Sew Eurpdrive India Pvt. Ltd., Vadodara V. The Dy. CIT., Circle-2(1)(1), Vadodara

ITA 1542/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2702 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 21-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SHANKAR
• Keywords: Rule of consistency; Bad and doubtful debts
• Section: 143(3); 92CA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED , ACCOUNTANT MEMBER AND MS MADHUMITA ROY, JUDICIAL MEMBER ./ ITA NO.1542/AHD/2017 / ASSTT. YEAR : 2011 - 2012 SEW EURODRIVE INDIA PRIVATE LIMITED , PLOT NO.4, GIDC POR RAMAN GAMDI , VADODARA - 391243 . PAN: AABC S4703Q VS . D.C.I.T , CIRCLE - 2(1) (1) , BARODA (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI SANJAY R. SHAH , A.R REVENUE BY : SHRI T. SHANKAR , SR. DR / DATE OF HEARING : 11 / 02 / 201 9 / DATE OF PRONOUNCEMENT: 20 /02 /2 01 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 2 , VADODARA [CIT(A) IN SHORT] VIDE APPEAL NO. CAB/(A) - 2/502/14 - 15 , DATED 31 / 03 / 2017 ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S.143(3) R.W.S. 92CA OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DATED 11/02 / 201 5 RELEVANT TO ASSESSMENT YEAR (AY) 2011 - 12 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL . YOUR APPELLANT BEING AGGRIEVED BY THE ORDER DATED 31 MARCH 2017 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 2 BARODA, [ 'CIT (A)'] PREFERS ITA NO.1542/AHD/2017 ASSTT. YEAR 2011 - 12 2 AN APPEAL AGAINST THE SAME ON THE FOLLOWING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER : 1. THE LEARNED CIT(A) AND THE LEARNED ASSESSING OFFICER ('AO') ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE DETAILED SUBMISSION/WRITTEN - SUBMISSIONS AND DOCUMENTS FURNISHED BY THE APPELLANT. 2. THE LEARNED CIT(A) ERRED IN LAW AND FACTS IN DISALLOWING THE PROVISIONS FOR WARRANTY OF RS. 12,04,523 D EBITED TO PROFIT & LOSS ACCOUNT. 2.1. THE LEARNED CIT(A) ERRED IN LAW AND FACTS BY HOLDING THAT NO SCIENTIFIC BASIS WAS THERE FOR CALCULATION OF WARRANTY PROVISION, WHEREAS THE APPELLANT HAS PROVIDED THE SCIENTIFIC BASIS OF CALCULATION OF PROVISION FOR WARRANTY BOTH BEFORE THE LEARNED AO AS WELL AS THE LEARNED CIT(A). ALSO, THE LEARNED CIT(A) ERRED IN LAW BY MENTIONING THAT DECISION OF HON'BLE SUPREME COURT IN CASE OF ROTORK CONTROLS INDIA PRIVATE LIMITED V. CIT 314 ITR 62 IS NOT APPLICABLE IN APPELL ANT'S CASE. 2.2. THE LEARNED CIT(A) AS WELL AS THE LEARNED AO FAILED TO UNDERSTAND ACCOUNTING TREATMENT DONE BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS IN CONNECTION WITH PROVISIONS FOR WARRANTY. ALSO, THEY FAILED TO APPRECIATE THAT EVEN ALTERNATE TREATMENT SUG GESTED BY THEM WAS FOLLOWED BY THE APPELLANT WOULD HAVE RESULTED INTO SAME CLAIM OF EXPENDITURE. 3. THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF BAD - DEBT CLAIM OF APPELLANT AMOUNTING TO RS. 88,21,126. 3.1. THE LEARNED CIT(A) ERRED IN LAW AND ON FAC TS BY HOLDING THAT INDIVIDUAL ACCOUNT OF ONE OF THE BAD - DEBT PARTIES VIZ. DIACARB TOLLS PRIVATE LIMITED WAS NOT WRITTEN - OFF, WITHOUT APPRECIATING THE SPECIFIC ACCOUNTING ENTRY SHOWING THE WRITING OFF THE ACCOUNT OF SAID PARTY, FURNISHED BY THE APPELLANT BE FORE THE LEARNED CIT(A). THE LEARNED CIT(A) FURTHER FAILED TO APPRECIATE HON BLE SUPREME COURT DECISION IN CASE OF VIJAYA BANK VS. CIT 323 ITR 166, WHEREIN IT WAS HELD THAT ASSESSEE IS NOT REQUIRED TO CLOSE THE INDIVIDUAL ACCOUNT OF EACH DEBTOR IN ITS BOOK S. 3.2. WITHOUT FOREGOING TO ABOVE, THE APPELLANT HAS WRITTEN - OFF THE INDIVIDUAL ACCOUNT OF DIACARB TOLLS PRIVATE LIMITED IN ITS BOOKS OF ACCOUNTS, WHICH WAS ALSO APPARENT FROM THE ACCOUNTING ENTRY FURNISHED BY THE APPELLANT BEFORE THE LEARNED AO. ITA NO.1542/AHD/2017 ASSTT. YEAR 2011 - 12 3 THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO ALTER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3. THE GROUND NO.1 RAISED BY THE ASSESSEE IS GENERAL , AND THEREFORE, IT DOES NOT RE QUIRE ANY SEPARATE ADJUDICATION. 4. THE ISSUE RAISED BY THE AS SESSEE IN THE GROUND NO. 2 IS THAT LD.CIT (A) ERRED IN D ISALLOWING THE PROVISION FOR WARRANTY AMOUNTING TO RS.12,04,523/ - ONLY. 5. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMI TED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING/ASSEMBLING OF GEAR MOTORS/BOXES, INVERTERS , ETC . THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS DEBITED IT S PROFIT AND LOSS ACCOUNT FOR RS. 12,04,523/ - ON ACCOUNT OF THE PROVISION OF WARRANTY . HOWEVER, THE ASSESSEE CLAIMED THAT IT WAS REQUIRED TO CREATE THE PROVISION FOR WARRANTY FOR THE YEAR UNDER CONSIDERATION FOR RS. 33,04,523/ - ONLY. IT IS BECAUSE IT HAS CLAIMED ACTUAL EXPENSES AGAINST THE PROVISION FOR WARRANTY BY DEBITING PROFIT AND LOSS A CCOUNT F OR RS. 22,16,881/ - ONLY . AS SUCH THE ACTUAL WARRANTY EXPENSES WERE NOT ADJUSTED AGAINST THE PROVISION MADE FOR THE WARRANTY EXPENSES IN THE EARLIER YEAR. THUS THE OPENING BALANCE AS ON 1 ST APRIL 2010 CARRIED FORWARD FROM THE EARLIER YEAR AMOUNTING TO 21 LAKHS REMAINED INTACT. ACCORDINGLY, THE ASSESSEE CREATED A PROVISION IN THE YEAR UNDER CONSIDERATION AT 12,04,523.00 WHICH HAS BECOME 33,04,523.00 AS ON 31 ST OF MARCH 2011. T HEREFORE A DIFFERENCE OF RS.12,04,523 (RS.3304523 2216881) WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT. ITA NO.1542/AHD/2017 ASSTT. YEAR 2011 - 12 4 5.1 ASSESSEE ALSO CLAIM ED THAT THE PROVISION WAS CREATED IN THE BOOKS OF ACCOUNTS ON A SCIENTIFIC BASIS WHICH W AS ACCEPTED IN THE EARLIER ASSESSM ENT YEAR S . HOWEVER, THE AO WAS OF THE VIEW THAT THE PROVISION OF WARRANTY IS REPRESENTING THE CONTINGENT LIABILITY . T HEREFORE THE SAME CANNOT BE ALLOWED AS DEDUCTION . ACCORDINGLY , THE AO DISALLOW ED THE S U M OF RS.33,04,523/ - AND ADDED TO THE TOTAL INCOME OF THE ASSES SEE. 6. AGGRIEVED AS SESSEE PREFERRED AN APPEAL TO THE LD.CIT (A). THE ASSESSEE BEFORE THE LD.CIT (A) SUBMITTED THAT IT HA D CREATED PROVISION ON THE SCIENTIFIC BASIS AND THEREFORE THE SAME IS A N ALLOWABLE DEDUCTION IN VIEW OF THE JUDGMENT OF HON BLE S UPREME C OURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. VS. CIT REPORTED IN 314 ITR 62. 7. HOWEVER, LD .CIT (A) FOUND THAT THE PROVISION FOR WARRANTY W A S NOT MADE IN A SCIENTIFIC MANNER . 7.1 THE LD.CIT (A) ALSO FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 12,04 , 523/ - ON ACCOUNT OF THE PROVISI ON OF WARRANTY EXPENSES . THEREFORE THE LD. CIT(A) RESTRICT ED THE DISALLOWANCE TO THE EXTENT OF RS. 12,04,523/ - ONLY. 8. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A) ASSESSEE IS IN APPEAL BEFORE US. 9. THE LD. A R , BEFORE US , SUBMITTED THAT THE ASSESSEE HAS BEEN CLAIMING PROVISION FOR WARRANTY FOR THE LAST SEVERAL YEARS AND IN NONE OF THE ASSESSMENT YEAR THE DISALLOWANCE ON ACCOUNT OF PROVISION FOR WARRANTY WAS MADE THOUGH THE ASSESSMENT S U/S 143(3) OF THE AC T WERE FRAMED . ITA NO.1542/AHD/2017 ASSTT. YEAR 2011 - 12 5 9.1 THE LD.AR, FURTHER SUBMITTED THAT IT HA D DEBITED ITS PROFIT AND LOSS ACCOUNT ON ACCOU N T OF PROVISION FOR WARRANTY BY AN AMOUNT OF RS. 12,04,523/ - ONLY. IT IS BECAUSE THE ASSESSEE HAS CLAIMED THE EXPENSES AGAINST THE PROVISION FOR WARRANTY IN THE PROFIT AND LOSS ACCOUNT WITH THE FULL AMOUNT . AS SUCH THE ACTUAL EXPENSES WERE INCURRED AGAINST THE PROVISION CREATED IN THE EARLIER YEARS. 10. ON THE OTHER HAND LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL S AVAILABLE ON RECORD. IN THE INSTANT CASE , THE ISSUE RELATES TO THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF PROVISION FOR THE WARRANTY EXPENSES . IT IS A N UNDISPUTED FACT THAT THE ASSESSEE HAS BEEN CLAI MING PROVISION FOR WARRANTY CONSISTENTLY , AND THERE WAS NO DISALLOWANCE MADE BY THE REVENUE IN THE ASSESSMENT ORDER FRAMED U/S 143(3 ) OF THE ACT. AS THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTANCES , THEREFORE WE ARE OF THE VIEW T H AT THE PRINCIPLE OF CONSISTENCY WILL APP LY IN THE CASE ON HAND. IN THIS REGARD , W E FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF THE HON BLE SUPREME COURT IN CASE OF RADHASOAMI S ATSANG REPORTED IN 193 ITR 321 WHEREIN IT WAS HELD AS UNDER: 13. WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RES JUDICATA DOES NOT APPLY TO INCOME - TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESS MENT Y EARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 14. ON THESE REASONINGS IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER AND IF THERE WAS NO CHANGE IT WAS IN SUPPORT OF THE ASSESSEE WE DO NOT THINK THE QUESTION SHOULD HAVE BEEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY TH E COMMISSIONER IN THE EARLIER PROCEEDINGS, A DIFFERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN. WE ARE, THEREFORE, OF THE VIEW THAT THESE APPEALS SHOULD BE ALLOWED AND THE QUESTION SHOULD ITA NO.1542/AHD/2017 ASSTT. YEAR 2011 - 12 6 BE ANSWERED IN THE AFFIRMATIVE, NAMELY, THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE INCOME DERIVED BY THE RADHASOAMI SATSANG WAS ENTITLED TO EXEMPTION UNDER SECTIONS 11 AND 12 . 11.1 IT IS A SETTLED LAW THAT THE PROVIS ION CREATED ON A SCIENTIFIC BASIS IS AN ALLOWABLE DEDUCTION IN VIEW OF THE JUDGMENT OF HON BLE S.C IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. (SUPRA) WHEREIN IT WAS HELD AS UNDER : FROM ANALYSIS OF THE VARIOUS DECISION OF THE SUPREME COURT, IN WHICH A SIMILAR ISSUE WAS DECIDED, THE PRINCIPLE WHICH EMERGES IS THAT IF THE HISTORICAL TREND INDICATES THAT A LARGE NUMBER OF SOPHISTICATED GOODS WERE BEING MANUFACTURED IN THE PAST AND IF THE FACTS ESTABLISHED SHOW THAT DEFECTS EXISTED IN SOME OF THE ITEMS MANUFACTURED AND SOLD, THEN THE PROVISION MADE FOR WARRANTY IN RESPECT OF THE ARMY OF SUCH SOPHISTICATED GOODS WOULD BE ENTITLED TO DEDUCTION FROM THE GROSS RECEIPTS UNDER SECTION 37. IT WOULD ALL DEPEND ON THE DATA SYSTEMATICALLY MAINTAINED BY THE ASSESSEE 11.2 IN VIEW OF THE ABOVE WE ARE INCLINED TO HOLD THAT THE PROVISION CREATED BY THE ASSESSEE WERE BASED ON SCIENTIFIC CRITERIA AND ACCORDINGLY THE SAME DESERVE S TO BE ALLOWED AS DEDUCTION. HENCE WE SET ASIDE THE ORDER OF LD.CIT (A) AND DIRECT THE AO TO DELETE THE ADDITIO N MADE BY HIM. THUS THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 12. THE NEXT ISSUE IS THAT LD.CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO FOR RS. 88,21,126/ - ON ACCOUNT OF BAD DEBT WRITTEN - OFF. 13. THE ASSESSEE IN THE YEAR UNDER CON SIDERATION HAS WRITTEN - OFF THE BALANCE OF THE DEBTOR NAMELY DIACARD TOLLS P VT. LTD. AS BAD DEBTS AMOUNTING TO RS. 88,21,126/ - ONLY . THUS THE ASSESSEE CLAIM S THE DEDUCTION U/S 36 ( 1 ) (VII) R.W.S . 36(2) OF THE ACT. ITA NO.1542/AHD/2017 ASSTT. YEAR 2011 - 12 7 14. HOWEVER, THE AO FOUND THAT THE ASSESSEE HAS NOT WRITTEN - OFF BAD DEBTS IN THE INDIVIDUAL ACCOUNT OF THE LEDGER . T HEREFORE HE DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 15. AGGRIEVED AS SESSEE PREFERRED AN APPEAL TO THE LD.CIT (A) WHO HAS ALSO CONFI R MED THE ORDER OF THE AO BY OBSERVING THAT BAD DEBT HAS NOT BEEN WRITTEN - OFF IN THE I NDIVIDUAL ACCOUNT OF THE PARTY . 16. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A) ASSESSEE IS IN APPEAL BEFORE US. 17. THE LD.AR, DREW OUR ATTENTION ON THE COPY OF LEDGER OF THE PARTY M/S DIACARB TOLLS PVT. LTD. PLACE D ON PAGE 160 TO 162 AND DEMONSTRATED THAT THE AMOUNT OF BAD DEBTS HA D BEEN WRITTEN - OFF IN THE INDIVIDUAL LEDGER OF THE PARTY. THUS THE LD. AR CLAIMED THAT IT HA D FULFILLED THE CONDITION AS S PECIFIED U/S 36(1)(VII) R.W.S 36(2) OF THE ACT. 18. ON THE OTHER HAND LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ON PERUSAL OF THE COPY OF THE LE DGER OF THE PARTY AS DISCUSSED ABOVE , WE NOTE THAT THE BAD DEBTS HA VE WRITTEN - OFF IN THE LEDGER ACCOUNT OF THE PART Y . T HEREFORE IN OUR CONSIDERED VIEW , THE ALLEGATION OF THE AO IS NOT SUSTAINABLE. 19.1 THE LD . D R, HAS ALSO NOT BROUGHT ON RECORD ANY EVIDEN CE CONTRARY TO THE ARGUMENT ADVANCED BY THE LD.COUNSEL FOR THE ASSESSEE. ITA NO.1542/AHD/2017 ASSTT. YEAR 2011 - 12 8 19.2 IN VIEW OF THE ABOVE WE H O LD THAT THE ASSESSEE HA D FULFILLED THE CONDITION AS SPECIFIED U/S 36(1)(VII) R.W.S . 36(2) OF THE ACT AND ACCORDINGLY CONCLUDE THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN - OFF. IN THIS REGARD , WE ALSO FOUND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE S.C IN THE CASE OF TRF LIMITED VS CIT REPORTED IN 323 ITR 397. THIS POSITION IN LAW IS WELL - SETTLED. AFTER 1 - 4 - 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, TH E ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMER'S ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN TH E CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE - MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 19.3 IN VIEW OF THE ABOVE WE H O LD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN - OFF IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY , WE SET ASIDE THE ORDER OF THE LD.CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 20. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 20 /02 / 2019 AT AHMEDABAD. - SD - - SD - (MS MADHUMITA ROY ) (WASEEM AHMED) JUDICIAL MEMBER (TRUE COPY) ACCOUNTAN T MEMBER A HMEDABAD; DATED 20 / 02 /2019 MANISH ITA NO.1542/AHD/2017 ASSTT. YEAR 2011 - 12 9 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , / DR, ITAT, 6. / GUARD FILE .