DCIT (LTU), New Delhi V. M/s Whirlpool of India Ltd., Gurgaon

ITA 1849/DEL/2010

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6578 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 23-11-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 22-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: UMESH CHAND DUBEY
• Assessee Lawyers: RUPESH J AIN
• Keywords: Depreciation; Rule of consistency; Earning of tax free income; Cost of acquisition; Wholly owned subsidiary; Bad and doubtful debts; Liquidation; Capital Gains
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 43B; 271(1)(b); 139; 92; 14A; 43; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTAN T MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER I.T.A .NO. 2285/DEL/2009 (A.Y 2001-02) AND I.T.A .NO. 1849/DEL/2 010 (A.Y 2002-03) DCIT (LTU) NBCC PLAZA PUSHP VIHAR NEW DELHI 110001 (APPELLANT) VS WHIRLPOOL OF INDIA LTD. WHIRLPOOL HOUSE, PLOT NO. 40, SECTOR 44 GURGAON AAACW1336L (RESPONDENT) APPELLANT BY SH. UMESH CHAND DUBEY, SR. DR RESPONDENT BY SH. RUPESH JAIN, ADV, AHARNISH KAPOOR, CA ORDER PER SUCHITRA KAMBLE, JM THESE APPEALS HAVE BEEN FILED BY THE REVENUE AGAINS T THE ORDERS DATED 6/4/2009 & 6/1/2010 PASSED BY CIT(A)-XXI, NEW DELHI & CIT(A)-VII, NEW DELHI. THE REVENUE FILED APPEALS FOR A.Y. 2001-02 & 2002-03. DATE OF HEARING 23.11.2016 DATE OF PRONOUNCEMENT 20.02.2017 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 2285/DEL/2009 (A.Y 2001-02 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD.CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWAN CE OF RS.1,00,000/- PERTAINING TO THE EXPENDITURE INCURRE D IN EARNING THE DIVIDEND INCOME WHICH IS EXEMPT FROM TAX. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) ERRED DIRECTING THE A.O TO GRANT LEAVE RELIEF TO THE ASSE SSEE AFTER VERIFYING THE COMPUTATION OF CAPITAL GAIN OF RS.2,08,210/- IN RESPECT OF SALE OF UNIT OF VECUS-II (1990) IN SPITE OF THE FACT THE A. O HAS PROVIDED FOR INDEXATION IN HIS ORDER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.48,35,989/- ON ACCOUNT OF VALUATION OF CLOSING STOCK IN SPITE OF THE FACT THAT THE ACCOUNT ING STANDARD-2 ISSUED BY ICAI ITSELF PROVIDES FOR ADJUSTMENT IN VA LUATION OF INVENTORY ON THE BASIS OF CHANGE IN METHOD OF ACCOU NTING; AND THAT THE ASSESSEE IS NOT CONSISTENTLY FOLLOWING ANY SING LE METHOD OF ACCOUNTING. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.53,500/- OUT OF INTERES T PAID BY THE ASSESSEE TO BANK AS THE ASSESSEE HAS PROVIDED INTER EST FREE FUND TO ITS SUBSIDIARY COMPANY AND ON THE OTHER HAND TAKEN INTEREST BEARING LOAN FROM BANKS THROUGH COMMERCIAL PAPERS, FOR ITS BUSINESS REQUIREMENT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.20,13,907/- MADE ON ACCOUNT OF ESI & P.F CONTRIBUTION AS EXPLANATION TO SEC 36(1) (VA) PROVIDED FOR DUE DATE TO BE THE DUE DATE OF FUND. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE FOR WARRANTY AND OPTIONAL SERVICE CONTRACT AMOUNTING TO RS.3,72,03,000/- AS NO PROVISION FOR CONTINGENT/UNASCERTAINED LIABILITY IS ALLOWABLE UND ER THE INCOME TAX ACT, 1961. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.142,53,143/- OUT OF THE LEASE RENTALS DESPITE THE FACT THAT THE ASSETS, BEING COMPUTERS, ARE BEING CONTINUOUSLY USED BY THE ASSESSEE AND THERE IS NO R EAL TRANSFER OF ASSETS. THE AGREEMENT TO SELL AND LEASE BCK ASSETS IS ONLY A COLORABLE DEVICE IN ORDER TO INFLATE EXPENDITURE AND CLAIM HIGHER DEPRECIATION. ITA NO. 1849/DEL/2010 (A.Y 2002-03) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD.CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWAN CE OF RS.1,00,000/- PERTAINING TO THE EXPENDITURE INCURRED IN EARNING T HE DIVIDEND INCOME WHICH IS EXEMPT FROM TAX. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.48,35,989/- ON ACCOUNT OF VALUATION OF CLOSING STOCK IN SPITE OF THE FACT THAT THE ACCOUNTING STAN DARD-2 ISSUED BY ICAI ITSELF PROVIDES FOR ADJUSTMENT IN VALUATION OF INV ENTORY ON THE BASIS OF CHANGE IN METHOD OF ACCOUNTING; AND THAT THE ASSESS EE IS NOT CONSISTENTLY FOLLOWING ANY SINGLE METHOD OF ACCOUNTING. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.4,89,586/- MADE ON ACCOUNT OF ESI & PF CONTRIBUTION AS EXPLANATION TO SECTION 36(1) (VA) P ROVIDED FOR DUE DATE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) ERRED IN DELETING THE DISALLOWING OF RS.1,74,96,745/- OUT OF THE LEASE RENTALS DESPITE THE FACT THAT THE ASSETS, BEING COMPUTERS A RE BEING CONTINUOUSLY USED BY THE ASSESSEE AND THERE IS NOT REAL TRANSFER OF ASSETS AND THE AGREEMENT TO SELL AND LEASE BACK ASSETS IS ONLY A C OLORABLE DEVICE IN ORDER TO INFLATE EXPENDITURE AND CLAIM HIGHER DEPRECIATIO N . WE WILL FIRST TAKE THE APPEAL ITA NO. 2285/DEL/2009 FOR ASSESSMENT YEAR 2001-02. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF CONSUMER DURABLES SUCH AS REFRIGERATORS AND WASHING MACHINE FOR ASSESSMENT YEAR 2001-02. THE ASSESSEE HAS EARNED D IVIDEND INCOME OF RS.6,42,750/- ON THE INVESTMENT MADE IN THE UNITS O F UTI & OTHER MUTUAL FUNDS. THE ASSESSING OFFICER ON CONJECTURES AND SU RMISES DISALLOWED EXPENDITURE OF RS.1 LAC AS EXPENDITURE INCURRED IN EARNING SUCH INCOME UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. THE ASSE SSEE ALSO CLAIMED LONG TERM CAPITAL LOSS OF RS.75,995/- IN THE RETURN OF INCOME ON SALE OF UNITS OF UTI ETC. HOWEVER, ASSESSING OFFICER COMPUTED RS.2,08,210/- I N RESPECT OF SALE OF THE SAID UNITS. THE ASSESSEE COMPANY COMPRISED OF DIFF ERENT DIVISIONS AND HAS MANUFACTURING UNITS AT FRIDABAD, PONDICHERY AND PUN E. THE ASSESSEE WAS FOLLOWING WEIGHTED AVERAGE COST METHOD WHICH IS AN ACCEPTABLE METHOD OF VALUATION OF STOCKS IN ALL THE UNITS EXCEPT IN CAPI TAL GNF DIVISION, PUNE. THE AFORESAID METHOD OF VALUATION OF INVENTORIES WAS AC CEPTED BY THE REVENUE THROUGHOUT. DURING THE PREVIOUS YEAR UNDER CONSIDE RATION FOR GNF UNIT THE METHOD OF VALUATION OF CLOSING STOCK WERE CHANGED T O WEIGHTED AVERAGE COST METHOD IN LYING WITH OTHER UNITS SO THAT THE PRINCI PAL OF CONSISTENCY COULD BE FOLLOWED AMOUNT OF THE UNITS. THE TAX AUDITORS UND ER ANNEXURE III OF THE TAX AUDIT REPORT REPORTED THAT AS A RESULT OF SUCH CHAN GES IN THE METHOD OF VALUATION OF CLOSING STOCK PROFIT FOR THE YEAR HAS BEEN UNDER STATED BY RS.48,35,989/-. THE ASSESSING OFFICER MADE THE ADD ITION OF RS.48,35,989/- ON ACCOUNT OF CHANGE IN METHOD OF VALUATION OF CLOSING STOCKS ON THE GROUND THAT THE ASSESSEE HAD ARTIFICIALLY INCREASED ITS LOSSES. THE ASSESSING OFFICER MADE THE SAID ADDITION BY APPLYING PROVISIONS OF SECTION 145A OF THE ACT. FOR THE ASSESSMENT YEARS 1997-98 1998-99 & 1999-2000. THE ASSESSEE HAD NOT CLAIMED DEPRECIATION, HOWEVER, THE ASSESSING OFFICE R COMPUTED AND ALLOWED DEPRECIATION ON FIX ASSETS IN THE ASSESSMENT ORDER HOLDING THAT THE SAME IS COMPULSORY AND ALLOW EVEN IF NO CLAIM IS MADE BY TH E ASSESSEE. DURING THE PREVIOUS YEAR, THE ASSESSEE CLAIM DEPRECIATION ON T HE ORIGINAL WRITTEN DOWN VALUE OF THE FIX ASSETS WITHOUT SETTING OF DEPRECIA TION ON FIX ASSETS FOR AFORESAID THREE ASSESSMENT ORDERS THE AMOUNT OF DEPRECIATION WITHOUT SETTING OF THE DEPRECIATION FOR THE EARLIER ASSESSMENT YEARS COME TO RS.1,10,58,57,287/- DEPRECIATION ON RETURNED DOWN VALUE OF FIX ASSETS A FTER ALLOWING DEPRECIATION FOR THE ASSESSMENT YEARS 1997-98, 1998-99 & 1999-2000 C OMES TO RS.70,59,29,517/-. THE ASSESSING OFFICER REDUCED THE LICENSES OF DEPRECIATION BY RS.39,99,27,770/- BEING THE DIFFERENCE IN THE AM OUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE AND COMPUTED BY THE REVENUE . THE ASSESSING OFFICER ALSO DISALLOWED SUM OF RS.20,13,907/- ON ACCOUNT OF LATE PAYMENT OF PF DUES & ESI DUES. THE ASSESSING OFFICER ALSO DISALLOWED SUM OF RS.53,500/- OUT OF INTEREST PAID BY THE ASSESSEE AGAINST BORROWED FUND S WHICH WERE RENT TO SUBSIDIARY AS AN INTEREST FREE LOAN. THE ASSESSING OFFICER ALSO DISALLOWED EXPENDITURE ON LEASE RENTS CLAIM WITH RS.288.40 LAC S AND ALLOWED EXPENDITURE OF RS.1,45,86,857/-. 4. AGGRIEVED BY THIS, THE ASSESSEE FILED APPEAL BEF ORE THE CIT(A). 5. AS RELATES TO GROUND NO. 1, THE CIT(A) HELD THAT THE ASSESSEES COUNSEL POINTED OUT ITAT ORDER IN THE CASE OF EICHER LIMITE D AND THE ORDER OF THE HONBLE HIGH COURT IN DEPARTMENTS APPEAL AGAINST T HAT ORDER WHICH HELD THAT THE DEPARTMENT HAD CHALLENGED THE ITAT ORDER ONLY I N RESPECT OF THE ISSUE RELATING TO PROVISION FOR BAD AND DOUBTFUL DEBTS VI S--VIS SECTION 115JA. FURTHER, THE ASSESSEE ALSO PLACED ON RECORD AN ORDE R OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT DELHI VS. CHEMICAL AND MET ALLURGICAL DESIGN CO. LTD: ITA NO. 803/2008 WHEREIN THE HONBLE HIGH COURT HEL D THAT MAKING A PROPORTIONATE DISALLOWANCE OF EXPENSES ON ESTIMATE BASIS COULD NOT BE SUSTAINED UNDER SECTION 14A OF THE ACT. THUS, THE C IT(A) AGREED WITH THE ASSESSEES CONTENTIONS AND HELD THAT THE DIVIDEND W AS RECEIVED FROM AN INVESTMENT IN UNITS OF UTI AND THE ASSESSEE HAS REC EIVED TWO CHEQUES FOR THE AMOUNTS OF DIVIDEND. IT DOES NOT SEEM PROBABLE THA T A COMPANY WOULD BE REQUIRED TO INCUR AN EXPENDITURE OF RS.1,00,000/- F OR THIS NOMINAL ACTIVITY. THE DISALLOWANCE WAS HELD PURELY ARBITRARY AND THE CIT(A) FOLLOWED THE DECISIONS OF THE ITAT DELHI BENCH AND THE DELHI HIG H COURT, THE SAME WAS DELETED AND THE ASSESSEE GOT A RELIEF OF RS.1,00,00 0/-. 6. THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN DE LETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF 1 LAC PERTAINING TO T HE EXPENDITURE INCURRED IN EARNING THE DIVIDEND INCOME WHICH IS EXEMPT FROM TA X. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICERS OBSERVATION THAT THE A SSESSEE COMPANY IN ITS OWN SUBMISSIONS STATED THAT SOME EXPENDITURE ON CONVEYA NCE WAS ATTRIBUTABLE TO DEPOSIT THE DIVIDEND WARRANTS IN THE BANKS. THERE WOULD HAVE BEEN INCURRING SOME EXPENDITURE ON RECORD KEEPING OF DIVIDEND I.E EXPENDITURE UNDER THE HEAD PROVING/STATIONARY AND PART SALARY OF AT LEAST ONE EMPLOYEE WHO WOULD BE KEEPING TRACK OF DIVIDEND WARRANTS, RECORD THEIR RE ALIZATION AND FURTHER PROSPECTS OF THE INVESTMENTS. THE ASSESSING OFFICE R WAS CORRECT IN HOLDING THAT THE ASSESSEE COMPANY HAS FAIL TO QUANTIFY THE EXPEN DITURE. THUS, THE LD. DR SUBMITTED THAT IN ABSENCE OF ANY QUANTIFICATION AVA ILABLE A SUM OF RS.1 LAC IS PROPERLY DISALLOWED ON ACCOUNT OF EXPENDITURE INCUR RED ON EARNING EXEMPT DIVIDEND INCOME DISALLOWABLE AS PER PROVISIONS OF S ECTION 14A. 7. THE LD. AR RELIED UPON ON THE ORDER OF THE CIT(A ). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. THE CIT(A) HAS RIGHTLY GIVEN A FINDING THAT THE INVESTMENT IN UNIT S OF UTR WAS MADE IN THE EARLIER YEARS AND ALL THAT IT HAD TO DO FOR EARNING THE DIVIDEND WAS TO DEPOSIT THE CHEQUE. THIS DOES NOT REQUIRE THE ASSESSEE TO INCUR EXPENDITURE, THE ASSESSEES CONTENTION THAT SECTION 14A DOES NOT ENV ISAGE DISALLOWANCE TO ANY AD-HOC OR AN ESTIMATED EXPENDITURE. IT IS ONLY EN EXPENDITURE ACTUALLY INCURRED FOR EARNING AN INCOME EXEMPT FROM TAX THAT WOULD BE DISALLOWED U/S 14A. RELIANCE OF THE LD. AR IN CASE OF MARUTI UDHYOG LTD . VS. DCIT 92 ITD 119 & ACIT VS. EICHER LTD. 101 TTJ 369 DELHI WHEREIN IT W AS HELD THAT THE WORD INCURRED AS USED IN SECTION 14A CLEARLY INDICATES T HAT IT MUST BE SHOWN AS A FACT THAT SOME EXPENDITURE WAS IN-FACT INCURRED BY THE ASSESSEE TO PRODUCE EXEMPT INCOME. THE REGISTER DID NOT EMPOWERING THE A.O TO MAKE AN ARBITRARY ESTIMATE OF EXPENDITURE AND DISALLOW THE SAME. THE CIT(A) HAS RIGHTLY RELIED ON THE ORDER OF HONBLE DELHI HIGH COURT IN CASE OF CI T VS. CHEMICAL & METALOGICAL DESIGN COMPANY LTD, ITA NO. 803, 2008 WHEREIN IT IS HELD THAT MAKING A PROPORTIONATE DISALLOWANCE OF EXPENSES ON ESTIMATED BASIS COULD NOT BE SUSTAINED UNDER SECTION 14A OF THE ACT. THUS, THE CIT (A) HAS RIGHTLY DELETED THE SAID ADDITION. THIS GROUND IS DISMISSED. 9. AS RELATES TO GROUND NO. 2 AND 3 OF THE APPEAL, THE CIT(A) HELD THAT THE ASSESSEE HAD CLAIMED LONG TERM CAPITAL LOSS OF RS.7 5,995/- ON SALE OF 1140 UNITS OF VECAUS-II 1990. THE ASSESSING OFFICER, HO WEVER, COMPUTED A GAIN OF RS.2,08,210/- IN RESPECT OF SALE OF THE SAID UNIT O NLY 700 UNITS & NOT 1140. THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER FAILE D TO TAKE INTO ACCOUNT THE INDEXED COST OF ACQUISITION FOR ASSESSMENT YEAR 199 0-91 AND ALSO THE FACT THAT THE SAME PERTAINED TO 1140 UNITS. IN SUPPORT OF IT S CONTENTIONS THE ASSESSEE SUBMITTED THE NOTES ATTACHED TO THE RETURN OF INCOM E AND COMPUTATION OF CAPITAL GAINS FOR THE YEAR UNDER APPEAL. THUS THE ASSESSING OFFICER WAS DIRECTED TO GRANT RELIEF, WHILE GIVING EFFECT OF TH E CIT(A)S ORDER, AFTER VERIFYING THE COMPUTATION OF CAPITAL GAINS BY THE CIT(A). CO NSEQUENTLY, THE CIT(A) DIRECTED THE A.O. THAT THE ADDITION OF RS.48,35,989 /- MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK BE DELETED. THUS, THE A SSESSEE GOT RELIEF OF RS.48,35,989/-. 10. THE LD. DR IN RESPECT OF GROUND NO. 2 AND 3 SUB MITTED THAT THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO GRANT LEAVE RELIEF TO THE ASSESSEE AFTER VERIFYING THE COMPUTATION OF CAPITAL GAIN OF RS.2,08,210/- IN RESPECT OF SALE OF UNIT OF CAPITAL VECUS & II (1990) IN SPITE OF FACT THAT THE ASSESSING OFFICER HAS PROVIDED FOR INDEXATION IN HIS ORDER. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS SWITCHED OFF TO WEIGHTED AVER AGE COST METHOD FOR VALUATION OF STOCK FROM FIRST IN FIRST OUT METHOD, WHICH WAS BEING FOLLOWED EARLIER. BY THIS CHANGE IN METHOD, THE ASSESSEE CO MPANY HAS ARTIFICIALLY REDUCED ITS TRADING PROFIT THEREBY INCREASING ITS R ETURNED LOSS. THE CHANGE HAS BROUGHT ABOUT A ONETIME REDUCTION. SINCE NEXT YEAR S PROFITS HAVE BEEN WORKED OUT AND THE CHANGE IN METHOD OF ACCOUNTING OF STOCK I.E. BOTH OPENING AND CLOSING STOCK WOULD BE VALID AT WEIGHTED AVERAGE CO ST METHOD, THE REDUCTION OF PROFIT IN A CURRENT YEAR IS NOT SET OFF BY ANY CORR ESPONDING INCREASE IN PROFITS IN SUBSEQUENT YEARS. IN ACCORDANCE WITH THE PROVISION S OF SECTION 145 A THE PROFITS OF THE ASSESSEE COMPANY ARE TO BE WORKED BY ADOPTING A METHOD OF VALUATION OF STOCK CONSISTENTLY BEING FOLLOWED BY T HE ASSESSEE COMPANY I.E BY FOLLOWING CAPITAL FIFO METHOD. THUS, THE ADDITION OF RS.48,35,989/- WAS RIGHTLY MADE BY THE ASSESSING OFFICER . 11. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 12. WE HAVE HEARD BOTH THE PARTIES. THE CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO GRANT RELIEF AS THE ASSESSEE HAD CLAIMED LONG TERM CAPITAL LOSS OF RS.75,995/- ON SALE OF 1140 UNITS TO VECAUS -II-1990. THE CIT(A)S FINDING IS CORRECT THAT THE ASSESSING OFFICER FAIL TO TAKE INTO ACCOUNT THE INDEXED COST OF ACQUISITION FOR ASSESSMENT YEAR 199 0-91 AND ALSO THE FACT THAT THE SAME PERTAINING TO 1140 UNITS. THIS IS SUPPORT ED BY THE NOTES ATTACHED TO THE RETURN OF INCOME AND COMPUTATION OF CAPITAL GAI NS FOR THE YEAR UNDER APPEAL. AS RELATES TO GROUND NO. 3, THE ASSESSEE HA S ADOPTED METHOD OF VALUATION OF CLOSING STOCK WHICH IS MOST SUITABLE T O THE GNF UNIT ALSO METHOD HAS BEEN CHANGED TO WEIGHTED AVERAGE COST METHOD IN LINE WITH OTHER UNITS SO THAT THE PRINCIPLE OF CONSISTENCY COULD BE FOLLOWED AMONG ALL THE UNITS. IN-FACT, THE ASSESSING OFFICERS ADDITION ON ACCOUNT OF CHAN GE IN METHOD OF VALUATION OF CLOSING STOCK APPLYING PROVISIONS OF SECTION 145A D OES NOT COME IN CONSISTENCE WITH THE PROPER CHANGE OF METHOD OF ACCOUNTING, WIT HOUT THIS FACT IT COULD NOT HAVE BEEN POSSIBLE TO IMPLEMENT THE ARP SOFTWARE FO R ACCOUNTING, THE SAID REASON IS NOT DISPUTED BY THE ASSESSING OFFICER EIT HER IN THE ORDER OR IN THE REMAND REPORT. THE CIT(A) (A) HAS RIGHTLY DELETED THIS ADDITION. THESE GROUNDS ARE DISMISSED. 13. AS RELATES TO GROUND NO. 4 WHICH CHALLENGES THE DISALLOWANCE OF RS.53,500/- OUT OF INTEREST PAID BY THE ASSESSEE BE ING 10% OF THE SUM OF RS.5.35 LAKHS, THE SAME WAS ADVANCED BY THE ASSESSE E TO ITS SUBSIDIARY COMPANY IN AN EARLIER YEAR. THE CIT(A) OBSERVED TH AT THE A.O NOWHERE SUGGESTED THAT THE ASSESSEE USED ANY INTEREST BEARI NG LOAN FUNDS TO MAKE THIS PAYMENT. THUS, THE CIT(A) FOLLOWED THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. TIN BOX CO. 260 ITR 637, BY DIRECTI NG DELETION OF DISALLOWANCE OF RS.53,5000/-. 14. THE LD. DR SUBMITTED THAT THE LOAN OF RS.5.35 L ACS CANNOT BE SAID TO BE ADVANCE FOR BUSINESS PURPOSES. THE ASSESSEE COMPAN Y HAS ADVANCED AN INTEREST FREE LOAN TO ITS 100% SUBSIDIARY. HOWEVER , IT IS FOR ITS BUSINESS PURPOSE, THE ASSESSEE HAS BORROWED FUNDS FROM BANKS THROUGH COMMERCIAL PURPOSE. THE RATE OF WHICH VARIES FROM 9.55 % TO 1 2.25%. HAD THE ASSESSEE COMPANY UTILIZED THIS SUM FOR BUSINESS PURPOSES IT WOULD HAVE REDUCED ITS INTEREST LIABILITY TO SUCH EXTENT. ADOPTING AN AVE RAGE RATE OF 10% INTEREST ON THE SUM OF RS.535 LACS COME TO RS.53,500/- WHICH WA S RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. 15. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 16. WE HAVE HEARD BOTH THE PARTIES. THIS AMOUNT WAS PAID BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY KELBEX INTERNATIONAL LTD, WH ICH WAS NO LONGER AN OPERATING COMPANY BEING UNDER LIQUIDATION, TO MEET ITS STATUTORY EXPENSES SUCH AS FILING FEE AND AUDIT FEE, ETC. THE ASSESSE E HAD ENOUGH FUNDS OF ITS OWN TO ADVANCE THIS MONEY IN THE YEAR WHEN IT WAS PAID. THE A.O NOWHERE SUGGESTED THAT THE ASSESSEE USED ANY INTEREST BEARI NG LOAN FUNDS TO MAKE THIS PAYMENT. THUS, THE CIT(A) RIGHTLY AGREED WITH THE A SSESSEES CONTENTIONS AND FOLLOWED THE DECISION OF THE DELHI HIGH COURT IN TH E CASE OF CIT VS. TIN BOX CO. 260 ITR 637, BY DIRECTING DELETION OF DISALLOWANCE OF RS.53,5000/-. THE CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO DELET E THE SAID AMOUNT. THIS GROUND IS DISMISSED. 17. THE GROUND NO. 5 CHALLENGES THE DISALLOWANCE OF RS.19,53,571/- BEING CONTRIBUTION TO PF AND RS.60,336/- BEING CONTRIBUTI ON TO ESI UNDER SECTION 43B OF THE ACT. THE A.O DISALLOWED THESE SUMS ON T HE GROUND THAT THOUGH THESE WERE PAID DURING THE PREVIOUS YEAR, THEY REPR ESENTED AMOUNTS PAID BEYOND THE RELEVANT DUE DATES OF THE RESPECTIVE MON THS. THE CIT (A) DIRECTED THE A.O. TO DELETE THE DISALLOWANCE OF RS.20,13,907 /- AS PER VARIOUS DECISION RELIED BY THE ASSESSEE. 18. THE LD. DR SUBMITTED THAT THE DISALLOWANCE OF R S.20,13,907/- MADE ON ACCOUNT OF ESI & PF CONTRIBUTION AS EXPLANATION TO SECTION 36(1) (VA) PROVIDED FOR DUE DATE TO BE A DUE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT AN EMPLOYEES CONTRIBUTION TO THE EMPLOYE ES ACCOUNT IN THE RELEVANT PERIOD. 19. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 20. WE HAVE HEARD BOTH THE PARTIES. THOUGH THE CONT RIBUTION TO PF & ESIC WERE PAID DURING THE PREVIOUS YEAR, THE PRESENTED A MOUNTS PAID BEYOND THE RELEVANT DUE DATES OF THE RESPECTIVE MONTHS. IN VI EW OF THE AMENDMENT OF THE FIRST PROVISION OF SECTION 43 (B) DELETION OF THE SECOND PROVISO BY FINANCE ACT, 2003 ANY PAYMENT ON ACCOUNT OF PF ETC IF MADE BEFOR E THE DUE DATE FOR FILING RETURN WOULD NOT BE HIT BY SECTION 43(B). THE RELI ANCE ON THE JUDGMENT OF DELHI ITAT IN CASE OF ACIT VS. M/S VESTAS RRB INDIA LTD. 92 ITD 1 IS RIGHTLY TAKEN INTO ACCOUNT BY CIT(A). THIS GROUND IS DISMI SSED. 21. THE GROUND NO. 6 CHALLENGES THE DISALLOWANCES O F PROVISION FOR WARRANTY AND OPTIONAL SERVICE CONTRACT (OSC) AMOUNTING TO RS .3,72,03,000/-. IN VIEW OF THE JUDICIAL PRONOUNCEMENTS, DECISION OF THE ITA T IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1993-94 AND DECISION OF THE CIT (A) IX NEW DELHI IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2000-01, THE CI T(A) DELETED THE DISALLOWANCE OF RS.3,72,03,000/-. 22. THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN DELETING THE DISALLOWANCE FOR WARRANTY AND OPTIONAL SERVICE CONTRACT AMOUNTIN G TO RS.3,72,03,000/- AS NO PROVISION FOR CONTINGENT/UNASCERTAINED LIABILITY IS ALLOWABLE UNDER THE INCOME TAX ACT 1961. THE LD. DR SUBMITTED THAT THE ASSESSEE COMPANY IS ALSO BOOKING THE COST ACTUAL INCURRED BY THE COMPANY ON WARRANTY REPAIRS AND REPLACING AND THE EXPENSES ON OPTIONAL SERVICE CONT RACT ACTUALLY INCURRED DURING THE YEAR. THUS, THE PROVISION ON WARRANTY A ND OPTIONAL SERVICE CONTRACT BASED ON A CERTIFICATE IS BEING ADDED BACK AS PER D ETAIL FURNISHED BY THE ASSESSEE. THE SUM OF INCRIMINATING PROVISION BOOKED AS RESULT OF WATER AND OPTIONAL SERVICE CONTRACT COMES TO RS.372.03 LACS. THUS, THE ASSESSING OFFICER RIGHTLY DISALLOWED THE SAME. 23. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 24. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSING O FFICER OBSERVATION THAT THE PROVISION ON THE BASIS OF ACTURUAL VALUATION CE RTIFICATE COULD NOT BE ALLOWED DUE TO OVER STATEMENT OF BOOK LOSS ON ACCOUNT OF CH ANGE IN THE METHOD OF ACCOUNTING FOR THE YEAR UNDER CONSIDERATION. THE D ECISIONS CITED PROVIDES THE PROPOSITION THAT PROVISION FOR WARRANTY WAS FOR A D EFINITE AND ASCERTAIN LIABILITY AND THE SAME COULD NOT BE DISALLOWED AS CONTINGENT LIABILITY. IN-FACT IN THE IMMEDIATE PRECEDING YEAR I.E. ASSESSMENT YEAR 2000- 01 SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED IN APPEAL BY THE CIT(A) AND IN A.Y. 1993-94 BY THE ITAT. THERE IS NO INTERFERENCE REQU IRED IN THE ORDER OF THE CIT(A) AS RELATED TO THIS GROUND. THIS GROUND IS D ISMISSED. 25. THE GROUND NO. 7 CHALLENGES A DISALLOWANCE OF R S.1,42,53,143/- OUT OF THE LEASE RENTALS AMOUNTING TO RS.288.40 LACS. THE CIT(A) OBSERVED THAT THE ASSESSEE HAD SOLD THE ENTIRE BLOCK OF FIXED ASSETS BEING COMPUTERS TO L & T FINANCE LTD. FOR A CONSIDERATION OF RS.8,34,57,714/ - IN THE YEAR ENDED 31/3/2000. SINCE THE OPENING WDV AND ADDITION MADE IN RESPECT OF SAID BLOCK OF ASSETS IN PREVIOUS YEAR RELEVANT TO ASSESS MENT YEAR 2000-01 WAS LESS THAN THE SALE CONSIDERATION, THE DIFFERENTIAL AMOUN T OF RS.1,84,33,029/- WAS OFFERED TO TAX AS SHORT TERM CAPITAL GAIN IN ASSESS MENT YEAR 2000-01 AND ASSESSED AS SUCH IN THAT YEAR. THE ASSESSEE ENTERE D INTO LEASE AGREEMENT WITH L & T FINANCE LTD. ON 29/3/2000 FOR LEASE OF COMPUT ERS AND PURSUANT THERETO PAID LEASE RENT OF RS. 288.40 LACS DURING THE PREVI OUS YEAR UNDER CONSIDERATION. THE CIT(A) FURTHER OBSERVED THAT IN THE PRESENT CASE, THERE WAS NO DOUBT ABOUT EXISTENCE OF THE ASSETS, THE SALE PR OCEEDS AND CONSEQUENT SHORT TERM CAPITAL GAINS WERE DULY ASSESSED IN ASSESSMENT YEAR 2000-01, AND THE TRANSACTION ENTITLED THE ASSESSEE TO THE USE OF THE SALE PROCEEDS AT A COST LOWER THAN BORROWING THROUGH DEBENTURES. THUS, THE CIT(A ) DELETED THIS ADDITION. 26. THE LD. DR SUBMITTED THAT CIT(A) ERRED IN DELET ING THE DISALLOWANCE OF RS.142,53,143/- OUT OF THE LEASE RENTALS DESPITE TH E FACT THAT THE ASSETS BEING COMPUTERS AND BEING CONTINUOUSLY USED BY THE ASSESS EE AND THESE IS NOT REAL TRANSFER OF ASSETS. THE AGREEMENT TO SELL AND LEAS E BACK ASSETS ARE ONLY COLOURABLE DEVICE IN ORDER TO INFLATE EXPENDITURE A ND CLAIM HIGHER DEPRECIATION. THE LD. DR SUBMITTED THAT THE CIT(A) HAS NOT GIVEN A CORRECT FINDING. 27. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A) AND STATED THAT CIT(A) HAS TAKEN ALL THE DUE FULL COGNIZANCE OF THE RECORDS AN D RIGHTLY PASSED THE ORDER. 28. WE HAVE HEARD BOTH THE PARTIES. IN THE REMAND R EPORT, THE A.O ACCEPTED THE ASSESSEES CONTENTIONS, THAT THE ASSESSEE AND L & T FINANCE WERE IN NO WAY RELATED TO EACH OTHER, AND THE ASSESSEE WOULD HAVE BEEN ENTITLED TO HIGHER DEPRECIATION AS CONTENDED IN THE ASSESSEES SUBMISS ION. THE A.O. ALSO ACCEPTED THE ASSESSEES CONTENTION THAT THE ASSESSEE HAD IND EED PAID 15% INTEREST ON MONEYS BORROWED THROUGH DEBENTURES. THE CIT(A) HELD THAT THE COMPUTERS WERE SOLD TO L & T FINANCE AND THAT A LEASE AGREEME NT WAS ENTERED INTO IS NOT DISPUTED BY THE A.O. THE ASSESSEE CLEARLY STATED T HIS TRANSACTION TO BE A MEANS OF ARRANGING FIANC AT A RELATIVELY LOWER COS T. IF THE ENTIRE TRANSACTION WERE TO BE IGNORED, THEN THE TAXABLE INCOME OF THE ASSESSEE FOR BOTH ASSESSMENT YEAR 2000-01 AND 2001-02 WOULD BE SIGNIF ICANTLY LOWER THAN WHAT HAS BEEN RETURNED IN THESE TWO YEARS. THUS, CIT(A) DISAGREED WITH THE A.OS CONTENTION THAT THE LEASE CHARGES HAD TO BE RESTRIC TED TO THE WDV OF THE ASSETS AS AT 31/3/2000. THE A.O DID NOT TAKE INTO ACCOUNT THE ACCOUNTING OF THE SALE PROCEEDS IN THE YEAR ENDED 31/3/2000 AND ALSO THE I NTEREST FACTOR FOR THE PERIOD OF 51 MONTHS. LEASE FINANCING THROUGH SALE CUM LEASE BACK TRANSACTIONS HAVE BEEN IN PRACTICE FOR QUITE SOME T IME AND IF IT IS ONLY WHEN THE EXISTENCE OF ASSETS ITSELF IS IN DOUBT OR WHEN AN ASSET SUBJECT MATTER OF TRANSFER ACTUALLY FROM A PHYSICAL PART OF ANOTHER L ARGER ASSET OR SUCH SHAM TRANSACTION TAKES PLACE THAT THE REVENUE CAN RIGHTL Y OBJECT TO THE ARRANGEMENTS. IN THE PRESENT CASE, THERE WAS NO DOU BT ABOUT EXISTENCE OF THE ASSETS, THE SALE PROCEEDS AND CONSEQUENT SHORT TERM CAPITAL GAINS WERE DULY ASSESSED IN ASSESSMENT YEAR 2000-01, AND THE TRANSA CTION ENTITLED THE ASSESSEE TO THE USE OF THE SALE PROCEEDS AT A COST LOWER THAN BORROWING THROUGH DEBENTURES. THE CIT(A) HAS RIGHTLY DELETED THE SAM E. THIS GROUND IS DISMISSED. 29. AS RELATES TO ITA NO. 1849/DEL/2010 A.Y. 2002-0 3, THE GROUND NO. 1 IS IDENTICAL TO THE GROUND NO. 1 OF ITA NO. 2285/DEL/2 009, GROUND NO. 2 IS IDENTICAL TO GROUND NO. 3 OF THE ITA NO. 2285/DEL/2 009, GROUND NO. 3 IS IDENTICAL TO GROUND NO. 5 OF THE ITA NO. 2285/DEL/2 009 AND GROUND NO. 4 IS IDENTICAL TO GROUND NO. 7 WHICH ARE DECIDED HEREINA BOVE. THE SAME FINDINGS WILL BE APPLICABLE TO THIS APPEAL AS WELL. 30. IN RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEBRUARY SD/- SD/- (N. K. SAINI) (SUC HITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL ME MBER DATED: 20/02/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 23/11/2016 PS 2. DRAFT PLACED BEFORE AUTHOR 24/11/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS .01.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK .01.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.