Vanaz Engineers Limited, Pune V. Addl. Commissioner of Income tax, Range -7, Pune

ITA 1959/PUN/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3810 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 18-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VITTHAL BHOSALE
• Keywords: Opportunity of being heard; Additional evidence
• Section: 143(3); 40(a)(ia); 194C; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI INTURI RAMA RAO, AM AND SHRI S. S. VISWANETHRA RAVI, JM . / ITA NO.1959/PUN/2017 / ASSESSMENT YEAR : 2009-10 VANAZ ENGINEERS LIMITED, 85/1, PAUD ROAD, PUNE-411 038. PAN : AAACV6873B ....... / APPELLANT / V/S. ADDL. CIT, RANGE- 7, PUNE. / RESPONDENT ASSESSEE BY : SHRI RAJENDRA AGIWAL REVENUE BY : SHRI VITTHAL BHOSALE / DATE OF HEARING : 25.02.2021 / DATE OF PRONOUNCEMENT : 03.03.2021 / ORDER PER INTURI RAMA RAO, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)- 5, PUNE (CIT(A) FOR SHORT) DATED 12.05.2017 FOR THE ASSESSMENT YEAR 2009-10. 2. THE APPELLANT RAISED THE FOLLOWING ORIGINAL GROUNDS OF APPEAL :- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, VANAZ ENGINEERS LIMITED (THE APPELLANT), RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER DATED 12TH MAY, 2017 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) - 5 ['CIT(A)], PUNE (RECEIVED BY THE APPELLANT ON 20TH JUNE, 2017) UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 (ACT) ON THE FOLLOWING GROUNDS WHICH ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) HAS: 2 ITA NO.1959/PUN/2017 DENYING ADJUSTMENT ON ACCOUNT OF CENVAT OF RS. 20,78,375/- UNDER SECTION 145A OF THE ACT: 1. ERRED IN CONFIRMING THE ACTION OF AO IN DENYING CENVAT ADJUSTMENT OF RS 20,78,375/-, BY CONCLUDING THAT THE APPELLANT HAS NOT FOLLOWED THE INCLUSIVE METHOD OF ACCOUNTING AS PER SECTION 145A OF THE ACT AND IT IS NOT POSSIBLE TO VERIFY THE CORRECTNESS OF ADJUSTMENT; 2. FAILED TO APPRECIATE THAT EVEN THOUGH THE APPELLANT HAS MAINTAINED BOOKS OF ACCOUNTS BY FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING AND IMPACT OF THE SAME ON TAXABLE INCOME UNDER SECTION 145A HAS BEEN ADJUSTED WHILE COMPUTING INCOME AT THE TIME OF FILING RETURN OF INCOME; 3. ERRED IN DENYING THE CENVAT ADJUSTMENT BY DISREGARDING ONE OF THE CARDINAL PRINCIPLES OF CONSISTENCY, THOUGH THERE IS NO CHANGE IN FACTS OR CHANGE IN LAW; ADDITION OF UNUTILIZED WARRANTY PROVISION OF RS. 38,22,174/-: 4. ERRED IN CONCLUDING THAT UNUTILIZED AMOUNT OF PROVISION OF WARRANTY FOR A PERIOD EXCEEDING 12 MONTHS NEEDS TO BE OFFERED TO TAX, THEREBY CONFIRMING THE ADDITION MADE BY THE AO ON ACCOUNT OF UNUTILIZED PROVISION FOR WARRANTY OF RS 38,22,174/- BEING PROVISION OUTSTANDING AS ON 31ST MARCH 2009; 5. ERRED IN NOT APPRECIATING THE FACT THAT UNLESS THE PERIOD OF WARRANTY EXPIRES IN VIEW OF THE CONTRACTUAL OBLIGATION OF WARRANTY, THE AMOUNT CANNOT BE SAID AS UNUTILIZED SO AS TO GIVE RISE TO EVENT FOR REVERSAL OF THE SAME; DISALLOWANCE OF FREIGHT EXPENSES INCURRED UNDER SECTION 40(A)(IA) OF THE ACT: 6. ERRED IN NOT GIVING A SPECIFIC DIRECTION TO THE LEARNED AO WITH RESPECT TO THE DISALLOWANCE OF FREIGHT EXPENSES AMOUNTING TO RS. 10,68,127/- WHICH WAS MADE UNDER SECTION 40(A)(IA) OF THE ACT, WITHOUT APPRECIATING THE FACT THAT DISALLOWANCE WAS NOT REQUIRED TO BE MADE AS ALL THESE PAYMENTS WERE BELOW RS. 20,000/- WHICH IS LESS THAN ERSTWHILE THRESHOLD LIMIT SPECIFIED UNDER SECTION 194C OF THE ACT; ANY CONSEQUENTIAL RELIEF, TO WHICH THE APPELLANT MAY BE ENTITLED UNDER THE LAW IN PURSUANCE OF THE AFORESAID GROUNDS OF APPEAL, OR OTHERWISE, MAY THUS BE GRANTED. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE LEARNED HONBLE ITAT TO DECIDE THIS APPEAL ACCORDING TO LAW. 3. THE APPELLANT ALSO RAISED THE ADDITIONAL GROUNDS OF APPEAL, WHICH READS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/CIT(A) HAS - DISALLOWANCE OF FRIGHT EXPENSES OF RS 15,36,557 U/S 40(A)(IA) OF THE ACT 3 ITA NO.1959/PUN/2017 7. ERRED IN MAKING DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF RS 15,36, 557, WITHOUT APPRECIATING THAT IN VIEW OF SECOND PROVISO TO SECTION 40(A)(IA) R.W. FIRST PROVISO OF SUB-SECTION (1) OF SECTION 201, AS THE PAYEE HAS INCLUDED THE AFORESAID RECEIPTS IN ITS INCOME AND PAID TAXES ON THE SAME, NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS WARRANTED; 8. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THAT THE DISALLOWANCES U/S. 40(A)(IA) OF THE ACT CANNOT BE MADE IN CASE OF SHORT DEDUCTION OF TAX AT SOURCE, WHEREIN THE APPELLANT HAS DEDUCTED THE AT 0.412% AS AGAINST 2% PRESCRIBED UNDER SECTION 194C. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, VARY, OMIT OR SUBSTITUTE THE AFORESAID GROUND OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL AS THEY MAY BE ADVISED. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF VANFOG MACHINES, AUTOMOTIVE COMPONENTS, GAS METERS, POWER GENERATION. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 WAS FILED THROUGH ELECTRONIC MODE ON 02.10.2009 SHOWING TOTAL INCOME OF RS.2,90,26,440/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-7, PUNE (THE ASSESSING OFFICER) VIDE ORDER DATED 21.12.2011 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) AT A TOTAL INCOME OF RS.5,38,87,233/- AFTER MAKING SEVERAL DISALLOWANCES. 5. BEING AGGRIEVED BY THE DISALLOWANCES, AN APPEAL WAS PREFERRED BEFORE THE LD. CIT(A) WHO VIDE HIS IMPUGNED ORDER GRANTED PART RELIEF TO THE APPELLANT. 6. BEING AGGRIEVED BY THAT PART OF ORDER OF THE LD. CIT(A), WHICH IS AGAINST THE APPELLANT, THE APPELLANT IS BEFORE US IN THE PRESENT APPEAL. 7. THE APPELLANT RAISED 6 GROUNDS OF APPEAL ORIGINALLY. 4 ITA NO.1959/PUN/2017 8. BY WAY OF GROUNDS OF APPEAL NO.1 TO 3, THE APPELLANT CHALLENGES THE ADDITION OF RS.20,78,375/- U/S 145A OF THE ACT ON THE GROUND THAT THE APPELLANT WAS FOLLOWING THE METHOD OF VALUATION OF CLOSING STOCK NET OF THE EXCISE DUTY BASED ON THE FINDINGS GIVEN IN TAX AUDIT REPORT PLACED AT PAGE NO.56 OF THE PAPER BOOK. 9. ON APPEAL BEFORE THE LD. CIT(A), IT IS CONTENDED THAT THE APPELLANT HAD CARRIED OUT NECESSARY ADJUSTMENTS IN TERMS OF THE PROVISIONS OF SECTION 145A OF THE ACT IN THE COMPUTATION OF TAXABLE INCOME. THIS ADJUSTMENT REFLECTED IN THE RETURNED INCOME. IT IS FURTHER CONTENDED THAT SIMILAR ADJUSTMENTS MADE IN THE EARLIER ASSESSMENT YEARS WAS CAME TO BE ACCEPTED BY THE DEPARTMENT. HOWEVER, THE LD. CIT(A) HAD CONFIRMED THE ADDITION BY HOLDING THAT THE PROVISIONS OF SECTION 145A OF THE ACT SHOULD BE MANDATORILY FOLLOWED WHILE FILING THE RETURNS OF INCOME FOR THE INCOME TAX PURPOSES. 10. BEING AGGRIEVED, THE APPELLANT IS BEFORE US VIDE GROUNDS OF APPEAL NO.1 TO 3. THE LD. AR HAS TAKEN US THROUGH THE FINDINGS GIVEN BY THE TAX AUDITOR AS WELL AS THE WORKING OF THE ADJUSTMENTS CARRIED OUT TO THE TAXABLE INCOME IN AN ATTEMPT TO DEMONSTRATE THAT THE APPELLANT HAD DULY COMPLIED WITH THE PROVISIONS OF SECTION 145A OF THE ACT, HE FURTHER SUBMITTED THAT THE LOWER AUTHORITIES HAD NOT CONSIDERED THE ISSUE FROM THE PROPER PERSPECTIVE. 11. ON THE OTHER HAND, LD. SR. DR PLACED RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. 12. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE PERUSAL OF THE ASSESSMENT ORDER, IT IS CLEAR THAT THE ADDITION OF RS.20,78,375/- WAS MADE U/S 145A OF THE ACT BY HOLDING THAT THE APPELLANT 5 ITA NO.1959/PUN/2017 COMPANY HAD NOT COMPLIED WITH THE PROVISIONS OF SECTION 145A OF THE ACT IN RESPECT OF VALUATION OF CLOSING INVENTORY. IT IS NO DOUBT THE PROVISIONS OF SECTION 145A OF THE ACT SHALL PREVAIL ON THE ACCOUNTING STANDARD. IT APPEARS THAT THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) HAD NOT LOOKED INTO THE SUBMISSIONS OF THE APPELLANT THAT IT HAD DULY COMPLIED WITH THE PROVISIONS OF SECTION 145A OF THE ACT BY CARRYING OUT THE NECESSARY ADJUSTMENTS TO THE TAXABLE INCOME. THE LOWER AUTHORITIES SIMPLY ACCEPTED THE FINDINGS GIVEN IN THE TAX AUDIT REPORT. IT IS NEEDLESS TO MENTION HERE THAT THE FINDINGS GIVEN IN THE TAX AUDIT REPORT SHOULD IMPACT ON THE PROFITS AS DISCLOSED BY THE AUDITED ACCOUNTS. BUT BOTH THE LOWER AUTHORITIES HAVE FAILED TO LOOK INTO WHETHER THE ASSESSEE HAD CARRIED OUT NECESSARY ADJUSTMENTS WHILE COMPUTING THE TAXABLE INCOME. THUS, WE FIND MERIT IN THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE THAT BOTH THE LOWER AUTHORITIES IGNORED FACT THAT THE NECESSARY ADJUSTMENT WAS CARRIED OUT BY THE ASSESSEE IN COMPUTING THE TAXABLE INCOME. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT IN THE INTEREST OF JUSTICE, THE MATTER REQUIRES REMAND TO THE FILE OF THE ASSESSING OFFICER TO ADJUDICATE THE ISSUE FROM PROPER PERSPECTIVE AND VERIFY THE CORRECTNESS OF THE CLAIM BY THE APPELLANT THAT THE NECESSARY ADJUSTMENTS WAS ALREADY MADE IN THE RETURNED INCOME. THEREFORE, WE REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND DIRECT THE ASSESSING OFFICER TO ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW AFTER AFFORDING DUE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. ACCORDINGLY, THESE GROUNDS OF APPEAL NO.1 TO 3 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13. GROUNDS OF APPEAL NO.4 AND 5 CHALLENGE THE ADDITION OF RS.38,22,174/- ON ACCOUNT OF UNUTILIZED WARRANTY PROVISION. THE ASSESSING OFFICER MADE ADDITION OF RS.38,22,174/- ON THE GROUND THAT DURING THE PREVIOUS YEAR 6 ITA NO.1959/PUN/2017 RELEVANT TO THE ASSESSMENT YEAR 2008-09 THE APPELLANT COMPANY MADE PROVISIONS FOR WARRANTY OF RS.49,08,400/- AND TREATING THE WARRANTY/REJECTION EXPENSES OF RS.10,86,226/- SHOWN UNDER THE HEAD MISCELLANEOUS EXPENDITURE AS ACTUALLY UTILIZED THE BALANCE AMOUNT WAS BROUGHT TO TAX. THE ADDITION WAS CHALLENGED BEFORE THE LD. CIT(A) CONTENDING THAT THE AMOUNT OF RS.10,86,226/- SHOWN UNDER MISCELLANEOUS EXPENDITURE REPRESENTS THE EXPENDITURE TOWARDS WARRANTY/REJECTION OF THE MATERIAL IN RESPECT OF AUTOMOTIVE DIVISION. WHEREAS THE PROVISION FOR WARRANTY OF RS.49,08,400/- WAS INCURRED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008- 09 IN RESPECT OF LPG UNIT. HE FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, OUT OF THE ENTIRE UNUTILIZED PROVISION FOR WARRANTY WAS REVERSED AFTER DUE EVALUATION OF THE PROVISIONS VIS-A-VIS ACTUAL EXPENDITURE. HOWEVER, THE LD. CIT(A) HAD CONFIRMED THE ADDITION BY HOLDING THAT UNUTILIZED AMOUNT OF THE PROVISIONS FOR A PERIOD EXCEEDING THE WARRANTY PERIOD SHOULD BE OFFERED TO TAX. 14. BEING AGGRIEVED, THE APPELLANT IS BEFORE US. BEFORE US, THE LD. AR TOOK US THROUGH CHART OF MOVEMENT OF THE PROVISIONS FOR WARRANTY PLACED IN THE PAPER BOOK FILED BEFORE US. HE REITERATED THAT THE EXPENDITURE SHOWN UNDER MISCELLANEOUS EXPENDITURE TOWARDS THE REPLACEMENT, WARRANTY, NOT INCURRED OUT OF THE PROVISIONS FOR WARRANTY EXPENDITURE CREATED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008-09. THEREFORE, HE SUBMITTED THAT BOTH THE ITEMS ARE SEPARATE AND DISTINCT AND THE LOWER AUTHORITIES HAVE MISDIRECTED THEMSELVES IN CONFIRMING THE ADDITION. 15. ON THE OTHER HAND, LD. SR. DR PLACED RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. 7 ITA NO.1959/PUN/2017 16. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE IMPUGNED ADDITION OF RS.38,22,174/- WAS MADE BY THE ASSESSING OFFICER AS CONFIRMED BY THE LD. CIT(A) UNDER THE IMPRESSION THAT THE APPELLANT COMPANY HAD NOT REVERSED THE EXCESS PROVISIONS FOR WARRANTY CREATED IN THE EARLIER YEARS. THE LD. COUNSEL IN AN ATTEMPT TO DEMONSTRATE THAT THE APPELLANT HAD FILED THE DETAILS OF THE MISCELLANEOUS EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT, AS WELL AS, THE MOVEMENT OF PROVISIONS FOR WARRANTY TO SHOW THAT THE EXCESS PROVISIONS FOR WARRANTY WAS REVERSED IN THE SUBSEQUENT YEARS AFTER DUE EVALUATION AND THE EXPENDITURE INCURRED TOWARDS THE WARRANTY AND REJECTION IS INCURRED IN CONNECTION WITH THE AUTOMOTIVE DIVISION IN RESPECT OF WHICH NO PROVISIONS FOR WARRANTY WAS MADE. THIS SUBMISSION MERIT CONSIDERATION. HOWEVER, BOTH THE ASSESSING OFFICER AND THE LD. CIT(A) HAD MISDIRECTED THEMSELVES WITHOUT EXAMINING THE FACTUAL MATRIX OF THE ISSUE PROPERLY. THEREFORE, IN THE CIRCUMSTANCES, WE REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION IN ACCORDANCE WITH LAW. ACCORDINGLY, THE GROUNDS OF APPEAL NO.4 AND 5 ARE ALLOWED FOR STATISTICAL PURPOSES. 17. THE GROUND OF APPEAL NO.6 AND THE ADDITIONAL GROUNDS OF APPEAL NO.7 & 8 CHALLENGES THE ADDITION U/S 40(A)(IA) OF THE ACT. THE ASSESSING OFFICER MADE A DISALLOWANCE OF RS.54,44,467/- ON ACCOUNT OF FREIGHT CHARGES ON THE GROUND THAT THE APPELLANT HAD FAILED TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT. 18. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD. CIT(A) AND THE LD. CIT(A) AFTER CONSIDERING THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE HAD ORDER OPEN REMAND TO THE ASSESSING OFFICER VIDE PARA 10.9 OF THE IMPUGNED ORDER. THE DIRECTION OF THE LD. CIT(A) ORDERING OPEN REMAND IS NOT UNDER 8 ITA NO.1959/PUN/2017 CHALLENGE BEFORE US. IF THE APPELLANT IS AGGRIEVED BY THE CONSEQUENTIAL ORDER PASSED TO CIT(A) ORDER, A SEPARATE APPEAL LIES BEFORE CIT(A) AND CANNOT AGITATE IN THE PRESENT APPEAL PROCEEDINGS BEFORE THE TRIBUNAL. HENCE, THIS ORIGINAL GROUND OF APPEAL NO.6 AND ADDITIONAL GROUNDS OF APPEAL NO.7 & 8 DO NOT ARISE OUT OF THE IMPUGNED ORDER. ACCORDINGLY, ORIGINAL GROUND OF APPEAL NO.6 AND ADDITIONAL GROUNDS OF APPEAL NO.7 & 8 ARE DISMISSED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 03 RD DAY OF MARCH, 2021. SD/- SD/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 03 RD MARCH, 2021. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) -5, PUNE. 4. THE PR. CIT-4, PUNE. 5 . , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.