M/s. Hero Auto Ltd, New Delhi V. CIT, New Delhi

ITA 1878/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3547 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 05-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHYAMA S BANSIA
• Assessee Lawyers: SATISH KUMAR BANSAL
• Keywords: Opportunity of being heard; Prejudicial to interest
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : C NEW DELHI) BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T.A. NO. 1878/DEL./2009 (ASSESSMENT YEAR : 2004-05) M/S HERO AUTO LTD. VS. CIT, DELHI IV, 601, INTERNATIONAL TRADE TOWER, NEW DELHI. NEHRU PLACE, NEW DELHI. (PAN/GIR NO.AAACH8459F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SATISH KUMAR BANSAL, CA REVENUE BY : SMT. SHYAMA S. BANSIA, CIT(DR) ORDER PER K.D. RAJNAN, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE OR DER PASSED U/S 263 OF THE I.T. ACT, 1961 BY CIT-IV, NEW DELHI, FOR A SSESSMENT YEAR 2004-05. 2. THE ONLY ISSUE FOR CONSIDERATION RELATES TO CANCELI NG OF ASSESSMENT ORDER U/S 263 OF THE ACT. THE FACTS OF THE CASE STATED I N BRIEF ARE THAT ASSESSMENT U/S 143(3) OF THE ACT FOR ASSESSMENT YEAR 20 04-05 WAS MADE ON 26.12.2006. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAS ACCEPTED THE RETURN OF LOSS U/S 143(3) OF THE ACT, WITHOU T ANY DISCUSSION IN RESPECT OF CLAIMS MADE BY THE ASSESSEE. 3. SUBSEQUENTLY, CIT NOTICED THAT ASSESSING OFFICER HAD ALLOWED THREE CLAIMS. THE FIRST CLAIM RELATES TO EXPENDITURE OF `1,0 5,96,871/- TOWARDS WARRANTY CLAIMS. THE CIT NOTED THAT THE CLAIM OF THE ASS ESSEE WAS MERE A PROVISION AND, THEREFORE, IT WAS DISALLOWABLE. THE S ECOND CLAIM RELATES TO EXPENDITURE OF `1,45,85,493/- INCURRED ON NON-RECURR ING ITEMS. ACCORDING TO CIT, THE EXPENDITURE WAS NOT REVENUE IN NATURE AND, THER EFORE, THE SAME WAS DISALLOWABLE. THE THIRD CLAIM RELATES TO DISALLOWANCE OF DEDUCTION OF I.T.A. NO.1878/DEL./2009 (A.Y. : 2004-05) 2 `1,07,12,824/- TOWARDS VOLUNTARY RETIREMENT BENEFIT WHIC H INCLUDED AN AMOUNT OF `89,63,628/- WHICH HAS BEEN BOOKED AS A P RECAUTIONARY MEASURES AS PER 3CD REPORT. SINCE, CIT WAS OF THE VIEW THAT THES E EXPENSES WERE NOT ALLOWABLE, THEREFORE, ASSESSMENT ORDER PASSED BY THE A SSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3. THE CIT(A) ISSUED NOTICE U/S 263 TO EXPLAIN THE FAC TS OF THE CASE. THE ASSESSEE VIDE HIS LETTER DATED 02.03.2009 OBJECTED TO THE PROPOSED REVISION OF ASSESSMENT U/S 263 OF THE ACT ON THE FOLLOWING GROUN DS: (I) IN RESPECT OF WARRANTY, IT IS ASSESSEES CLAIM THA T IT HAD FILED COMPLETE DETAILS OF PROVISION FOR WARRANTY BY LETTER DATE D 21.11.2006 IN ASSESSMENT PROCEEDINGS AND HAD RELIED UPON DECISION OF DELHI HIGH COURT IN CASE OF CIT VS. VINI TECH CORPORATION PVT. LTD., 278 ITR. (II) THE ASSESSEE FURTHER CLAIMS THAT IN ITS OWN CASE F OR ASSESSMENT YEAR 1999-2000, THE HONBLE ITAT HAD QUASHED 263 PRO CEEDINGS IN RESPECT OF WARRANTY EXPENSES AND HONBLE DELHI HIG H COURT HAD CONFIRMED THE SAME. (III) IN RESPECT OF SIGNIFICANT ON RECURRING ITEMS, IT IS CLAIM OF ASSESSEE THAT FULL CONTEXT OF EXPENDITURE WAS EXPLAINED TO ASSESSING OFFICER AND THEREAFTER IT WAS ALLOWED. (IV) IN RESPECT OF DEDUCTION U/S 35DDA, IT IS CLAIM OF ASSESSEE THAT IT HAD INCURRED AN AMOUNT OF `5,37,14,119/- IN ASSESSME NT YEAR 2002-03. THEREFORE, IN EACH YEAR 1/5 TH OF EXPENDITURE I.E. `1,07,42,824/- HAS BEEN CLAIMED. NO PORTION OF IT IS PRECAUTIONARY AND NOTE IN AUDIT REPORT IS DUE TO ERRONEO US READING AS PER ASSESSEE. THE NOTE 2 IS AS UNDER: THE EXPENDITURE IS ESS HAS BEEN GIVEN ON PRECAUTIONA RY MEASURE DUE TO INTRODUCTION OF NEW SECTION 35DDA. HOWEVER, THIS SECTION HAS NOT BEEN INTRODUCED IN CLAUSE 15 OF FORM 3CD. THE ABOVE ONLY MEANT THAT SINCE FOR REPORTING PURPOSES 35DDA WAS NOT PRESCRIBED, THE AUDITOR AS PRECAUTIONARY MEASURE IS REPORTING THE AMOUNT FOR PURPOSE OF 35DDA AND NOT THAT EXPENDITURE IS BOOKED AS PRECAUTIONARY MEASURES. IT HAS BEEN ARGUED THAT IN ABO VE CONTEXT ORDER OF ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO INTEREST OF REVENUE. I.T.A. NO.1878/DEL./2009 (A.Y. : 2004-05) 3 4. THE CIT(A) CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE. THE CIT(A) NOTED THAT THE CONTENTION OF THE ASSESSEE THAT WARRA NTY ISSUE IS COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT I N THE CASE OF CIT VS. VINITEC CORPORATION PVT. LTD., 278 ITR 337 WAS NOT FULLY CORRECT. HONBLE DELHI HIGH COURT HAS HELD THAT IF PROVISION IS MADE ON SCIEN TIFIC BASIS THEN ONLY IT CAN BE ALLOWABLE EXPENDITURE. AS REGARDS CLAIM OF TH E ASSESSEE IN RESPECT OF NON-RECURRING ITEMS OF `1,45,55,493, THE CIT(A) NOTED THAT FROM THE ORDER OF ASSESSING OFFICER, IT WAS NOT CLEAR THAT THE SAME WAS EX PLAINED. THE ASSESSING OFFICER DID NOT CARRY OUT ANY ENQUIRY AND E VEN THERE WAS NON- APPLICATION OF MIND WHILE ALLOWING THE EXPENDITURE. T HE CIT(A) NOTED THAT IT WAS NOT CLEAR WHETHER THE EXPENDITURE WAS INCURRED FOR CONTINUING BUSINESS OR FOR SETTING UP OF NEW BUSINESS UNRELATED TO THE PRES ENT BUSINESS. THE CIT(A) PLACED RELIANCE ON THE DECISION OF HONBLE DE LHI HIGH COURT IN THE CASE OF M/S GEE VEE ENTERPRISES VS. ADDL.CIT, 99 ITR 375 FOR THE PROPOSITION THAT LACK OF ENQUIRY BY THE ASSESSING OFFICER IS SUFFICIE NT TO HOLD THAT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE CIT(A) PLACED RELIANCE ON OTHER DECISIONS IN THIS REGARD. AS REGAR DS THE CLAIM OF DEDUCTION U/S 35DDA, THE CIT(A) NOTED THAT NOTE NO.2 OF AUDIT REPOR T DID CREATE DOUBT AS TO WHETHER EXPENDITURE ON ESS WAS ACTUALLY INCURRED OR NOT. THE POINT THAT STILL REMAINED WAS WHILE IN AUDIT REPORT, THE ALLOWA BLE AMOUNT U/S 35DDA MENTIONED IN ANNEXURE 3 WAS `17,79,196, IN COMPUTATION OF INCOME, THE DEDUCTION CLAIMED U/S 35DDA WAS OF `1,07,42,824/-. THEREFORE, THERE WAS A MISMATCH WHICH WAS NOT LOOKED INTO BY THE ASSESSING OFF ICER. SIMILARLY, THE ISSUE OF ESS WAS NOT EXAMINED AT ALL BY THE ASSESSING OFFICER. THE LACK OF ENQUIRY RENDERED THE ASSESSMENT ORDER ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF REVENUE. THE CIT(A), THEREFORE, SET ASIDE THE ASSESSMENT ORDER ON LIMITED ISSUE OF EXAMINATION OF ALLOWABILITY OF DEDUCTI ON OF `1,05,96,871/- AS PROVISION FOR WARRANTY, `1,45,55,493/- AS EXPENDITURE ON NON-RECURRING ITEMS AND `1,07,42,824/- CLAIMED U/S 35DDA AFTER FULL FACTU AL ENQUIRY AND GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5. BEFORE US, LD.AR OF THE ASSESSEE SUBMITTED THAT RETURN OF INCOME WAS ACCEPTED BY THE ASSESSING OFFICER U/S 143(3) OF THE AC T, AFTER VERIFICATION OF I.T.A. NO.1878/DEL./2009 (A.Y. : 2004-05) 4 FULL FACTS. THE ENTIRE INFORMATION WAS SUBMITTED BEFORE THE ASSESSING OFFICER. AS REGARDS, WARRANTY CLAIM, LD.AR OF THE ASSESSEE SUB MITTED THAT HONBLE DELHI HIGH COURT HAS ALLOWED THE WARRANTY CLAIM IN ASS ESSMENT YEAR 1999- 2000. THEREFORE, IT IS INCORRECT ON THE PART OF THE CIT (A) THAT WARRANTY CLAIM WAS MERE PROVISION AND WAS NOT ALLOWABLE AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. AS REGARDS NON-RECURRIN G EXPENDITURE, LD.AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE ENTERED INTO AGREE MENT WITH DESIGNERS CAR, NEW DELHI FOR MANUFACTURE OF MINI CAR S. CERTAIN DISPUTE AROSE BECAUSE OF WHICH CARS WERE NOT LIFTED. THE ASSESSEE ENTERED INTO OUT OF COURT SETTLEMENT VIDE AGREEMENT DATED 17.7.2004 AND THE AMOUNT B ECAME PAYABLE AS PER THIS AGREEMENT. THIS EXPENDITURE WAS DEBITED IN THE BOOKS OF ACCOUNT FOR ASSESSMENT YEAR 2005-06. HOWEVER, SINCE BALANCE SHEET WAS NOT SIGNED FOR ASSESSMENT YEAR 2004-05, THE SAME WAS CLAIMED IN THE RETURN OF INCOME WHICH HAS BEEN ALLOWED BY THE ASSESSING OFFICER. AS REGARDS VOLUNTARY RETIREMENT EXPENDITURE, IN RESPECT OF VOLUNTARY RETIREMEN T SCHEME, LD.AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE INTRODUCED VOLUNTA RY RETIREMENT SCHEME IN ASSESSMENT YEAR 2002-03 AND THEY WERE CLAIM ING 1/5 TH OF DEDUCTION IN EACH YEAR. THE ASSESSING OFFICER HAS A LLOWED DEDUCTION IN EARLIER YEARS. IT WAS FURTHER SUBMITTED THAT THE CHARTERED ACCOUNTANT IN THE NOTES TO THE ACCOUNT HAD MENTIONED IT ONLY FOR INFORMATION . ASSESSMENT YEAR 2004-05 IS THIRD YEAR OF THE CLAIM. SINCE, ASSESSEE IS ENTITLED FOR DEDUCTION U/S 35DDA OF THE ACT IN RESPECT OF VOLUNTARY RETIREMENT S CHEME, THE SAME IS ALLOWABLE. 6. ON THE OTHER HAND, LD.SR.DR SUPPORTED THE ORDER OF C IT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE M ATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAD FILED DETAILS OF WARRANTY CLAIM BEFORE THE ASSESSING OFFICER. THE WARRANTY CLAIM HAS BEEN A LLOWED IN THE CASE OF THE ASSESSEE BY HONBLE DELHI HIGH COURT VIDE ORDER D ATED 21.11.2007 FOR ASSESSMENT YEAR 1999-2000. THE ASSESSEE HAS ALSO FIL ED A COPY OF CERTIFICATE ISSUED BY THE ASSISTANT REGISTRAR OF COMPANIES CERTIFYIN G THAT M/S HERO AUTO LTD. WAS ORIGINAL INCORPORATED UNDER THE NAME OF HERO BRIGGS & STRATTON AUTO PVT. LTD. IT HAS BEEN HELD THAT ITAT HAD COME TO CON CLUSION THAT I.T.A. NO.1878/DEL./2009 (A.Y. : 2004-05) 5 WARRANTY CLAUSE WAS A PART OF SAID DOCUMENT AND, THEREF ORE, CAST A LIABILITY ON THE ASSESSEE. IT WAS CAPABLE OF BEING ASCERTAINED IN DEFINITE TERMS ON THE BASIS OF CERTAIN PARAMETERS INCLUDING SALES OF THE ASS ESSEE DURING THE YEAR. THE DECISION RENDERED BY THE TRIBUNAL WAS FOUND TO BE IN CONFORMITY WITH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BHAR AT EARTH MOVERS LTD. VS. CIT, 245 ITR 428. THE DECISION OF ITAT WAS CONFIRM ED BY THE HONBLE DELHI HIGH COURT. SINCE WARRANTY CLAIM IS ALLOWABLE, IN OU R CONSIDERED OPINION, CIT(A) WAS NOT JUSTIFIED IN TREATING THE CLAIM ON ACCOU NT OF WARRANTY AS DISALLOWABLE. THEREFORE, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IN RESPECT OF WARRANTY CLAIM CANNOT BE TREATED A S ERRONEOUS INSOFAR AS PREJUDICIAL TO THE INTERESTS OF REVENUE. AS REGARDS 1/ 5 TH CLAIM OF VOLUNTARY RETIREMENT U/S 35DDA IS CONCERNED, THE VOLUNTARY RETIREM ENT SCHEME WAS INTRODUCED IN ASSESSMENT YEAR 2002-03 AND THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED BY THE ASSESSING OFFICER IN EARLIER YEA RS. ASSESSMENT YEAR 2004-05 WHICH IS UNDER CONSIDERATION IS THE THIRD YEAR OF THE CLAIM. THE ASSESSING OFFICER HAD NOT DISALLOWED ANY AMOUNT IN AS SESSMENT YEARS 2005- 06 AND 2006-07. SINCE THE CLAIM OF THE ASSESSEE U/S 35DDA IS IN ACCORDANCE WITH THE PROVISIONS OF LAW, IN OUR CONSIDERED, OPINIO N, CIT(A) WAS NOT JUSTIFIED TO TREAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFF ICER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE IN RESPECT O F THIS CLAIM. AS REGARDS NON-RECURRING EXPENDITURE ALLOWED BY THE ASSESSING OF FICER, THE LD.AR OF THE ASSESSEE HAS ADMITTED THAT AGREEMENT WAS ARRIVED AT ON 17 .07.2004 RELEVANT TO ASSESSMENT YEAR 2005-06. THE ASSESSEE HAD DEBITED THE EXPENDITURE IN THE BOOKS OF ACCOUNT FOR ASSESSMENT YEAR 2005-06. HOW EVER, THE CLAIM HAS BEEN MADE IN ASSESSMENT YEAR 2004-05, BECAUSE THE LIA BILITY TO PAY CRYSTALISED IN PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 2005-06 AND NOT IN ASSESSMENT YEAR 2004-05. IN VIEW OF THESE FACTS, WE A RE OF THE CONSIDERED VIEW THAT ASSESSING OFFICER HAD ALLOWED THE CLAIM OF TH E ASSESSEE WITHOUT MAKING PROPER ENQUIRIES. THEREFORE, THE ORDER PASSE D BY THE ASSESSING OFFICER ALLOWING THE CLAIM IN RESPECT OF NON-RECURRIN G EXPENDITURE IN ASSESSMENT YEAR 2004-05 IS ERRONEOUS INSOFAR AS PREJ UDICIAL TO THE INTEREST OF REVENUE. IN VIEW OF ABOVE FACTS, THE ORDER PASSED BY THE CIT(A) CANCELING THE ASSESSMENT IS JUSTIFIED IN RESPECT OF NON-RECURRING EX PENDITURE CLAIMED BY THE I.T.A. NO.1878/DEL./2009 (A.Y. : 2004-05) 6 ASSESSEE IN THE YEAR UNDER CONSIDERATION. WE UPHOLD THE ORDER OF CIT(A) TO THIS EXTENT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 8.7.2011. SD/- SD/- (I.P. BANSAL) (K.D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 8TH JULY , 2011 SKB COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A), NEW DELHI. 5. DR DEPUTY REGISTRAR