; Business income; Opportunity of being heard; Bad and doubtful debts; Corroborative evidences
• Section: 80HHC; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO.1424 & 1425/ PN/07 (ASSTT. YEAR 1996-97 & 19 98-99) ATLAS CAPCO (INDIA) LIMITED SVEANAGAR, DAPODI, PUNE-411012 PAN NO. AAAACA4074D .... APPELLANT VS. THE D.C.I.T CIRCLE-8 PUNE . RESPONDENT APPELLANT BY : SHRI PERCY PARDIWALA RESPONDENT BY : SHRI A.S. SINGH ORDER PER D. KARUNAKARA RAO AM THESE ARE THE TWO APPEALS FILED BY ASSESSEE AGAINST THE ORDERS OF CIT(A)-III, PUNE IDENTICALLY DATED 31/07/2007 FOR THE A.Y 1996-9 7 & 1998-99. ASSESSEE FILED CONCISED GROUNDS FOR BOTH THE ASSESSMENT YEARS. FOR TH E SAKE OF GUIDANCE, THEY ARE REPRODUCED AS UNDER:- A.Y 1996-97 1.(A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE D ISALLOWANCE OF PROVISION FOR WARRANTY TO THE EXTENT OF RS. 3,908,000. (B) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CI T(A) ERRED IN NOT APPRECIATING THE FACT THAT DISALLOWANCE MADE IS EXC ESSIVE AND HENCE OUGHT TO BE REDUCED. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE EXCL USION OF 90% OF INSURANCE CLAIM OF RS. 2,431,934 FROM THE PROFITS O F BUSINESS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC OF THE INC OME-TAX ACT, 1961, WITHOUT APPRECIATING THE FACT THAT THE SAME H AS ALREADY BEEN EXCLUDED FROM THE PROFITS OF BUSINESS. 3. (A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE EXCLUSION OF 90% OF INCOME FROM SERVICES RENDERED AMOUNTING TO RS. 20,4 47,552 AND SALE OF SCRAP AMOUNTING TO RS. 4,490,163 FROM THE PROFITS O F BUSINESS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC OF THE INC OME-TAX ACT, 1961. (B) THE LEARNED CIT(A) ERRED IN CONFIRMING THE E XCLUSION OF 90% OF DISCOUNT OF RS. 5,442 RECOVERY OF DOUBTFUL DEBT OF RS. 5,158,530 AND ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 2 OF 11 SUNDRY NEUTRAL REVENUE OF RS. 17,460,577 FROM THE P ROFITS OF BUSINESS FOR THE PURPOSED OF DEDUCTION UNDER SECTION 80HHC O F THE INCOME-TAX ACT, 1961. 4. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITH OUT PREJUDICE TO THE OTHER. A.Y 1998-99 1.(A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE EXCLUSION OF 90% OF INCOME FROM SERVICES RENDERED AMOUNTING TO RS. 11,341,201 AND SALE OF SCRAP AMOUNTING TO RS. 3,936,363 FROM THE PROFITS OF BUSI NESS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC OF THE INCOME-TAX ACT , 1961. (B) THE LEARNED CIT(A) ERRED IN CONFIRMING THE EXC LUSION OF 90% OF DISCOUNT OF RS. 25,512, RECOVERY OF DOUBTFUL DEBT O F RS. 1,295,492 AND SUNDRY NEUTRAL REVENUE OF RS. 10,299,452 FROM THE P ROFITS OF BUSINESS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC OF THE INCOME-TAX ACT, 1961. 2. THE GROUND NO. 1 FOR THE AY 1996-97 RELATES TO THE DISALLOWANCE OF WARRANTY PROVISION OF RS. 39,08,000/-. THE FACTS OF THE ISSU E ARE THAT THIS IS A SECOND ROUND OF APPEAL AND DURING THE FIRST ROUND, THE A.O DISALLOWED RS. 48,85,000/-, WHICH IS PROVISION FOR WARRANTY DEBITED T O P & L ACCOUNT, STATING THAT THE SAID AMOUNT IS IN THE NATURE OF CONTINGENT LIABI LITY. THE MATTER REACHED THE TRIBUNAL AND THIS ISSUE WAS SET ASIDE TO THE FILES O F THE A.O FOR DETERMINING THE ALLOWABILITY OF REASONABLE AMOUNT OF THE PROVISION F OR WARRANTY CLAIM. RELEVANT DIRECTION OF THE TRIBUNAL IS GIVEN IN PARA 25.3 OF THE IMPUGNED TRIBUNAL ORDER DATED 26/10/2005 WHICH READS AS UNDER:- 25.3 AFTER HEARING BOTH THE SIDES, WE HAVE CAREFUL LY GONE THROUGH THE VARIOUS CASE LAWS CITED BEFORE US. THE HONBLE KERA LA HIGH COURT IN THE CASE OF CIT VS. INDIAN TRANSFORMERS LTD., 270 ITR 259 (K ER) FOUND THAT THE PROVISION FOR AFTER SALE SERVICE OF TRANSFORMERS IN THE FACTS OF THE CASE WAS REASONABLE ONE IN VIEW OF THE ACTUAL EXPENSES, WHIC H MATERIALIZED IN A LATER YEAR, SO THAT IT WAS HELD ALLOWABLE FOLLOWING THE D ECISION OF THE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT(20 00) 245 ITR 428 (SC), WHICH HOWEVER, RELATED TO A CASE OF LEAVE ENCASHMEN T. WE, THEREFORE, FOLLOWING THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF INDIAN TRANSFORMERS LTD. (SUPRA) HOLD THAT REASONABLE PROVISION MADE FOR WARRANTY IS ALLOWABLE FOR BOTH THE ASSESSMENT YEARS UNDER APPEAL. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF TH E AO FOR LIMITED PURPOSE TO VERIFY THE AMOUNT OF PROVISION MADE AND ALLOW THE S AME KEEPING IN VIEW THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF IN DIAN TRANSFORMERS LTD., (SUPRA). 3. DURING THE SECOND ROUND OF ASSESSMENT PROCEEDINGS, A.O FIXED UP THE REASONABLE AMOUNT OF PROVISION FOR WARRANTY AT 0.1 % OF THE NET SALES AND IN THE PROCESS, THE A.O REJECTED THE ASSESSEES CLAIM OF PROV ISION FOR WARRANTY AT 0.5% OF THE NET SALES. REASON FOR THE SAME IS THAT THE ASSESSEE FAILED TO FURNISH (I) ANY ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 3 OF 11 DETAILS FOR ESTIMATING THE CLAIM 0.5% OF THE NET SA LES, (II) BASIS FOR ADOPTING THE SAID 0.5% OR (III) EVIDENCES BY WAY OF ACTUAL EXPENDITURE IN SUPPORT OF THE WORKING OF THE SAID CLAIM OF RS. 48,85,000/-. SUMMARY OF TH E A.OS ORDER AS MADE OUT BY THE CIT(A) IS GIVEN IN PARA 4.2 OF THE IMPUGNED ORDER WHICH IS AS UNDER:- 4.2 WHILE EXAMINING THE FACTS OF THE ASSESSEE FOR THE PURPOSE OF ASCERTAINING THE ALLOWABLE AMOUNT OF PROVISION, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY DE TAILS, BASIS OR EVIDENCE IN SUPPORT OF THE WORKING OF THE AMOUNT OF PROVISION M ADE AT RS. 48,85,000/-. HE ALSO OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS AS REGARDS AMOUNT OF PROVISIONS MADE IN EARLIER YEARS, AMOUNT ACTUALLY SPENT ON ACCOUNT OF REPAIRS, FREE SERVICES ETC. HE FURTHER OBSERVED THAT THE ASSESSEE HAS ALSO NOT GIVEN THE BASIS OF MAKING THE PROVISION @ 0.5% OF THE TOTAL SALES. EVEN THE QUANTITATIVE DETAILS REGA RDING NUMBER OF PRODUCTS SOLD AS WELL AS NUMBER OF PRODUCTS OUT OF THE SAME WHICH REQUIRED AFTER SALES SERVICE/ FREE SERVICE DURING THE PERIOD OF WARRANTY WERE NOT FURNISHED BY THE ASSESSEE. HE THEREFORE, CONCLUDED THAT NO DETAILS W HATSOEVER HAVE BEEN FURNISHED BY THE ASSESSEE COMPANY TO COME TO THE CO NCLUSION THAT PROVISION FOR WARRANTY IN AN AMOUNT OF RS. 48,85,000/- WAS RE ASONABLE. KEEPING IN VIEW THE DIRECTIONS OF THE HONBLE ITAT TO ALLOW RE ASONABLE PROVISION FOR WARRANTY AND CONSIDERING THE SUBMISSIONS MADE BY TH E ASSESSEE AND THE FACT THAT CERTAIN EXPENDITURE MUST HAVE BEEN INCURRED AG AINST THE SAID WARRANTY PROVISION, THE ASSESSING OFFICER HELD THAT 0.1% OF THE TOTAL SALES WOULD REPRESENT A REASONABLE AMOUNT FOR PROVISION FOR WAR RANTY. ACCORDINGLY, OUT OF TOTAL PROVISION OF RS. 48,85,000/-, AN AMOUNT OF RS . 9,77,000/- (0.1% OF RS. 97.58 CRORES) WAS ALLOWED BY HIM FOR PROVISION OF W ARRANTY. 4. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSESSE E MADE VARIOUS SUBMISSIONS AND THE DETAILS OF WHICH ARE REPRODUCED IN PARA 4.3 OF THE IMPUGNED ORDER. AT THE END, CIT(A) CONFIRMED THE DECISION OF TH E A.O. PARA 4.4 OF THE IMPUGNED ORDER READS AS UNDER:- 4.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT. THE HONBLE ITAT HAD RESTORED THE ISSUE BACK TO THE FIL E OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE AMOUNT OF PROVISION MADE AND ALLOW THE REASONABLE AMOUNT OF PROVISION MADE FOR WARRANTY. I FIND THAT ALTHOUGH THE APPELLANT HAS MADE A DETAILED SUBMISSION DISPUTING THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING CLAIM OF PROVISION @ 0.1% ONLY, IT HAS FAILED TO SUBSTANTIATE HOW THE CLAIM MADE BY THE COMPANY @ 0.5% IS REASONABLE. ON THE FACTS OF THE CASE, I FULLY AGREE WITH THE ASSESSING OFFICER THAT FOR WANT OF ANY DETAILS SUBMITTED BY THE ASSESSEE REGARDING NUMBER OF PRODUCTS SOLD AND NUMBER OF PRODUCTS WHIC H REQUIRED AFTER SALES FREE SERVICES DURING THE PERIOD OF WARR ANTY , THE ASSESSEE FAILED TO ESTABLISH THE REASONABLENESS OF THE AMOUNT DEBI TED AS PROVISION FOR WARRANTY. IN MY OPINION, THE ASSESSING OFFICER HAS BEEN QUITE REASONABLE IN ALLOWING PROVISION FOR WARRANTY @ 0.1% EVEN THOUGH THE ASSESSEE HAS NOT FURNISHED ANY DETAILS IN THIS REGARD. THEREFORE, I DECLINE TO MAKE ANY INTERFERENCE IN THE ACTION OF THE ASSESSING OFFICER , WHICH IS UPHELD. ACCORDINGLY, THIS GROUND OF APPEAL FAILS. ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 4 OF 11 5. AGGRIEVED WITH THE SAME, THE ASSESSEE FILED THE P RESENT APPEAL BEFORE US. THE SUBMISSIONS MADE BY LD PERCY PARDIWALA, LD. COUNS EL IN BRIEF ARE AS FOLLOWS:- 1) DATA FOR SUBSEQUENT YEARS: THOUGH RELEVANT PARTICULARS AS WANTED BY THE A.O ARE NOT AVAILABLE, THE DATA FOR THE SUBSEQ UENT YEARS I.E. 2002-03 TO 2005-06 SHOW THE PROVISION CLAIMED IS ALWAYS LESS ER THAN THE INCURRING ON THE EXTENT ON THE WARRANTY. 2) NO BASIS FOR AO: A.O HAS NO BASIS FOR ARRIVING AT 0.1% AS THE ALLOWABLE PROVISION FOR WARRANTY AND HE HAS NO REASON TO DISMISS THE ASSESSEES ESTIMATION AT 0.5% OF THE TOTAL SALES. 3) OTHER ARGUMENTS: THE SUBMISSIONS MADE BY THE ASSESSEE DURING THE FIRST APPELLATE PROCEEDINGS WERE HEAVILY RELIED UPON AN D REFERRED TO PAGE 11 OF THE PAPER BOOK. RELEVANT EXTRACT IS AS FOLLOWS:- THE LEARNED ASSESSING OFFICE WHILE PASSING AN ORDE R U/S. 143(3)(II) READ WITH SECTION 254 OF THE ACT HAS ERRED BY IGNOR ING THE SUBMISSION MADE BY THE COMPANY, IN JUSTIFICATION OF ITS CLAIM FOR PROVISION MADE FOR WARRANTY CLAIMS AS AN ALLOWABLE EXPENDITURE. THE LEARNED ASSESSING OFFICER HAS MERELY STATED THAT THE COMPANY HAS NOT FURNISHED ANY QUANTITATIVE DETAILS AS REGARDS NUMBER OF PRODUCT S OLD AS WELL AS NUMBER OF PRODUCT OUT OF THE SAME WHICH REQUIRED AF TER SALES SERVICE /FREE SERVICE DURING THE PERIOD OF WARRANTY. WE WOU LD LIKE TO DRAW YOUR ATTENTION THAT THE LEARNED ASSESSING OFFICER H AS FAILED TO APPRECIATE THE FACT THAT WARRANTY PROVISION HAS B EEN MADE @ 0.5% OF NET SALES. CONSEQUENTLY FURNISHING QUANTITATIVE DETAILS AS REGARDS PRODUCTS SOLD, NOS. WHICH REQUIRES FREE SERVICES DO NOT ARISE AS WARRANTY IS OFFERED FOR ALL THE PRODUCT SOLD. FURTH ER, HE DIFFERENTIATE THE FACTS OF THE PRESENT CASE AND THAT OF INDIAN TR ANSFORMERS LTD AND CONCLUDED THAT THE PROVISION FOR WARRANTY MADE BY T HE COMPANY IS WITHOUT ANY REASONABLE BASIS AND WITHOUT ANY SUBSTA NCE AND MADE DISALLOWANCE. THE LEARNED ASSESSING OFFICER WHILE A LLOWING PARTLY THE PROVISION OF WARRANTY STATED THAT IN VIEW OF THE D IRECTION OF THE HONOURABLE ITAT TO ALLOW REASONABLE PROVISION OF WA RRANTY AND CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND THE FACT THAT CERTAIN EXPENDITURE MUST HAVE BEEN INCURRED AGAINST THE SAID WARRANTY PROVISION, I HOLD THAT 0.1% OF THE TOTAL SALES AS R EASONABLE PROVISION FOR WARRANTY AND ALLOW THE SAME. WE WOULD LIKE TO DRAW YOUR ATTENTION TO THE FACT THAT THE LEARNED ASSESSING OF FICER IS ADMITTING THAT CERTAIN EXPENDITURE MUST HAVE BEEN INCURRED AGAINST WARRANTY PROVIDED. HAVING ADMITTED THAT EXPENDITURE MUST HAV E BEEN INCURRED AND SUBSEQUENTLY ALLOWING 0.1% OF SALES AS WARRANTY IS WITHOUT ANY REASONABLE BASIS. 0.5% OF NET SALES IS PROVIDED A S A WARRANTY AND 0.5% ITSELF IS REASONABLE AND THEREFORE FOLLOWING T HE DIRECTION OF THE HONBLE ITAT THE ENTIRE AMOUNT OF WARRANTY PROVISIO N SHOULD BE ALLOWED WITHOUT RESTRICTING TO 0.1% OF NET SALES. W E ALSO LIKE TO EMPHASIZE THAT NO OTHER PERSON THAN THE ASSESSEE HI MSELF IS IN A BETTER POSITION TO ESTIMATE THE PROVISION OF WARRAN TY. THEREFORE, WE PLEAD THAT THE TOTAL PROVISION FOR WARRANTY RS 48,8 5,000/- (0.5% OF THE TOTAL SALES) SHOULD BE ALLOWED AS DEDUCTION RATHER RESTRICTING IT TO RS. 9,77,000/- (0.1% OF THE TOTAL SALES). ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 5 OF 11 4) ISSUE UNDER CONSIDERATION RELATES TO THE AY 1996-9 7 AND MORE THAN 15 YEARS HAVE EXPIRED AND RELEVANT DETAILS ARE NOT AVAILAB LE WITH THE ASSESSEE. IN THIS REGARD, THE ASSESSEE RELIED ON THE JUDGMENT IN THE CASE OF S HASTIMAL (49ITR744) FOR THE PROPOSITION THAT THE ASSESSEE CAN NOT BE ASKED TO PROVE THE CLAIM WITH EVIDENCES AFTER LAPSE OF REAS ONABLE TIME. 6. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE A.O AND CIT (A). FURTHER, HE ARGUED STATING THAT THE ASSE SSEE FAILED TO FURNISH THE BASIC DETAILS, WHICH IS SUPPOSED TO BE DONE BY HIM AS A P ART OF DISCHARGING OF HIS ONUS . UNDER THE CIRCUMSTANCES PECULIAR TO THIS CASE, THE A.O HAD TO RESORT TO MAKE THE BEST JUDGMENT IN THE SECOND ROUND OF THE PROCEEDINGS BASED ON WHATEVER INFORMATION IS AVAILABLE BEFORE HIM. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORDERS OF THE REVENUE. WE HAVE ALSO GONE THROUGH THE INFORMATION MADE AVAILABLE BEFO RE US. THE AYS IN QUESTION RELATES TO 1996-97 AND 1998-99. CLAIM UNDER CONSIDERAT ION ARE IN THE NATURE OF DEDUCTION OF EXPENDITURE DEBITED TO THE P AND L ACCO UNT. IN SUCH CIRCUMSTANCES, AS PER THE SETTLED LAW ON THE ISSUE, THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THE GENUINENESS OF THE CLAIM AND CORRECTNESS OF THE QUANT ITY CLAIMED. LD COUNSEL DEMONSTRATED THE ALLOWABILITY OF THE CLAIM IN PRINCIP LE VIDE THE DECISION OF OUR ORDER IN THE FIRST ROUND OF THE PROCEEDINGS IN HIS CASE. LD DR HAS NOT DEMONSTRATED ANY NEED FOR DEVIATING FROM THE SAME. THEREFORE, THE CORE I SSUE FOR DECISION BY US IN THIS APPEAL RELATES TO THE CORRECTNESS OF THE QUANTITY OF T HE CLAIM. IT IS UNDISPUTED FACT THAT THE ASSESSEE DOES NOT HAVE REQUISITE AND CREDIBL E DETAILS TO SUBSTANTIATE HOW 0.5% OF THE NET SALES CONSTITUTES THE REASONABLE EST IMATE OF PROVISION FOR WARRANTY AND HOW 0.1% OF THE NET SALES AS HELD BY THE AO IN THE SECOND ROUND OF THE ASSESSMENT PROCEEDINGS CONSTITUTES THE CORRECT ONE. R ELIANCE OF LD COUNSEL ON THE DATA PERTAINS TO SUBSEQUENT YEARS I.E. 2002-03 TO 200 5-06, IN OUR CONSIDERED OPINION, IS NOT RELEVANT AT LEAST FOR THE PURPOSE OF QUANTIFYING THE ALLOWABLE DEDUCTION OF WARRANT EXPENDITURE FOR THE REASON THAT TH E IMPUGNED EXPENDITURE IS DEPENDENT ON TURN OVER OF THE ASSESSEE, QUALITY OF TH E PRODUCT, AWARENESS OF THE CUSTOMERS, MARKETING STRUCTURE OF THE ASSESSEE ETC. THE RE IS NO DOUBT THAT SUCH A DATA CERTAINLY STRENGTHEN THE GENUINENESS OF THE CLAI M AND NOT THE CORRECTNESS OF THE ESTIMATE FOR THE REASONS GIVEN ABOVE. IN ANY CASE , IT IS THE TRITE LAW THAT EVERY ASSESSMENT YEAR IS INDEPENDENT AND DISPUTES RELATING AN AY HAVE TO BE RESOLVED BASED ON THE SPECIFIC DATA MAINTAINED BY WAY OF THE BOOKS OF ACCOUNTS AND OTHER SUPPORTING EVIDENCES BY THE ASSESSEE FOR THAT YEAR. NO RMALLY, THE PROVISIONS ARE NOT ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 6 OF 11 ALLOWABLE CLAIMS AS DEDUCTIONS AS THEY ARE CONTINGEN T LIABILITIES AND HOWEVER, IN VIEW OF THE JUDICIAL PRONOUNCEMENTS, CERTAIN PROVISIONS WHI CH ARE NOT CONTINGENT LIABILITIES ARE ALLOWED. IN THIS REGARD, HONBLE SUPREME COURTS JUD GMENT IN THE CASE OF BHARAT EARTH MOVERS 245 ITR 428 AND RELEVANT EXTRACTS FROM PAGE 428 OF THE VOLUME IS REPRODUCED AS UNDER. IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN T HE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CER TAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIB LE. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY I S NOT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCHAR GED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. FURTHER, WHAT IS NOT A CONTINGENT LIABILITY HAS BEE N EXPLAINED BY HONBLE KERALA HIGH COURT IN THE CASE OF INDIAN TRANSFORMERS LTD., 27 0 ITR 259 AND THE HELD PORTION OF THIS DECISION READS AS FOLLOWS:- SUMMERY A.Y 1991-92 TO 93-94. THE ASSESSEE MANUFACTURED AN D SOLD TRANSFORMERS AND MADE A PROVISION FOR AFTER SALE SE RVICE DURING THE WARRANTY PERIOD. ALTHOUGH, THE PROVISION WAS REASONABLE, THE ACTUAL EXPENSES INCURRED WERE MORE THAN WHAT HAD BEEN PROVIDED FOR. THE PROV ISION MADE WAS DEDUCTIBLE AS ASCERTAINED LIABILITY, AS IT WAS NOT A CONTINGENT LIABILITY. S. 37(1) OF THE INCOME TAX ACT 1961. 8. FROM THE ABOVE, IT IS EVIDENT THAT THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THAT THE PROVISION FOR WARRANT IS REASONABLY ESTIMATED IF NOT CORRECTLY AND SUCH ESTIMATION HAS A REASONABLE BASIS. THE CORRECTNESS OF THE QUANTITY OF THE CLAIM IS NOT RELEVANT IN PRESENTI . FURTHER, IT IS THE SETTLED LAW THAT FOR ALLOWING SU CH PROVISIONS, THE INCURRING OF THE LIABILITY SHOULD BE C ERTAIN AND IT SHOULD BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY. IT IS NOT THE REQUIREMENT OF THE LAW THAT THE ASSESSEE MUST DEMONSTRATE THE ACCURACY OF THE QUA NTIFICATION OF THE WARRANTY CLAIM IN THESE AYS. BUT IT IS CERTAIN THAT THE ASSE SSEE HAS BEEN CONSISTENTLY CLAIMING SUCH PROVISIONS GIVING STRENGTH TO THE ONE LIMB OF T HE ABOVE TRITE LAW I.E., CERTAINTY OF THE INCURRING EXPENDITURE; BUT THERE IS NO DATA TO S UPPORT TO THE OTHER LIMBS I.E., QUANTIFICATION OR REASONABLE QUANTIFICATION. IN THE A BSENCE OF RELEVANT DATA, IT IS NOT POSSIBLE TO INFER THAT THE REASONABLENESS OF THE QUAN TIFICATION. IN THE BACKGROUND OF THE ABOVE, WHILE REITERATING THE ALLOWABILITY OF THE CLAIM IN PRINCIPLE, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE IS NOT FULLY AL LOWABLE AS HE FAILED TO DISCHARGE THE ONUS WITH RELIABLE DATA TO SUPPORT THE CLAIM AT 0.5% OF THE NET SALES. FURTHER, IN OUR VIEW AND IN THIS CASE, THE AO HAS RIGHTLY ASSU MED THE JURISDICTION IN RESORTING TO HIS ESTIMATION. FURTHER, WE HAVE ALSO PERUSED THE KERALA HIGH COURT JUDGMENT IN ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 7 OF 11 THE CASE OF CIT VS. INDIAN TRANSFORMERS LTD., 270 ITR 259 AND WE FIND THE CASE IS DISTINGUISHABLE FOR THE REASON THAT, PROVISION WAS HE LD REASONABLE AS THE ACTUAL EXPENDITURE INCURRED WAS MORE THAN WHAT IS PROVIDED FOR. NO SUCH DEMONSTRATION IS DONE IN THIS INSTANT CASE. PER CONTRA, IN THE INSTANT CASE ASSESSEE FAILED TO DEMONSTRATE THE SAME FOR SOME REASONS WITH THE HELP OF THE EVIDENCES FOR THE REASONS KNOWN TO HIM AND THE REASONS ARE NOT DEMONSTRAT ED EVEN BEFORE US. FURTHER, THE JUDGMENT IN THE CASE OF S HASTIMAL (49ITR744) WAS DELIVERED ON THE FACTUAL MATRIX OF UNSECURED LOANS AND AVAILABILITY OF THE LOAN CREDITORS, WHOSE ADDRESS KEEP CHANGING WITH TIME AND IT IS NOT POSSIB LE FOR THAT ASSESSEE KEEP THEIR TRACK AND AS SUCH LIFE HAS LIMITATION. WHEREAS THE I N THE INSTANT CASE, THE WHAT IS REQUIRED IS ASSESSEES THE BOOKS OF ACCOUNTS AND THE EVIDENCES TO SUBSTANTIATE THE ENTRIES IN SUCH BOOKS, WHICH ARE EXPECTED TO BE KEPT BY THE ASSESSEE TILL THE LITIGATION REACH THE FINALITY. IN ANY CASE, THE ASSE SSEE FAILED TO SUBMIT THE EVIDENCES DURING THE FIRST ROUND OF THE ASSESSMENT PROCEEDINGS IT SELF AND THE ASSESSEE NOT SUBMITTED ANY CREDIBLE REASON FOR NON PRODUCTION OF SU CH EVIDENCES. AFTER GIVING A FINDING ON THE VALID ASSUMPTION OF JU RISDICTION ON THE BEST JUDGMENT ESTIMATIONS, NOW WE PROCEED TO ORDER IF THE 0.1% HELD BY THE AO IS REASONABLE OR OTHER WISE. IT IS A SETTLED LAW THAT THE ESTIMATION S OF THE AO IN BEST JUDGMENT PROCEEDINGS SHOULD NOT BE ARBITRARY. AS DEMONSTRATED BY LD COUNSEL, THE AO AND THE CIT(A) HAVE NO MATERIAL TO SUPPORT THEIR ESTIMATI ON AT 0.1% OF THE NET SALES. WITH THE EXCEPTION OF THE DATA FOR THE SUBSEQUENT Y EARS I.E. 2002-03 TO 2005-06, THOUGH NOT RELEVANT FOR THESE YEARS UNDER CONSIDERATION, THE PROVISIONS CLAIMED IN THOSE YEARS ARE LESSER THAN THE ACTUAL EXPENDITURE, TH ERE IS NOTHING EVEN BEFORE US TO GO FOR REASONABLE ESTIMATIONS. CONSIDERING THE SAM E, IN OUR VIEW, THE 0.1% ADOPTED BY THE REVENUE IS UNREASONABLE AND IT IS ON T HE LESSER SIDE. FURTHER, IN OUR OPINION, ESTIMATING THE IMPUGNED WARRANT CLAIMS AT TH E RATE OF 0.4% OF THE NET SALES SHOULD MEET THE BOTH ENDS OF THE JUSTICE AND IT IS A REASONABLE ESTIMATE. ACCORDINGLY, ALL THE GROUNDS RAISED IN THE APPEAL ARE PARTLY ALLOWED. 9. OTHER GROUNDS RAISED IN THIS APPEAL AND ALSO FOR THE APPEAL FOR THE A.Y 1998- 99 RELATES TO-: 1) TREATMENT GIVEN TO THE RECEIPTS RECEIVED FROM T HE INSURANCE COMPANY IN CONNECTION WITH THE FIRE EXTRUSION. 2) INCLUSION OF SCRAP SALES IN THE TURNOVER OF THE BUSINESS. 3) SERVICE CHARGES RECOVERED 4) DISCOUNT CLAIMS 5) RECOVERY OF DOUBTFUL DEBT 6) SUNDRY NEUTRAL REVENUE ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 8 OF 11 THE ISSUE-WISE DETAILS ARE AS UNDER:- 1. TREATMENT GIVEN TO THE RECEIPTS RECEIVED FROM THE I NSURANCE COMPANY IN CONNECTION WITH THE FIRE EXTRUSION. 10. AS PER THE REVENUE, THESES RECEIPTS DID NOT FORM PART OF THE MAIN ACTIVITIES OF THE ASSESSEE AND THEREFORE THEY IS NOT TO BE INCLUDE D IN THE ELIGIBLE PROFITS OF THE BUSINESS FOR THE PURPOSE OF DEDUCTION U/S. 80HHC OF THE ACT. ACCORDINGLY, CIT(A) DENIED THE BENEFIT OF DEDUCTION TO THE ASSESSEE. DU RING THE PROCEEDINGS BEFORE US, RELYING ON PAGE 1 OF THE PAPER BOOK, LD. COUNSEL ARGUE D STATING THAT THE SAID AMOUNT STANDS EXCLUDED WHILE COMPUTING THE INCOME C HARGEABLE TO TAX, IF THAT BE THE CASE, THE QUESTION OF REDUCING THE 90% OF THE SA ID AMOUNT WHILE ARRIVING AT THE PROFITS OF BUSINESS IS PATENTLY ERRONEOUS. FURTHER, H E RELIED ON THE JUDGEMENT OF THE BOMBAY HIGH COURT IN THE CASE M/S. PFIZER LTD BEARING ITA NO. 128 OF 2009 FOR THE PROPOSITION THAT THE INSURANCE RECEIPTS, INCIDENTAL T O THE STOCK IN TRADE ARE THE ELIGIBLE BUSINESS PROFITS. THIS JUDGEMENT IS NOT AVA ILABLE TO THE REVENUE AUTHORITIES AS THE SAME IS DECIDED SUBSEQUENT TO THE ORDER OF THE CIT(A). MORE SO, IT IS NOT CLEAR FROM THE RECORDS WHERE THE REVENUE RECEIPTS RECEIVED ARE IN CONNECTION WITH THE STOCK IN TRADE OR THE CAPITAL ASSET . IT IS ALSO SEEN THAT THE TRIBUNAL IN PARA 8 OF ITS ORDER HAS HELD THAT THE SAME INSURANCE RECEIPTS SHOULD NOT BE REDUCED FOR ARRIVING AT THE WDV FOR THE PURPOSE OF CLAIM OF DEPRECIA TION. CONSIDERING THE OVERALL DEVELOPMENTS SUBSEQUENT TO THE FIRST APPELLATE PROCEE DINGS AND ALSO IN VIEW OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. PFIZER L TD. (SUPRA), WE ARE OF THE OPINION THAT THE MATTER SHOULD BE SET ASIDE TO THE FILES OF THE CIT(A) FOR DECIDING THE ISSUE AFRESH AFTER CONSIDERING ALL THE STATEMENTS AND THE REL EVANT FACTS I.E., PAGE 1 OF THE PAPER BOOK, HIGH COURT JUDGEMENT IN THE CASE OF M/S. PFIZER LTD. (SUPRA) AND JURISDICTIONAL BENCH OF BOMBAY HIGH COURT IN THE CASE OF DRESSER RAND INDIA PVT. LTD. ITA 2186 OF 2009 (HC), ORDER OF THE TRIBUNAL IN T HE FIRST ROUND OF PROCEEDINGS AND IN OTHER JUDICIAL DEVELOPMENTS THAT MAY BE RELEVA NT TO THE ISSUE UNDER CONSIDERATION. ACCORDINGLY, RELEVANT GROUNDS ARE SET ASIDE TO THE FILES OF THE CIT(A). 2. INCLUSION OF SCRAP SALES IN THE TURNOVER OF THE BUS INESS. 11. AS PER THE ASSESSEE, PROCEEDS ON SALE OF THE SCRAP ARE TO BE EXCLUDED THE SAME FROM THE TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION U/S. 80HHC SO THAT THE ASSESSEE WOULD BE ENTITLED FOR HIGHER DEDUCTION. IN THIS REGARD, LD. COUNSEL ARGUED STATING THAT IT IS A SETTLED ISSUE BY THE JUD GEMENT OF THE BOMBAY HIGH COURT IN THE CASE OF M/S. PFIZER LTD. (SUPRA) THAT 90% OF T HE SPECIFIED ITEMS REFERRED TO IN CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC OF THE ACT SHOULD ONLY BE REDUCED ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 9 OF 11 FROM THE TURN OVER. SINCE SALE PROCEEDS OF SCRAP DID N OT FALL IN THE ANY OF THE SPECIFIC ITEMS AND THEY COULD NOT FALL INTO THE RESIDUAL ITEM S DESCRIBED AS RECEIPTS OF SIMILAR NATURE . PER CONTRA, LD. DR RELIED ON THE ORDERS OF THE REVENUE. AFTER HEARI NG THE PARTIES, WE FIND THAT THIS ISSUE SHOULD ALSO BE EXAM INED AFRESH IN THE LIGHT OF THE BOMBAY HIGH COURT JUDGEMENT IN THE CASE OF M/S. PFIZ ER LTD. (SUPRA) AFTER ASCERTAINING SCRAP INVOLVED AND OTHER APPLICABLE JUDGE MENTS. ACCORDINGLY, RELEVANT GROUNDS ARE SET ASIDE TO THE CIT(A). 3. SERVICE CHARGES RECOVERED 12. REVENUE AUTHORITIES HELD THAT THIS INCOME DOES N OT CONSTITUTE OPERATIONAL INCOME AND THEY RELIED ON THE JUDGEMENT OF THE BOMBAY HIGH COURT IN THE CASE OF BANGALORE CLOTHING COMPANY 260 ITR 371 (BOM). DURING THE REMAND PROCEEDINGS BY THE CIT(A), A.O ACCEPTED THAT THE SERVICES CHARGE S ARE NOT PART OF THE TURNOVER. HOWEVER, A.O INVOKED CLAUSE (BAA) AND REDUCED 90% OF THESE PROFITS FOR THE PURPOSE OF COMPUTING THE DEDUCTION. DURING THE PROCEED INGS BEFORE US, LD. COUNSEL RELIED HEAVILY ON THE APPLICABILITY OF THE ANOTHER JU DGEMENT OF BOMBAY HIGH COURT IN THE CASE OF M/S. PFIZER LTD. (SUPRA) AND STATED THAT THESE AMOUNTS RECOVERED ARE FOR RENDERING THE AFTER SALE SERVICES AND THEREFORE, THEY ARE ELIGIBLE BUSINESS PROFITS. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE SUPREM E COURT IN THE CASE OF LIBERTY INDIA LTD (317 ITR 218) AND MENTIONED THAT THESE AMOUNTS ARE NOT ELIGIBLE PROFIT AND RELIED HEAVILY ON THE ORDERS OF THE REVENUE. ON CONSIDERING THE AVAILABLE INFORMATION AND THE ARGUMENTS FORWARDED BY THE PARTIES B EFORE US, WE RE OF THE OPINION THAT THE MATTER HAS TO BE REEXAMINED BY THE C IT(A) IN VIEW OF THE SUPREME COURT JUDGEMENT AS WELL AS THE BINDING JURISDICTIONAL HIGH COURT JUDGEMENT REFERRED ABOVE. ACCORDINGLY, CIT(A) IS DIRECTED TO DECIDE THE ISSUE AFRESH AFTER EXAMINING THE SAME BY PASSING A SPEAKING ORDER AND AFTER GRANTING THE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4 TO 6. DISCOUNT CLAIMS, RECOVERY OF DOUBTFUL DEBT & SUNDRY NEUTRAL REVENUE. 13. DURING THE ASSESSMENT PROCEEDINGS, A.O REDUCED 90% OF THE RECEIPTS ON ACCOUNT OF DISCOUNT RECOVERED FOR DOUBTFUL DEBTS AND S UNDRY NEUTRAL REVENUE. THE ASSESSEES STAND IS THAT THESE GROUNDS ARE OUT SIDE T HE SCOPE OF THE CLAUSE (BAA) OF THE EXPLANATION. REGARDING THE DISCOUNT , LD. COUNSEL MENTIONED IT IS NOT A RECEIPT WITHIN THE MEANING OF THE EXPRESSIONS USED IN THE CL AUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC OF THE ACT. REGARDING RECOVERY OF DOUBTFUL DEBTS, LD. COUNSEL MENTIONED THAT THESE AMOUNTS ARE CHARGEABLE TO TAX AS PER PROVISION OF SEC . 41(4) ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 10 OF 11 AND THEY CONSTITUTE DEEMED BUSINESS PROFITS AND THERE FORE THEY CONSTITUTE THE ELIGIBLE BUSINESS PROFITS. REGARDING SUNDRY NEUTRAL REVENUE , THE SAME CONSTITUTE TO WRITE BACK OF EXCESS PROVISION , CREDIT NOTES RECEIVED FROM THE GROUP COMPANIES FOR REIMBURSEMENT OF EXPENSES, OTHER CREDIT BALANCE ETC. LD. COUNSEL ARGUED, THESE AMOUNTS DID NOT FALL WITHIN THE SCOPE OF CLAUSE (BA A) OF THE EXPLANATION AS THESE AMOUNTS DID NOT REPRESENTS RECEIPTS WITHIN THE MEANI NG THE EXPRESSION USED IN CLAUSE (BAA). ASSESSEE RELIED ON BOMBAY BENCH DECISI ON OF THE TRIBUNAL IN THE CASE OF UNICHEM LABORATORY LTD. 6613 & 6614 BOMBAY 2002 DATED 28-07-2008 AS WELL AS OTHER DECISIONS OF THE TRIBUNAL TO SUBSTANTIATE THE ARGUMENTS . REGARDING THE AMOUNTS RECEIVED BY WAY OF REIMBURSEMENT FROM GROUP COMP ANIES, THE LD. COUNSEL ARGUED THAT THESE AMOUNTS ALSO REPRESENT RECOVERY OF COS T AND NOT OF INCOME NATURE. IN THIS REGARD, LD. COUNSEL RELIED ON THE JUDG EMENT IN THE CASE OF SIMENS AG 30 ITR 320. FURTHER, AS PER THE COUNSEL, THE REIMBU RSEMENT OF EXPENDITURE DOES NOT REPRESENT INCOME. IN THIS REGARD, WE HAVE PERUSED T HE ORDERS OF THE REVENUE AND FIND THE ISSUES WERE NOT DECIDED BY THE CIT(A) B Y PASSING OF A SPEAKING ORDER. THEREFORE, THE CIT(A) HAS TO ADJUDICATE THESE ISSUES AFRESH NOT ONLY CONSIDERING THE DECISIONS RELIED UPON BY THE LD. COUNSEL BUT ALSO AL L THE JUDICIAL PRONOUNCEMENTS RELEVANT TO THE ISSUES DISCUSSED ABOVE. ACCORDINGLY, ALL THE RELEVANT GROUNDS ARE SET ASIDE. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 1425/ PN/07 - A.Y 1998-99 THE GROUNDS RAISED IN THIS APPEAL REVOLVE AROUND THE FO LLOWING ISSUES AND THEY ARE, - 1) SERVICES RENDERED 2) SALE OF SCRAP 3) DISCOUNT 4) RECOVERY OF DOUBTFUL DEBT 5) SUNDRY NEUTRAL REVENUE. 15. ALL THESE ISSUES HAVE TO BE SET ASIDE TO THE FI LES OF THE CIT(A) FOR DECIDING THE ISSUE AFRESH AFTER GIVING REASONABLE OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. THE REASONS FOR THE SAME ARE NARRATED WHILE DEALING WITH TH E APPEAL FOR THE A.Y 1996- 97 IN THE PRECEDING PARAGRAPHS. ACCORDINGLY, RELEVANT GRO UNDS OF THIS APPEAL ARE SET ASIDE. ITA NO. 1424 & 1425/PN/07 A.Y 1996-97 & 1998-99 PAGE 11 OF 11 16. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2010. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 30 TH NOVEMBER, 2010 R COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. THE DCIT, CIRCLE-8, PUNE 3. CIT(A)-III, PUNE 4. CIT-V, PUNE 5. D.R. ITAT B BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE