Sandvik Mining and Construction Tools [ I ] P.Ltd ( merged with Sandvik Asia P.Ltd ), Pune V. Dy. CIT, Pune

ITA 1426/PUN/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1138 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-03-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 05-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SNEHA PAI
• Keywords: Business expenditure; Rectification of order; Bad and doubtful debts; Difference of opinion; Assessment record; Capital receipt
• Section: 43B; 143(3); 115JB; 37; 154; 15

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !, # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.1426/PN/2013 ASSESSMENT YEAR : 2005-06 SANDVIK MINING AND CONSTRUCTION TOOLS INDIA PRIVATE LIMITED ( MERGED WITH SANDVIK ASIA PRIVATE LIMITED ), MUMBAI PUNE ROAD, DAPODI, PUNE 411 012. PAN : AAHCS9249R . APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE- 10, PUNE. . RESPONDENT / APPELLANT BY : SHRI DHANESH BAFNA & MS. SNEHA PAI / RESPONDENT BY : SHRI RAJESH DAMOR / DATE OF HEARING : 01.09.2015 / DATE OF PRONOUNCEMENT: 16.09.2015 % / ORDER PER PRADIP KUMAR KEDIA, AM : THE ABOVE CAPTIONED APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)-V, PUNE DATED 16.04.2013 RELATING TO ASSESSM ENT YEAR 2005-06 PASSED UNDER SECTION 154 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- GROUND 1: THE LD. COMMISSIONER OF INCOME TAX (APPEALS)- V, PUNE { LD. 'CIT(A)} HAS ERRED IN UPHOLDING THE RECTIFICATION ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 154 OF THE INCOME-TAX ACT, 1961 FOR THE FOLLOWING R EASONS: I. THE ADDITIONS MADE BY THE AO VIA RECTIFICATION ORDE R ARE DEBATABLE ISSUES; II. THE ADDITIONS MADE BY THE AO VIA RECTIFICATION ORDE R ARE ALREADY EXAMINED BY HIS PREDECESSOR WHILE PASSING THE ASSESSMENT ORD ER; AND III. THE ISSUES INVOLVED DO NOT QUALIFY AS MISTAKE APPAR ENT FROM RECORDS. 2 ITA NO.1426/PN/2013 YOUR APPELLANT PRAYS THAT SUCH RECTIFICATION ORDER BE TREATED AS NULL AND VOID. GROUND 2: WITHOUT PREJUDICE TO GROUND 1, THE LD. CIT(A) HAS ERRED IN UPHOLDING THE RECTIFICATION ORDER, TREATING THE EXCISE DUTY PROVI SION OF INR 8,082,905 AS UNPAID. YOUR APPELLANT PRAYS THAT THE ADDITION BE DELETED. GROUND 3: WITHOUT PREJUDICE TO GROUND 2, THE APPELLANT PRAYS THAT THE EXCISE DUTY PROVISION OF INR 8,082,905 BE ALLOWED AS A DEDUCTION IN AY 20 06-07, IF THE SAME WERE TO BE DISALLOWED IN AY 2005-06. YOUR APPELLANT PRAYS THAT THE AO BE DIRECTED TO GRA NT THE DEDUCTION OF THE SAID AMOUNT IN AY 2006-07. GROUND 4: WITHOUT PREJUDICE TO GROUND 1, THE LD. CIT(A) HAS ERRED IN UPHOLDING THE RECTIFICATION ORDER AND DISALLOWING THE PAYMENT OF INR 14,985,639 TOWARDS WARRANTY LIABILITY. YOUR APPELLANT PRAYS THAT SUCH DISALLOWANCE BE DELE TED. GROUND 5: WITHOUT PREJUDICE TO GROUND 1, THE LD. CIT(A) HAS ERRED IN UPHOLDING THE RECTIFICATION ORDER AND ADDING BACK THE PROVISION F OR WARRANTIES OF INR 15,197,332 WHILE COMPUTING TAXABLE INCOME UNDER PROVISIONS OF SECTION 115JB OF THE ACT. YOUR APPELLANT PRAYS THAT ADDITION MADE FOR THE PUR POSE OF SECTION 115JB BE DELETED. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, TO ALT ER, TO SUBSTITUTE, AND TO WITHDRAW THE ABOVE GROUNDS OF APPEAL. 3. BRIEFLY, THE FACTS OF THE CASE ARE OUTLINED AS U NDER :- 3.1 THE RETURN OF THE ASSESSEE WAS SCRUTINIZED AND THE ASSESSMENT ORDER WAS PASSED ON 31.12.2007 UNDER SECTION 143(3) OF THE AC T. THEREAFTER, THE CASE WAS REOPENED AND ASSESSMENT UNDER SECTION 143( 3) R.W.S. 147 OF THE ACT WAS PASSED ON 22.12.2011. THE ASSESSING OFFICE R, THEREAFTER, ISSUED A SIMPLE NOTICE DATED 16.02.2009 REQUIRING CLARIFIC ATION ABOUT THE RETURN FILED AND ASSESSMENT FRAMED UNDER SECTION 143(3) & 143(3) R.W.S. 147 OF THE ACT FOR THE RELEVANT ASSESSMENT YEAR 2005-06 O N CERTAIN ISSUES. IN RESPONSE, THE CLARIFICATIONS WERE FILED BY THE ASSE SSEE AS REQUIRED VIDE ITS LETTER DATED 06.03.2009. CONSEQUENTLY, A STATUT ORY NOTICE DATED 20.03.2012 WAS ISSUED UNDER SECTION 154 OF THE ACT SEEKING RECTIFICATION OF THE ASSESSMENT ORDERS UNDER SECTION 143(3) & 143 (3) R.W.S. 147 OF THE ACT PASSED EARLIER. 3 ITA NO.1426/PN/2013 3.2 THE RELEVANT PORTION OF IMPUGNED SHOW CAUSE NOTICE UNDER SECTION 154 OF THE ACT DATED 20.03.2012 IS EXTRACTED BELOW:- PARTICULARS OF MISTAKES PROPOSED TO BE RECTIFIED. (1) IT IS SEEN FROM CLAUSE 21 OF AUDITORS REPORT IN FO RM 3CD THAT EXCISE DUTY PAYMENT OF RS.80,82,905/- WHICH WAS INC URRED DURING PREVIOUS YEAR 2004-05 IS REMAINED TO BE PAID BEFORE SUBMISSION OF RETURN OF INCOME, I.E. DUE DATE OF FILING OF RETURN OF INC OME. THE SAME IS PROPOSED TO BE ADDED BACK. (2) IT IS SEEN THE PROFIT & LOSS A/S FOR THE YEAR ENDING 31/3/05, PROVISION FOR WARRANTIES AMOUNTING TO RS.1,51,97,332/- AND PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO RS.40,64,469/- IS DEBITED. THE AUDITORS IN FORM 3CD REPORT VIDE CLAUSE 17K, CERTIFIED THAT PROVISION FOR WARRANT IS A LIABILITY OF CONTINGENT NATURE. THE SAME IS PROPOSE D TO BE ADDED BACK. (3) YOUR COMPANY ENGAGED IN MANUFACTURING OF MINING & CONSTRUCTION TOOLS AND DURING A.Y.2004-05 ACQUIRED THE MINING & CONSTRUCTION OR KENNAMETAL WIDI A INDIA LTD. ON SLUMP SALE BASIS. DURING SCRUTINY ASSESSMENT THE THEN ASSESSING OFFICER HELD THAT PROVISION OF RS.1,51,97,332/- MADE FOR WARRANTY CLAIM IS OF CONT INGENT IN NATURE AND CANNOT BE ALLOWED. HOWEVER, WHILE DISALLOWING THE P ROVISION, ACTUAL PAYMENT MADE DURING THE YEAR TOWARDS WARRANTY CLAIM AMOUNTING TO RS.1,49,85,639/- WAS REDUCED AND BALANCE OF RS.2,11 ,693/- WAS DISALLOWED. THE YEAR WISE DETAILS OF WARRANTY PROVISIONS GIVEN ARE AS UNDER OPENING BAL. AS ON 16.12.2004 30698112 PROVI SION DURING F.Y.03-04 (AY 04-05) 686358 (686358 DISALLOWED IN AY 4-5) THE OPENING BALANCE OF RS.30698112 WAS STATED TO BE PERTAINING TO MINING & CONSTRUCTION OR KENNAMETAL WIDIA INDIA LTD ., WHICH WAS ACQUIRED BY THE COMPANY ON SLUMP SALE BASIS. AS SUCH THIS P ROVISION WAS REQUIRED TO BE DISALLOWED & ADDED WHILE COMPUTING THE TAXABLE I NCOME IN EARLIER YEAR, AS SUCH THE DEDUCTION ALLOWED ON ACTUAL PAYMENT BAS IS IS NOT IN ORDER. THEREFORE AMOUNT OF RS.1,49,85,639/- IS PROPOSED TO BE ADDED BACK. 4. IN RESPONSE, THE ASSESSEE STATES TO HAVE SUBMITT ED ITS REPLY TO THE AFORESAID NOTICE UNDER SECTION 154 VIDE ITS LETTER DATED 28.03.2012. HOWEVER, THE ASSESSING OFFICER DID NOT PAY ANY HEED TO THE S UBMISSIONS OF THE ASSESSEE AND PASSED AN ORDER UNDER SECTION 154 OF THE ACT DA TED 30.03.2012 AND MADE CERTAIN ADJUSTMENTS IN THE ASSESSMENT ORDER DATED 2 2.12.2011 AND ALSO MADE CERTAIN ADJUSTMENTS IN THE BOOK PROFITS FOR THE PUR POSES OF COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THESE ADJUST MENTS HAVE RESULTED IN THE ENHANCEMENT IN THE TOTAL INCOME AS PER THE NORMAL P ROVISIONS OF THE ACT AS WELL AS BOOK PROFITS FOR THE PURPOSES OF S. 115JB. 4 ITA NO.1426/PN/2013 5. THE ASSESSING OFFICER (AO IN SHORT) HAS MADE FOL LOWING ADDITIONS/DISALLOWANCES TO THE ASSESSED INCOME UNDE R NORMAL PROVISIONS OF THE ACT :- (I) EXCISE DUTY PROVISION OF RS.80,82,905/- REMAINE D ALLEGEDLY UNPAID BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. (II) WARRANTY PAYMENTS AMOUNTING TO RS.1,49,85,639/ - FOR WHICH RELIEF WAS INCORRECTLY GRANTED BY THE AO AGAINST THE WARRANTY PROVISION OF RS. 1,51,97,332 HAVING REGARD TO THE FACT THAT THE ASSE SSEE ACQUIRED A PARTICULAR DIVISION OF M/S KENNAMETAL WIDIA INDIA LTD., ON SLU MP SALE BASIS ALONG WITH WARRANTY PROVISIONS LIABILITIES. 5.1 THE LD. AO FURTHER MADE THE FOLLOWING ADJUSTMEN TS TO THE BOOK PROFITS / TOTAL INCOME COMPUTED UNDER SECTION 115JB OF THE AC T :- (I) WARRANTY PROVISIONS AMOUNTING TO RS.1,51,97,332 /-. (II) PROVISIONS FOR DOUBTFUL DEBTS OF RS.40,64,469 /-. 5.2 AS PER THE RECTIFICATION ORDER UNDER SECTION 15 4 OF THE ACT, THE ASSESSING OFFICER OBSERVED THAT AS PER CLAUSE 21 OF THE TAX A UDIT REPORT FURNISHED IN FORM NO.3CD, THERE IS NEITHER ANYTHING ON RECORD TO SUGG EST THAT THE EXCISE DUTY PROVISION OUTSTANDING AT THE END OF THE FINANCIAL Y EAR RELEVANT TO ASSESSMENT YEAR 2005-06 IN QUESTION HAS BEEN ACTUALLY PAID BEF ORE THE DUE DATE OF FILING OF THE RETURN NOR THE ASSESSEE HAS MADE ANY SUBMISSION IN THIS REGARD OR FURNISHED PROOF OF PAYMENT OF THE SAME EVEN AFTER ISSUE OF NO TICE UNDER SECTION 154 OF THE ACT. HE ACCORDINGLY CONCLUDED THAT THIS MISTAK E IN ALLOWING THE DEDUCTION OF STATUTORY LIABILITY IS APPARENT FROM RECORD AND NOT DEBATABLE. 5.3 IN RESPECT OF SUM OF RS.1,49,85,639/- TOWARDS W ARRANTY PROVISION, THE ASSESSING OFFICER OBSERVED THAT IT WAS NOTICED THAT THE ASSESSEE DURING THE ASSESSMENT YEAR 2004-05 ACQUIRED A DIVISION OF M/S KENNAMETAL WIDIA INDIA LTD. ( KWIL) ON SLUMP SALE BASIS. DURING THE SCRUTI NY ASSESSMENT, THE THEN ASSESSING OFFICER HELD THAT PROVISION OF RS.1,51,97 ,332/- MADE FOR WARRANTY CLAIM IS OF CONTINGENT IN NATURE AND CANNOT BE ALLO WED. HOWEVER, WHILE DISALLOWING THE PROVISION, ACTUAL PAYMENTS MADE DUR ING THE YEAR TOWARDS WARRANTY CLAIM AMOUNTING TO RS.1,49,85,639/- WERE I NCORRECTLY REDUCED AND REMAINING BALANCE OF RS.2,11,693/- WAS ONLY DISALLO WED. THE ASSESSING 5 ITA NO.1426/PN/2013 OFFICER NEXT OBSERVED THAT WARRANTY PROVISION LIABI LITY HAS BEEN SIMULTANEOUSLY SADDLED ON THE ASSESSEE IN ACQUISITION UNDER SLUMP SALE. THEREFORE, THE PROVISION WAS REQUIRED TO BE DISALLOWED AND ADDED W HILE COMPUTING THE TAXABLE INCOME IN EARLIER YEAR AS THE ASSESSEE HAS NOT MADE ANY SUBMISSION/PROOF IN THE REGULAR ASSESSMENT CARRIED OUT IN EARLIER YEARS TO SHOW THAT WARRANTY PROVISION OR LIABILITIES HAVE BEEN DI SALLOWED IN THE HANDS OF THE TRANSFEROR (KWIL) IN THE EARLIER YEARS. THEREFORE, THE SET OFF OR DEDUCTIONS GRANTED BY THE ASSESSING OFFICER IS NOT CORRECT, WH ICH IS APPARENT FROM RECORD AND ACCORDINGLY HE CARRIED OUT THE RECTIFICATION BY MAKING ADDITION OF RS.1,49,85,639/- TO THE TOTAL INCOME UNDER THE NORM AL PROVISIONS OF THE ACT BY INVOKING S. 154 OF THE ACT. 5.4 ON THE SIMILAR FOOTING, THE ASSESSING OFFICER P ROCEEDED TO MAKE ADDITIONS TOWARDS WARRANTY PROVISION FOR A SUM OF R S.1,51,97,332/- FOR THE PURPOSES OF DETERMINING BOOK PROFIT UNDER SECTION 1 15JB OF THE ACT ON THE GROUND THAT THE OUTSTANDING PROVISIONS FOR WARRANTY TO ITS CUSTOMERS IS LIABILITY OF CONTINGENT NATURE AND THE ASSESSEE COMPANY HAS N OWHERE CLAIMED THAT THE SAME IS ASCERTAINED LIABILITY IN ANY OF ITS SUBMISS IONS. HE ACCORDINGLY HELD THAT WHILE FRAMING THE ASSESSMENT ORDER, APPARENT M ISTAKE HAS CREPT WHILE DETERMINING THE BOOK PROFIT TO THE EXTENT FOR THE P URPOSES OF S. 115JB OF THE ACT. 5.5 LIKEWISE, HE ENHANCED THE BOOKS PROFIT UNDER SE CTION 115JB OF THE ACT BY RS.40,64,469/- BEING PROVISION FOR DOUBTFUL DEBT S BY INVOKING EXPLANATION 1 TO SECTION 115JB OF THE ACT PURPORTEDLY BEING PRO VISION FOR DIMINUTION IN THE VALUE OF ASSET WHICH IS NOT PERMISSIBLE. 5.6 IN TERMS OF THE ABOVE, HE PASSED ORDER UNDER SE CTION 154 OF THE ACT DATED 30.03.2012 AND ENHANCED INCOME FROM A LOSS OF RS.5,07,800/- ASSESSED U/S 143(3) R.W.S 147 TO A TAXABLE INCOME OF 2,25,60 ,740/-AS PER NORMAL PROVISIONS. SIMILARLY, THE BOOK PROFITS ASSESSED E ARLIER U/S 143(3) R.W.S 147 AT RS.78,00,820/- WAS ENHANCED TO RS.2,70,62,620/. 6 ITA NO.1426/PN/2013 5.7 THE ASSESSEE ON ITS PART INTER ALIA SUBMITTED THAT THE RECTIFICATION OF ASSESSMENT ORDER IS VOID AB-INITIO AS THE CHANGES PROPOSED DO NOT QUALIFY AS MISTAKE APPARENT FROM RECORD WHICH IS A CONDITION PRECEDENT FOR INVOKING S. 154 OF THE ACT. IT WAS THE CASE OF THE ASSESSEE TH AT THE RECTIFICATIONS PROPOSED ARE EITHER ALREADY EXAMINED BY THE THEN ASSESSING O FFICER AND/OR ARE DEBATABLE ISSUES WHICH CANNOT BE RECTIFIED UNDER SECTION 154 OF THE ACT. 6. AGGRIEVED BY THE AFORESAID ORDER OF THE ASSESSIN G OFFICER, MATTER WAS CARRIED IN APPEAL BEFORE THE CIT(A). 6.1 THE CIT(A), TO BEGIN WITH, OBSERVED THAT THE AS SESSEE BASED ITS REPLY ONLY ON THE ISSUE OF PROVISION FOR WARRANTY AMOUNTI NG TO RS.1,49,85,639/- BEFORE THE ASSESSING OFFICER. THEREFORE, THE ASSES SEE COULD NOT CHALLENGE THE NOTICE UNDER SECTION 154 OF THE ACT ON OTHER ISSUES BEFORE THE ASSESSING OFFICER. 6.2 THE LD. CIT(A) NEXT OBSERVED THAT AS REGARDS TH E DISALLOWANCE OF RS.80,82,905/- ON ACCOUNT OF UNPAID EXCISE DUTY, TH E DISALLOWANCE HAS BEEN MADE ON THE BASIS OF TAX AUDIT REPORT SUBMITTED BY THE ASSESSEE. SINCE NO DISALLOWANCE WAS MADE IN THE ASSESSMENT ORDER PASSE D INSPITE OF CATEGORICAL FINDINGS OF THE TAX AUDIT REPORT TOWARDS NON-PAYMEN T OF STATUTORY LIABILITY BEFORE DUE DATE OF FILING OF THE RETURN OF INCOME, IT IS CLEARLY A MISTAKE APPARENT FROM RECORD AND THEREFORE ACTION OF THE AS SESSING OFFICER UNDER SECTION 154 OF THE ACT IS FULLY JUSTIFIED. 6.3 ON THE ISSUE OF WARRANTY PAYMENT OF RS.1,49,85 ,639/- BEING ADJUSTED AND THE WARRANTY PROVISION AMOUNTING TO RS.1,51,97, 332/-, THE CIT(A) REITERATED THE VERSION OF THE AO AND OBSERVED THAT THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER, AND MADE A DISALLOWAN CE OF RS.2,11,693/- (RS.1,51,97,332/- MINUS RS.1,49,85,639/-) BY REDUCING ACTUAL PAYMENT TOWAR DS WARRANTY CLAIM. WHILE DOING SO, THE AO MISSED TO T AKE NOTE OF THE RELEVANT FACT THAT OPENING WARRANTY PROVISION PERTAINING TO KWIL ITSELF WAS RS.3,06,98,112/-, THE CONSTRUCTION AND MINING DIVIS ION OF WHICH WAS ACQUIRED 7 ITA NO.1426/PN/2013 BY THE ASSESSEE VIDE BUSINESS PURCHASE AGREEMENT DA TED 20.02.2004. SINCE, THE WARRANTY PROVISIONS OF KWIL WERE NOT ROUTED THROUGH PROFIT & LOSS ACCOUNT OF THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 200 4-05 AND ALSO NO EVIDENCE WAS FURNISHED TO THE EFFECT THAT THE WARRANTY PROVI SIONS IN THE HANDS OF KWIL WAS DISALLOWED IN RELEVANT YEARS OF PROVISIONING, T HE ASSESSING OFFICER WAS PERFECTLY JUSTIFIED IN COMING TO THE CONCLUSION THA T NETTING OF THE SAME WAS ERRONEOUS. 6.4 THE DISALLOWANCE OF RS.1,51,97,332/- WHILE COMP UTING OF BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB WAS ALSO APPROVED BY THE CIT(A) ON THE GROUND THAT SAME IS CONTINGENT LIABILITY IN VIEW OF REMARKS MADE BY THE AUDITORS IN PARA 17(K) OF THE 3CD REPORT. THE CIT( A) REJECTED THE PLEA OF THE ASSESSEE THAT THE WARRANTY PROVISIONS HAVE BEEN MAD E ON SCIENTIFIC BASIS BASED ON PAST EXPERIENCE AS UNPROVED AND THEREFORE RELIAN CE PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROL S (INDIA) (P) LTD. VS. CIT REPORTED IN 314 ITR 62 (SC) RELIED UPON BY THE ASSE SSEE HAS NO APPLICATION. 6.5 SIMILARLY, THE LD. CIT(A) HELD THAT PROVISIONS FOR DOUBTFUL DEBTS AMOUNTING TO RS.40,64,469/- WAS CLEARLY REQUIRED TO BE ADDED IN THE COMPUTATION OF INCOME AS PER SECTION 115JB OF THE A CT. 6.6 HE ACCORDINGLY DISMISSED THE APPEAL OF THE ASSE SSEE IN TOTO . 7. AGGRIEVED BY THE ORDERS OF THE LOWER AUTHORITIES , THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE POINTED OUT AT THE OUTSET THAT THERE WERE FIVE POINTS INVOLVED FOR WHI CH CLARIFICATION WAS ASKED AFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3 ) AS UNDER :- (1) COMPENSATION RECEIVED TOWARDS REDUCTION IN PUR CHASE CONSIDERATION TO BE TAXED AS REVENUE RECEIPT AS AGAINST THE CLAIM OF TH E ASSESSEE OF CAPITAL RECEIPT. (2) PROVISION FOR WARRANTY TO BE ADDED FOR THE P URPOSE OF 115JB. 8 ITA NO.1426/PN/2013 (3) ACTUAL PAYMENT MADE TOWARDS WARRANTY NOT ALLO WABLE AS THE LIABILITY (PROVISION) PERTAINS TO ANOTHER ENTITY WHICH IS NOW TAKEN OVER BY THE ASSESSEE COMPANY. (4) EXCISE DUTY NOT PAID BEFORE DUE DATE DISALLO WANCE U/S 43B. (5) PROVISION FOR DOUBTFUL DEBT TO BE ADDED FOR THE PURPOSE OF 115JB. 8.1 AS PER LD. AR, THE ASSESSING OFFICER IN EXERCIS E OF ITS STATUTORY POWER INITIATED PROCEEDINGS UNDER SECTION 147 OF THE ACT IN RESPECT OF POINT NO.1 ABOVE WHILE ISSUED NOTICE UNDER SECTION 154 IN RESP ECT OF BALANCE POINTS FROM 2 TO 5 ABOVE. HE NEXT CONTENDED WITH VEHEMENCE THA T THE ORDER UNDER SECTION 154 OF THE ACT IS NOT MAINTAINABLE IN RESPECT OF AN Y OF THE ISSUES FOR WHICH IMPUGNED NOTICE UNDER SECTION 154 OF THE ACT WAS IS SUED. 8.2 AS REGARDS, ADDITION OF RS.80,82,905/- TOWARDS EXCISE DUTY PROVISION TO THE TOTAL INCOME COMPUTED UNDER NORMAL PROVISIONS, HE SUBMITTED THAT ADMITTEDLY THE REQUISITE DETAILS OF PAYMENT OF EXCI SE DUTY COULD NOT BE COLLATED AT THE TIME OF S.154 PROCEEDINGS. HOWEVER, HE ADVE RTED OUR ATTENTION TO MONTHLY RETURNS FILED BEFORE THE EXCISE AUTHORITY F OR THE PERIOD OF APRIL, 2005 TO JULY, 2005 AS PLACED AT PAGE 90 TO 93 OF THE PAP ER BOOK TO SUBMIT THAT THE OUTSTANDING EXCISE DUTY LIABILITY IN QUESTION HAS D ULY BEEN DISCHARGED BEFORE THE DUE DATE OF FILING OF THE RETURN AND THEREFORE SECTION 43B OF THE ACT PROHIBITING DEDUCTION OF UNPAID STATUTORY LIABILITI ES HAS NO APPLICATION IN THE FACTS OF THE CASE. HE SUBMITTED THAT THE OBSERVATI ONS IN THE TAX AUDIT REPORT UNDER CLAUSE 21(I)(B) OF FORM NO.3CD THAT EXCISE DU TY OF RS.80,82,905/- REMAINS UNPAID ON THE DUE DATE OF FILING OF THE RET URN OF INCOME IS FACTUALLY WRONG IN THE LIGHT OF SPEAKING EVIDENCES PLACED BEF ORE THE CIT(A). TO AUGMENT HIS CASE, HE FURTHER ADVERTED OUR ATTENTION TO ANNEXURE-2 OF FORM NO.3CD RELEVANT TO CLAUSE 21(I)(A) THEREOF APPEARIN G AT PAGE NO. 107 OF THE PAPER BOOK RELEVANT TO SUBSEQUENT ASSESSMENT YEAR 2 006-07 TO DEMONSTRATE THAT THE AMOUNT WAS PAID IN THE SUBSEQUENT YEAR. H E NEXT ADVERTED OUR ATTENTION TO COMPUTATION OF INCOME FOR THE ASSESSME NT YEAR 2006-07 TO SUBMIT THAT THE IMPUGNED EXCISE DUTY PROVISION FOR WHICH P AYMENT HAS BEEN MADE IN THE SUBSEQUENT YEAR HAS NOT BEEN CLAIMED AS DEDUCTI ON ON PAYMENT BASIS IN THE SUBSEQUENT ASSESSMENT YEAR 2006-07 ENTITLED TO THE ASSESSEE, IF THE VERSION OF THE REVENUE IS FOUND TO BE CORRECT. HE THEREFORE P LEADED THAT THE BENEFIT OF 9 ITA NO.1426/PN/2013 PAYMENT OF EXCISE DUTY PROVISION SHOULD BE GIVEN EI THER IN ASSESSMENT YEAR 2005-06 IN QUESTION OR IN NEXT A.Y. 2006-07 AND CAN NOT BE TOTALLY DENIED UNDER THE SCHEME OF THE ACT. IT WAS REITERATED THA T INADVERTENT ERROR HAS CREPT IN THE TAX AUDIT REPORT FOR SHOWING EXCISE DUTY PRO VISION AS UNPAID BEFORE THE DUE DATE OF FILING RETURN. THE TANGIBLE EVIDENCES A RE AVAILABLE ON RECORD TO NEGATE THE ASSERTIONS OF REPORT. IT WAS ARDENTLY E MPHASIZED THAT EXCISE DUTY LIABILITY HAS BEEN DULY DISCHARGED BEFORE THE DUE D ATE OF FILING OF THE RETURN AND THEREFORE IS FULLY ALLOWABLE IN THE ASSESSMENT YEAR 2005-06 ITSELF. IN THE ALTERNATIVE, IT SHOULD BE DIRECTED TO BE ALLOWED ON PAYMENT BASIS IN THE NEXT YEAR AS PER THE PROVISIONS OF THE ACT. 8.3 THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE NEXT CONTENDED THAT DISALLOWANCE OF WARRANTY PROVISION OF RS.1,49,85,63 9/- FOR THE PURPOSES OF COMPUTATION OF INCOME AS PER THE NORMAL PROVISIONS UNDER SECTION 154 OF THE ACT IS ALSO CLEARLY MISPLACED. THE ADDITION HAS BE EN MADE ON THE GROUND THAT THE PROVISION FOR WARRANTY PERTAINS TO ACQUISITION OF A DIVISION OF ANOTHER COMPANY NAMELY KWIL ON SLUMP SALE BASIS. THE PAYMEN T OF RS.1,49,85,639/- TOWARDS WARRANTY PROVISION WAS DISALLOWED UNDER SEC TION 154 OF THE ACT ON THE GROUND THAT THE AMOUNT COULD BE ALLOWED ON PAYMENT BASIS ONLY IF DISALLOWED IN THE EARLIER YEARS WHEN THE PROVISION WAS CREATED FOR WHICH NO EVIDENCE WAS FURNISHED. PER CONTRA, THE LD. AUTHORIZED REPRESEN TATIVE FOR THE ASSESSEE ADVANCED HIS PLEA THAT SUCH KIND OF ADJUSTMENTS WHI CH EMANATES FROM EARLIER YEARS CANNOT BE TAKEN AS APPARENT MISTAKE AMENABLE TO SECTION 154 OF THE ACT. HE FURTHER SUBMITTED THAT FROM THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2005- 06 UNDER SECTION 143(3), IT CAN BE SEEN THAT THE AS SESSING OFFICER HAS DISALLOWED THE ENTIRE PROVISION OF WARRANTY MADE DU RING THE YEAR AMOUNTING TO RS.1,51,97,332/- BY TREATING THE SAME AS CONTINGENT IN NATURE. HOWEVER, THE ASSESSING OFFICER HAS ALLOWED AN AMOUNT OF RS.1,49, 85,639/- THEREFROM CONSCIOUSLY AND THE BALANCE WAS DISALLOWED. THIS WA S OWING TO THE FACT THAT THE ASSESSEE HAS ACTUALLY INCURRED EXPENDITURE AMOU NTING TO RS.1,49,85,639/- TOWARDS PAYMENT OF WARRANTY CLAIMED FROM CUSTOMERS DURING THE ASSESSMENT YEAR 2005-06, SUCH EXPENDITURE WAS DEBITED TO THE L IABILITY ACCOUNT IN RESPECT OF WARRANTY PROVISIONS AND NOT CHARGED TO THE PROFI T & LOSS ACCOUNT. THE 10 ITA NO.1426/PN/2013 EXPENDITURE INCURRED TOWARDS PAYMENT OF WARRANTY CL AIMS MADE DURING THE YEAR IS AN ALLOWABLE EXPENDITURE AND SINCE THE SAME HAS NOT BEEN CLAIMED BY THE ASSESSEE IN THE EARLIER YEAR, THE SAME WAS RIGH TLY ALLOWED BY THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT AND THEREFORE NO RECTIFICATION IS CALLED FOR. HE RELIED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. FENNER (INDIA) LTD. 241 ITR 645 TO SUPPORT ITS CASE THE GRATUITY LIABILITIES IN RESPECT OF EMPLOYEES TAKEN OVER OF T HE AMALGAMATED CO. IN THAT CASE WAS HELD TO BE BUSINESS EXPENDITURE ALLOWABLE UNDER S. 37 OF THE ACT. 8.4 ON THE NEXT ISSUE OF DISALLOWANCE OF PROVISIONS FOR WARRANTY OF RS.1,51,97,352/- WHICH WAS DISALLOWED AND ADDED TO THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT ON THE GROUND THAT THE LIA BILITY IS OF CONTINGENT NATURE AND IN THE CONVERSE, NOT AN ASCERTAINED LIABILITY. THE LD. AR INVITED OUR ATTENTION TO CLAUSE 17(K) OF THE TAX AUDIT REPORT W HERE PARTICULARS OF ANY LIABILITY OF CONTINGENT NATURE IS REQUIRED TO BE DI SCLOSED. HE SUBMITTED THAT THE TAX AUDITORS HAVE IN UNEQUIVOCAL TERMS NARRATED THE EXPLICIT CONTENTIONS OF THE ASSESSEE COMPANY THAT THE PROVISION FOR WARRANTY IS TOWARD PROVISION FOR PERFORMANCE WARRANTY IS NOT A LIABILITY OF CONTIN GENT NATURE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS NOTED THEREIN. THE LD. AR CONTENDED THAT THE OBSERVATION OF THE ASSESSING OFFICER AND CIT(A) THA T THE WARRANTY LIABILITY IS CONTINGENT IN NATURE IS, THUS, SINGULARLY PERVERSE. ANOTHER JUSTIFICATION GIVEN BY THE CIT(A) THAT THE ASSESSEE COULD NOT PROVE THE SC IENTIFIC BASIS FOR CALCULATION OF WARRANTY PROVISION IN THE LIGHT OF DECISION OF A PEX COURT IN ROTROK CONTROLS CASE ( SUPRA) INVOLVES LONG DRAWN EXPLANATIONS AND IS HIGHLY COMPLEX AND ENGAGING AND THEREFORE CANNOT BE SUBJECT-MATTER OF RECTIFICATION UNDER SECTION 154 OF THE ACT. IT WAS THUS PLEADED THAT SUCH ADJU STMENTS CANNOT BE BROUGHT IN THE LEAGUE OF MISTAKE APPARENT FROM RECORD. 8.5 AS REGARDS, ADDITION OF RS.40,64,469/- TO THE B OOK PROFITS UNDER SECTION 115JB OF THE ACT PROVISION FOR BAD AND DOUBTFUL DEB TS, THE LD. AR SUBMITTED THAT AS PER LETTER DATED 06.03.2009 FILED BEFORE TH E ASSESSING OFFICER, SIMILAR PROVISION OF RS.2,51,53,409/- WAS SIMULTANEOUSLY RE VERSED IN THE ASSESSMENT YEAR 2005-06 PERTAINING TO PROVISION FOR DOUBTFUL D EBTS CREATED IN THE EARLIER 11 ITA NO.1426/PN/2013 YEARS. THIS HAS THE EFFECT OF INCREASE IN BOOK PROF IT OWING TO REVERSAL OF SIMILAR PROVISIONS WHICH BENEFIT WOULD ALSO BE REQUIRED TO BE GIVEN IN THE SAME VEIN. 9. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BEL OW AND SUBMITTED THAT THE ASSESSING OFFICER HAS CORRECTLY RESORTED TO SECTION 154 OF THE ACT AS THE ADJUSTMENT MADE BY HIM TO THE ORDERS FRAMED UNDER S ECTION 143(3) ARE IN THE NATURE OF APPARENT MISTAKE ARISING FROM THE RECORDS RECTIFIABLE UNDER SECTION 154 OF THE ACT. 9.1 AFTER THE CLOSURE OF THE HEARING, THE LEARNED D R FILED A LETTER DATED 04- 09-2015 TO SUPPLEMENT THE ARGUMENTS ADVANCED DURING THE COURSE OF HEARING ON THE ISSUE PERTAINING TO ADDITION OF RS. 149.86 L ACS TOWARDS WARRANTY PROVISIONS. THE LEARNED DR OBSERVED THAT DECISION O F HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. FENNER (INDIA) LTD. 24 1 ITR 645 IS NOT APPLICABLE TO THE FACTS OF THE CASE. THE AFORESAID DECISION RE LATES TO PAYMENT OF GRATUITY AND WHICH IS ALLOWABLE AS DEDUCTION AS PER THE PROV ISION OF S. 43B OF THE IT ACT ON ACTUAL PAYMENT BASIS WHEREAS IN THE INSTANT CASE, THE ISSUE RELATES TO ALLOWABILITY OF DEDUCTION ON PROVISION OF WARRANTY WHICH ALLOWABLE AS A DEDUCTION AS PER THE PRINCIPLES OF MATCHING CONCEP T IN THE YEAR WHEN THE CORRESPONDING INCOME IS BOOKED. THUS SAID PROVISION FOR WARRANTY IS ALLOWABLE AS A DEDUCTION IN THE HANDS OF M/S KWIL IN THE YEAR WHEN THE PROVISION WAS MADE AND CORRESPONDING INCOME OFFERED FOR TAXATION. THIS AMOUNT CANNOT THEREFORE BE AGAIN ALLOWED AS DEDUCTION IN THE HAND S OF THE ASSESSEE MORE SO WHEN THE CORRESPONDING INCOME IS NOT BEING OFFERED FOR TAXATION IN THE HANDS OF THE ASSESSEE. THE LEARNED DR FURTHER CONTENDED I N THE AFORESAID WRITTEN NOTE THAT THE ASSESSEE HAS ACQUIRED M/S KWIL ON A SLUMP SALE BASIS FOR A TOTAL CONSIDERATION OF RS. 64.4 CRORE WHICH INCLUDES NET CURRENT ASSETS OF RS. 25.87 CRORES. THIS NET CURRENT ASSETS INCLUDES DEBTORS AS WELL AS CREDITORS RELATED TO SALES AND PURCHASES BOOKED BY THE ERSTWHILE M/S KWI L. THE SUBSEQUENT REALIZATION OF DEBTORS OF KWIL ARE NOT TAXABLE IN T HE HANDS OF THE ASSESSEE SINCE M/S KWIL HAS ALREADY BOOKED CORRESPONDING SAL ES IN THE RELEVANT PRECEDING YEARS ON ACCRUAL BASIS. SIMILARLY ON PAYM ENT TO THE CREDITORS AND FOR 12 ITA NO.1426/PN/2013 OTHER LIABILITIES INCLUDING PROVISIONS OF KWIL CANN OT BE CLAIMED AS A DEDUCTION BY THE ASSESSEE SINCE M/S KWIL HAS ALREAD Y CLAIMED DEDUCTION ON THIS ACCOUNT IN THE RELEVANT PRECEDING YEARS ON ACC RUAL BASIS. 9.2 THE LD. DR CONTENDED THAT IT IS APPARENT FROM R ECORDS THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 16.02.2004 AND IT BOUGH T M/S KWIL ON THE SLUMP SALE BASIS VIDE AGREEMENT DATED 20.02.2004. T HE INCORPORATION AND ACQUISITION OF M/S KWIL IS IN A.Y. 2004-05. AS PER SCHEDULE 12 OF THE ANNUAL REPORT FOR A.Y. 2005-06, IT IS APPARENT THAT AN AMO UNT OF RS. 306.98 WAS A PROVISION FOR WARRANTY A ON 01-04-2004 RELATED TO M /S KWIL. OUT OF THIS PROVISION OF RS. 306.98 LAKHS, THE ASSESSEE LIQUIDA TED RS. 149.85 LAKHS AND MADE FURTHER PROVISION OF RS. 151.97 LAKHS ON ACCOU NT OF ITS OWN SALES BOOKED OF RS. 49.27 CRORES FOR A.Y. 2005-06. THUS, IT WAS APPARENT FROM RECORDS THAT THE SAID WARRANTY PROVISION OF RS. 149.85 LAKHS PER TAIN TO KWIL AND NOT THE ASSESSEE. IT IS PERTINENT TO POINT OUT THAT THE ASS ESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND PROVISION FOR WARRANTY IS BEING B OOKED WHEN THE CORRESPONDING SALES ARE BOOKED. THE LD. DR ACCORDI NGLY ASSERTED THAT IT IS APPARENT FROM RECORDS THAT THE SAID ACTUAL LIQUIDAT ION OF WARRANTY PROVISION OF RS. 149.86 LAKHS PERTAINS TO M/S KWIL, THE SAME IS NOT ALLOWABLE AS DEDUCTION . ALSO, THIS AMOUNT CAN NOT ONLY BE CLAIMED IN THE HANDS OF M.S KWIL WHEN IT HAD BOOKED THE CORRESPONDING SALES. ACCORDINGLY, TH E ACTION OF THE AO IN PASSING RECTIFICATION UNDER S. 154 AND OF THE LD. C IT(A) OF CONFIRMING THE ACTION OF THE AO IS CORRECT. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND ORDERS OF THE AUTHORITIES BELOW. 11. ON A CONCEPTUAL NOTE, IT WOULD BE PERTINENT TO BRIEFLY NARRATE BROAD LEGAL PERSPECTIVE TO OUTLINE THE SCOPE AND AMBIT OF JURIS DICTION UNDER S. 154. THE SCOPE OF POWER AVAILABLE FOR RECTIFICATION OF ORDER S UNDER S. 154 IS WITHIN THE BOUNDS OF VERY NARROW CONSIDERATIONS. S. 154 OF THE ACT WHICH GOVERNS RECTIFICATION OF ORDERS PERMITS CORRECTION OF THOSE MISTAKES WHICH ARE APPARENT AND PATENT. THE UNIFORM OPINIONS OF THE COURTS OF S UPERIOR JURISDICTIONS ARE 13 ITA NO.1426/PN/2013 THAT A PATENT MANIFEST AND SELF-EVIDENT ERROR WHICH DOES NOT REQUIRE ELABORATE DISCUSSION OF EVIDENCE OR ARGUMENT TO ESTABLISH IT, CAN BE SAID TO BE AN ERROR APPARENT ON THE FACE OF THE RECORD AND CAN BE CORRE CTED UNDER S. 154. AN ERROR CANNOT BE SAID TO BE APPARENT ON THE FACE OF THE RE CORD IF ONE HAS TO TRAVEL BEYOND THE RECORD TO SEE WHETHER ORDER IMPUGNED IS CORRECT OR NOT. AN ERROR APPARENT ON THE RECORD MEANS AN ERROR WHICH STRIKES ONE ON MERE LOOKING AND DOES NOT NEED A LONG DRAWN OUT PROCESS OF REASONING ON POINTS ON WHICH THERE MAY BE CONCEIVABLY TWO OPINIONS. THE ERROR SHOULD N OT REQUIRE ANY EXTRANEOUS MATTER TO SHOW ITS INCORRECTNESS. TO PUT IT DIFFERE NTLY, IT SHOULD BE SO MANIFEST AND CLEAR THAT NO COURT WOULD PERMIT IT TO REMAIN O N RECORD. IF THE VIEW ACCEPTED BY THE INCOME TAX AUTHORITY IN THE ORIGINA L ORDER IS ONE OF POSSIBLE VIEWS, THE CASE CANNOT BE SAID TO BE COVERED BY AN ERROR APPARENT ON THE FACE OF THE RECORD. IN ORDER TO ATTRACT THE APPLICATION OF S. 154, THE MISTAKE MUST EXIST AND THE SAME MUST BE APPARENT FROM THE RECORD. ALTH OUGH THE LAW IS WELL SETTLED, USEFUL REFERENCE CAN BE MADE TO THE JUDGME NTS OF T.S. BALARAM, ITO VS. VOLKART BROS. & ORS. (1971) 82 ITR 50 (SC) AND CIT VS. HERO CYCLES (P) LTD. (1997) 142 CTR (SC) 122 : (1997) 228 ITR 463 ( SC) AND PLETHORA OF OTHER DECISIONS RELIED UPON BY THE ASSESSEE. 12. IN THE BACKDROP OF LEGAL POSITION NARRATED ABOV E, LET US EXAMINE THE FACTUAL MATRIX CONCERNING ISSUES INVOLVED IN THE PR ESENT CASE. 12.1 THE FIRST ISSUE WHICH IS SUBJECT-MATTER OF REC TIFICATION UNDER SECTION 154 PERTAINS TO EXCISE DUTY PROVISION OF RS.80,82,905/- WHICH REMAINS UNPAID AS PER THE TAX AUDIT REPORT. FROM THE FACTS NARRATED EARLIER, IT APPEARS THAT ASSESSEE HAS ACTUALLY PAID THE EXCISE DUTY BEFORE THE DUE DA TE OF FILING OF THE RETURN AND THE TAX AUDIT REPORT IS ERRONEOUS TO THIS EXTENT AS CONTENDED BY THE ASSESSEE. THE EVIDENCES HAVE BEEN STATED TO BE FILED BEFORE T HE CIT(A) BUT NOT BEFORE THE ASSESSING OFFICER REGARDING THE PROOF OF PAYMENT. THE MISTAKE IS APPARENT FROM RECORD IN THE ABSENCE OF REQUISITE EVIDENCE IN THIS REGARD IN SO FAR AS THE AO IS CONCERNED TO GRANT HIM JURISDICTION TO ISSUE NOTICE UNDER S. 154. NOTWITHSTANDING AFORESAID, ONE POSSIBLE VIEW CAN BE THAT DURING THE COURSE OF ASSESSMENT, THE EVIDENCE IS NOT POSSIBLY CALLED FOR AND THEREFORE NOT FILED. 14 ITA NO.1426/PN/2013 THEREFORE, THE MISTAKE CAN BE ATTRIBUTABLE TO EITHE R SIDE. THE FACTS BEING PECULIAR, THE BENEFIT OF DOUBT NEED TO GO TO THE AS SESSEE. AS PER S. 154, THE ASSESSEE IS ENTITLED TO SATISFY THE ACT OF PAYMENT BY FURNISHING EVIDENCES WHEN OPPORTUNITY IS AFFORDED TO HIM. THE ASSERTIONS MADE TAX AUDIT REPORT CAN NOT NECESSARILY BE TAKEN AS GOSPEL TRUTH. THE ASSESSEE HAS ATTEMPTED TO AVAIL THE OPPORTUNITY BEFORE THE CIT(A) TO WHICH COTERMINOUS POWERS ARE EXTENDED WITHOUT SUCCESS. THE ASSESSEE HAS ATTEMPTED TO LEND SUPPORT TO ELIGIBILITY OF DEDUCTION WITH REFERENCE TO TAX AUDIT REPORT AND RE TURN OF INCOME OF SUBSEQUENT ASSESSMENT FOR THE CONTENTION THAT CLAIM FOR DEDUCT ION HAS NOT BEEN MADE IN THE NEXT YEAR WHILE THE ASSESSEE WAS ELIGIBLE FOR I T IN TERMS OF S. 43B. HENCE, HAVING REGARD TO THE FACT SITUATION, WE CONSIDER IT EXPEDIENT THAT THE ISSUE IS SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER TO A FFORD ONE MORE OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD THE EVIDENCES OF AC TUAL PAYMENT OF OUTSTANDING EXCISE LIABILITY. THE AO SHALL DETERMINE THE QUANT UM OF DEDUCTIONS TOWARDS IMPUGNED EXCISE DUTY PROVISIONS AVAILABLE TO THE AS SESSEE FOR THE RELEVANT ASSESSMENT YEAR 2005-06 IN ACCORDANCE WITH LAW. THE ISSUE IS THEREFORE REMITTED TO THE FILE OF AO IN TERMS OF ABOVE OBSERV ATIONS. 13. THE NEXT ISSUE PERTAINS TO DISALLOWANCE OF WARR ANTY PROVISION OF RS.1,49,85,639/- BY WAY OF RECTIFICATION WHILE COMP UTING THE INCOME UNDER THE NORMAL PROVISION OF THE ACT. 13.1 IT IS THE CASE OF THE REVENUE THAT THE PAYMENT OF RS.1,49,85,639/- HAS BEEN WRONGLY ADJUSTED AGAINST THE WARRANTY PROVISIO N OF RS.1,51,97,332/-. AS PER THE REVENUE, THE AMOUNT COULD BE ALLOWED ON PAY MENT BASIS ONLY IF IT IS DISALLOWED IN THE EARLIER YEARS WHEN THE PROVISION WAS CREATED FOR WHICH NO EVIDENCE HAS BEEN FURNISHED. IN REPLY, THE ASSESSE E CONTENDED THAT THE AFORESAID AMOUNT TOWARDS WARRANTY WAS SPECIFICALLY ACCEPTED IN THE ASSESSMENT ORDER DATED 31.12.2007 WHICH READS AS UNDER :- THE ASSESSEE HAS INCURRED THE EXPENDITURE OF RS.1, 49,85,639/- TOWARDS WARRANTY DURING THE YEAR, WHICH IS ACCEPTABLE AND ACCORDINGL Y THE SAID AMOUNT IS ALLOWED AS A DEDUCTION FROM COMPUTING THE TOTAL TAXABLE INCOME . 15 ITA NO.1426/PN/2013 WE FIND, IN VIEW OF THE AFORESAID UNAMBIGUOUS ASSER TIONS MADE BY THE ASSESSING OFFICER, IT IS DIFFICULT TO HOLD THAT MI STAKE APPARENT FROM RECORD AS CONTEMPLATED UNDER SECTION 154 OF THE ACT HAS CREPT IN THE ASSESSMENT ORDER WHICH IS SOUGHT TO BE RECTIFIED. THE LD. AO HAS SOU GHT TO REVIEW ITS EARLIER DECISION IN THE GARB OF RECTIFICATION. THIS IS NOT PERMISSIBLE. 13.2 LET US ALSO EXAMINE THE ISSUE FROM A DIFFERENT PERSPECTIVE. NEEDLESS TO SAY, WHETHER DISALLOWANCE WAS MADE IN THE HANDS OF THE TRANSFEROR COMPANY, KWIL AND ADDED BACK IN THE COMPUTATION OF INCOME IN THEIR HANDS PRIOR TO ACQUISITION OF ITS DIVISION BY THE ASSESSEE UNDER S LUMP SALE IS A MATTER OF ENQUIRY AND VERIFICATION OF FACTS. THE ALLEGATION O F THE REVENUE CAN POSSIBLY BE EXAMINED WITH REFERENCE TO THE ASSESSMENT RECORDS O F THE KWIL. IT CANNOT BY ANY STRETCH OF IMAGINATION, BE TERMED AS APPARENT E RROR BORNE OUT FROM THE ASSESSMENT RECORDS OF THE ASSESSEE. THE REVENUE HA S NOT BROUGHT OUT ANY EVIDENCE TO SHOW THAT IT HAS EXAMINED THE RETURNS O F KWIL AND FOUND THAT THE WARRANTY PROVISIONS WERE EARLIER MECHANICALLY ALLOW ED IN THEIR HANDS IN THE RELEVANT ASSESSMENT YEAR ON PROVISION BASIS. THERE FORE, IT IS EVIDENT THAT THE CORRECTNESS OF THE ALLOWABILITY OF SUCH CLAIM CAN B E EXAMINED ONLY BY INDULGING IN DETAILED EXAMINATION OF THE ASSESSMENT RECORDS PERTAINING TO ANOTHER ASSESSEE NAMELY KWIL. THIS IS APPARENTLY A COMPLEX AND LONG DRAWN PROCESS WHICH MAY ALSO INVOLVE SOME COUNTER FROM TH AT ASSESSEE AND/OR TRANSFEROR CO.. IT CANNOT BE TREATED AS A PATENT OR MANIFEST MISTAKE CONTEMPLATED U/S 154. THEREFORE, THE RECTIFICATION CARRYOUT OUT UNDER SECTION 154 OF THE ACT TOWARDS WARRANTY PROVISION OF RS.1,4 9,85,639/- AND APPROVED BY THE CIT(A) IS OSTENSIBLY NOT PERMISSIBLE. 13.3 THE ELABORATE PLEA OF THE LD. DR IN PARA NO. 9 .2 ABOVE HAS THE OBVIOUS TRAPPINGS OF THE ISSUE BEING ARGUMENTATIVE, COMPLEX AND SUBJECTIVE. THE PLEA OF THE DR CAN NOT BE ACCEPTED FOR FOLLOWING REASONS . FIRSTLY, THE AO HAS REJECTED THE AFORESAID AMOUNT OF RS. 1.49 CR. IN OR DER U/S 154 ON THE GROUND THAT IT IS CONTINGENT IN NATURE BASED ON TAX AUDIT REPORT WHICH IS EX FACIE FOUND TO BE BASED ON INCORRECT PRESUMPTION AND THUS WRONG PREMISE. THEREFORE, THE ENTIRE AMOUNT WOULD STAND ALLOWED ON THIS SCORE ALO NE. SECONDLY, THE ENTIRE 16 ITA NO.1426/PN/2013 ARGUMENT IS BASED ON THE ACQUISITION OF LIABILITY I N SLUMP SALE WHICH INVOLVES EXAMINATION OF THE RECORDS OF THE TRANSFEROR CO. QU A THE ISSUE AND SUCH EXERCISE IS NOT AMENABLE TO S. 154. THIRDLY, THE ASSESSEE H AS NOT CLAIMED ANY EXPENDITURE ON THIS PAYMENT IN THE BOOKS. IT HAS SI MPLY REDUCED THE OUTSTANDING LIABILITY ON PAYMENT. THEREFORE, THE IS SUE, IF AT TO BE EXAMINED, INVOLVES OBVIOUS COMPLEXITY AND CANNOT BE SAID TO B E EMANATING APPARENTLY FROM RECORDS. THE TEXT AND TENOR OF THE LD. DR ITSE LF SUGGESTS SO. THE FACTS MARSHALED BY THE LD. DR ON THE OTHER HAND SEEKS TO ENLARGE THE REASONINGS OF THE AO WHICH IS NOT PERMISSIBLE IN SO FAR AS EXERCI SE OF JURISDICTION UNDER 154. THESE REASONS APART, THE CONTENTION OF THE ASSESSEE THAT SET OFF OF THE IMPUGNED WARRANTY PAYMENTS OF RS. 1.49 CR. AGAINST THE GROSS LIABILITY OF RS. 1.51 CR. WAS EXPRESS AND EXPLICIT IN THE ORIGINAL A SSESSMENT ORDER DATED 31/12/ 2007 AFTER DUE DELIBERATION HAS NOT BEEN REBUTTED B Y THE REVENUE. THEREFORE, THERE IS NO JUSTIFICATION TO EXERCISE POWER UNDER S ECTION 154 CONCERNING THE ISSUE. 13.4 ACCORDINGLY, WE REVERSE THE ORDER OF CIT(A) ON THE ISSUE AS JURISDICTION UNDER SECTION 154 IS NOT AVAILABLE TO THE REVENUE. 14. THE NEXT ISSUE RELATES TO ADDITION OF RS.1,51,9 7,332/- TOWARDS WARRANTY PROVISION TO THE BOOK PROFITS COMPUTED UNDER SECTIO N 115JB OF THE ACT ON THE GROUND THAT THE LIABILITIES ARE OF PRESUMABLY OF CO NTINGENT NATURE AS REPORTED IN THE TAX AUDIT REPORT AND NOT ASCERTAINED LIABILITY. WE HAVE PERUSED THE OBSERVATIONS MADE BY THE TAX AUDITOR WHICH IS REPRO DUCED AS UNDER :- (K) PARTICULARS OF ANY LIABILITY OF A CONTINGENT NATURE - AN AMOUNT OF RS.1,52,58,819/- HAS BEEN ACCOUNTED AS PERFORMANCE WARRANTY. THE COMPANY CONTENDS THAT THE SAME IS NOT LIABILITY OF A CONTINGENT NATURE BASED ON THE DECISION IN ITO VS. WANSON (INDIA) LTD. (1983) 5 ITD 102 (PUN), SINGAL & CO. VS. ITO [1982] 1 ITD 476 (CHD), JAY BEE INDUSTRIES VS. DCIT [1998] 61 TTJ 403 (ASR) VOLTAS LTD. VS. DCIT [1998] 61 TTJ 543 (MUM) CIT VS. MAJESTIC AUTO LTD. (1993) 47 ITD 1 (CHANDIGARH TM) 17 ITA NO.1426/PN/2013 ON THE BARE READING OF THE ABOVE NOTED OBSERVATIONS , WE FIND THAT REVENUE HAS GROSSLY MISREAD THE REMARKS OF THE AUDITOR AND IS R EPUGNANT THERETO. AS CAN BE SEEN, TAX AUDITOR HAS CLEARLY REMARKED THAT COMPANY CONTENDS THAT THE SAME IS NOT LIABILITY OF CONTINGENT IN NATURE IN VIEW OF JU DICIAL DECISIONS NOTED ABOVE. THE REMARKS IN THE TAX AUDIT RUNS COUNTER TO THE ST AND OF THE AO. BESIDES, THE CASE WAS SUBJECT-MATTER OF SCRUTINY TWICE, FIRST UN DER SECTION 143(3) AND THEREAFTER AGAIN UNDER SECTION 143(3) R.W.S. 147 OF THE ACT. THE RELEVANT FACTS AND TAX AUDIT REPORT WERE AVAILABLE TO THE REVENUE FOR ITS VERIFICATION, IF CONSIDERED EXPEDIENT. IT WILL BE FAR FETCHED TO CON CLUDE ON THE BASIS OF SUCH REMARKS THAT THE WARRANTY PROVISIONS ARE IN THE NAT URE OF CONTINGENT LIABILITY PARTICULARLY WHEN THE ASSESSEE IS MAKING SPECIFIC D ENIAL. THE POSSIBLE DIFFERENCE IN OPINION CAN NOT BE BRANDED AS MISTAK E APPARENT FROM RECORD. AS STATED, THE RECORDS SAYS EXACTLY OPPOSITE TO THE VE RSION OF THE AO WHICH IS THE FOUNDATION OF THIS ADDITION. IN THE LIGHT OF AFORES AID OBSERVATIONS, WE DO NOT CONSIDER IT NECESSARY TO DEAL WITH THE VARIOUS CITA TIONS MADE DURING THE COURSE OF HEARING. ONCE THE REPORT ITSELF HAS BEEN BLATAN TLY MISREAD WHICH TRIGGERED AN AB-INITIO PERVERSE CONCLUSION, ALL OTHER INCIDENTAL ARGUMENT S ON MERITS ARE RENDERED EXTRANEOUS. THEREFORE, ORDER OF THE CIT(A) ON THE ISSUE DESERVES TO BE VACATED AND AS A CONSEQUENCE, THE ADDITION TO TH E BOOK PROFIT ON THIS SCORE STANDS DELETED. 15. THE NEXT ISSUE RELATES TO PROVISION OF DOUBTFUL DEBTS OF RS.40,64,469/- WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115J B OF THE ACT. IT IS THE CASE OF THE ASSESSEE AS PER CLARIFICATION REPLY DATED 6/ 03/2009 PLACED BEFORE AO THAT SIMILAR TO THE IMPUGNED PROVISIONS FOR DOUBTFUL DEB TS SUBSTRACTED WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER HOLDING TH E SAME TO BE PROVISION IN THE NATURE OF UNASCERTAINED LIABILITY, THE ASSESSEE HAS ALSO SIMULTANEOUSLY ADDED BACK PROVISION OF THE SIMILAR NATURE TO THE E XTENT OF RS.2,51,53,409/- IN THE BOOKS WHICH HAS RESULTED IN SUBSTANTIAL INCREAS ED IN THE BOOKS PROFITS. THIS ASPECT HAS NOT BEEN DEALT WITH BY THE REVENUE. WE FIND THAT THE ASSESSING OFFICER COULD NOT HAVE RECTIFIED THE IMPUGNED AMOUN T OF RS.40,64,469/- DEBITED TO THE PROFIT & LOSS ACCOUNT TOWARD DOUBTFU L DEBTS WITHOUT APPLYING THE SAME YARDSTICK TO THE CREDIT AMOUNTS EMERGING F ROM THE SAME RECORDS. 18 ITA NO.1426/PN/2013 THEREFORE, THE CONTENTION OF THE ASSESSEE DESERVES TO BE ACCEPTED ON THIS COUNT ALSO AND ADDITION OF RS.46,64,469/- TO THE BOOK PRO FIT REQUIRES TO BE DELETED BY SETTING ASIDE THE ORDER OF THE LD. CIT(A) ON THIS I SSUE. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON THIS 16 TH DAY OF SEPTEMBER, 2015. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE ; DATED : 16 TH SEPTEMBER, 2015. % & '() *)' / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %+ / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE