M/s. Luk India Private Limited, CHENNAI V. Addl. CIT, Salem

ITA 2000/CHNY/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51911 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 24-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR I VIJAYAKUMAR
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 115JB; 147; 154

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI C BENCH, CHENNAI. BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A. NO. 2000/MDS/2010 ASSESSMENT YEAR: 2005-06 M/S. LUK INDIA PRIVATE LIMITED, P B 20 ROYAKOTTAH ROAD, HOSUR 635 109. [PAN: AAACL6817D] VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE I, SALEM. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE REVENUE BY : DR. I. VIJAYAKUMAR, CIT DATE OF HEARING : 23.08.2011 DATE OF PRONOUNCEMENT 03.10.2011 ORDER PER HARI OM MARATHA, J.M. THIS APPEAL OF THE ASSESSEE, FOR THE ASSESSMENT YEA R 2005-06, HAS BEEN FILED AGAINST THE ORDER OF THE LD. CIT(A), SALEM DA TED 14.09.2010. 2. BRIEFLY, STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY AND CARRIES ON BUSINESS OF MANUFACTURE AND SALE OF CLUT CHES FOR AUTOMOBILES AND TRADING IN COIL SPRINGS, BEARINGS AND TWO WHEELER C LUTCHES. FOR THE ASSESSMENT YEAR 2005-06, THE ASSESSEE COMPANY FILED ITS ORIGIN AL RETURN OF INCOME ON 27.10.2005 ADMITTING TOTAL INCOME OF ` .3,99,00,983/-. SUBSEQUENTLY, IT REVISED ITS RETURN ON 30.03.2007 ADMITTING TOTAL INCOME OF ` .3,88,00,983/-. THE ASSESSING OFFICER INITIATED PROCEEDINGS UNDER SECTION 147 R.W .S. 148 OF THE ACT VIDE REASONS I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.2000 2000 2000 2000/MDS/ /MDS/ /MDS/ /MDS/1 11 10 00 0 2 RECORDED ON 07.05.2007. THE ASSESSEE RESPONDED BY F ILING LETTER DATED 15.06.2007 STATING THEREIN AS UNDER: WE HAVE FILED REVISED RETURN FOR THE ASSESSMENT YE AR 2005-06 ON 30.03.2007 WHICH MAY KINDLY BE TREATED AS A RETURN FILED IN RESPONSE TO YOUR NOTICE UNDER SECTION 148 OF THE I.T. ACT, 1 961 DATED 7.5.2007. 2.1 THE ASSESSMENT WAS MADE UNDER SECTION 143(3) R. W.S. 147 ON 18.12.2008 DETERMINING THE TOTAL INCOME AT ` .13,53,94,907/-, AND THE TAXABLE BOOK PROFIT UNDER SECTION 115JB AT ` .12,01,87,665/-. THE ASSESSING OFFICER HAS DISALLOW ED THE PROVISIONS FOR WARRANTY EXPENSES AMOUNTING TO ` .1,12,88,407/- WHILE MAKING NORMAL COMPUTATION AND THE COMPUTATION UNDER SECTIO N 115JB ON THE GROUND THAT IT IS A CONTINGENT LIABILITY. HE HAS RELIED ON THE DEC ISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ROTORK CONTROLS INDIA LIMITE D AND OTHERS (2007) 293 ITR 311 IN COMING TO HIS CONCLUSION. THE ASSESSING OFFICER HAS ALLOWED DEDUCTION/ACTUAL EXPENDITURE INCURRED BY THE COMPANY DURING THE RELE VANT PREVIOUS YEAR IN RESPECT OF WARRANTIES AMOUNTING TO ` .59,53,695/- WHILE MAKING NORMAL COMPUTATION AND TH E COMPUTATION UNDER SECTION 115JB. THUS, HE HAS BROUG HT TO TAX A SUM OF ` .3,82,74,060/- AND THE BALANCE IN THE PROVISIONS PR ODUCTS CODE ACCOUNT IN THE BALANCE SHEET AS ON 31.03.2005. THE ASSESSING OFFIC ER HAS DISALLOWED THE CLAIM OF ` .11.00 LAKHS MADE ON ACCOUNT OF RANE (MADRAS) LTD. AS PER THE NON-USE OF TRADEMARK AGREEMENT AS CAPITAL EXPENDITURE AND WHI LE MAKING THE NORMAL COMPUTATION AS ALSO COMPUTATION UNDER SECTION 115JB FOR THE REASON THAT THE EXPENDITURE IS CAPITAL IN NATURE. THE ASSESSING OFF ICER DID NOT GIVE CREDIT FOR TAX PAID ON MINIMUM ALTERNATIVE TAX (MAT) IN THE ASSESS MENT YEAR 2003-04 AND I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.2000 2000 2000 2000/MDS/ /MDS/ /MDS/ /MDS/1 11 10 00 0 3 2004-05 AMOUNTING TO ` .11,06,468/- AND ` .72,48,591, RESPECTIVELY. HE HAS ALSO LEVIED INTEREST UNDER SECTION 234B AMOUNTING TO ` .1,57,10,715/-. 3. AGGRIEVED, THE ASSESSEE WENT BEFORE THE LD. CIT (A) FOR THE DELETION OF THE ABOVE MENTIONED ADDITIONS. THE LD. CIT(A) GAVE ONLY PART RELIEF TO THE ASSESSEE. NOW THE ASSESSEE IS FURTHER AGGRIEVED, BUT THE REVE NUE HAS NOT FILED ANY APPEAL. 4. THE FIRST ISSUE RAISED VIDE GROUND NO.2 (2.1 TO 2.5), WHICH IS IN RELATION TO CONFIRMATION OF ADDITION ON ACCOUNT OF PROVISIONS F OR WARRANTY MADE ON THE GROUND THAT TWO YEARS HAD ELAPSED FROM THE TIME OF MAKING OF THE PROVISIONS FOR WARRANTY. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE COMPANY CARVES OUT A DEDUCTION FROM THE PROFIT AND LOSS ACCOUNT WITHOUT OFFERING THIS AMOUNT FOR TAXATION IN THE FORM OF PROVISIONS AS CERTAIN PERCE NTAGE OF SALES MADE EVERY YEAR. THIS PROVISION IS CARRIED TO THE BALANCE SHEET AND MAINTAINED AS AN AMOUNT FROM WHICH THE ACTUAL CLAIMS OF WARRANTY ARE APPROPRIATE D. THE PRODUCTS SOLD BY THE ASSESSEE COMPANY THROUGH DEALERS ARE COVERED UNDER WARRANTY CARD OR AGREEMENT FOR A PERIOD OF TWO YEARS FROM THE DATE OF SALES MA DE AT THE COUNTERS OF THE DEALERS. VERIFICATION OF THE BOOKS OF ACCOUNTS OF T HE ASSESSEE SHOW THAT THE ASSESSEE COMPANY HAS GOT A METICULOUS PROCESS OF EX AMINING EACH WARRANTY CLAIM BASED ON THE RECORDS OF SALES MAINTAINED AND THE NATURE OF THE DEFECT OBSERVED. IN SUCH A SITUATION, THE ASSESSEE COMPANY , AS PER THE ASSESSING OFFICER, SHOULD HAVE WRITTEN BACK THE PROVISIONS CA RVED OUT ON THE PRODUCT OF WHICH THE WARRANTY CLAIM PERIOD HAS EXPIRED. THEREFORE, N O CLAIM BY THE END-USE- CUSTOMER ARE ENTERTAINED BY THE ASSESSEE COMPANY A ND IT IS IN THE INTEREST OF THE COMPANY, BASED ON COMMERCIAL EXPEDIENCY AND SOUND B USINESS PRINCIPLES THAT I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.2000 2000 2000 2000/MDS/ /MDS/ /MDS/ /MDS/1 11 10 00 0 4 SUCH CLAIMS ARE NOT ENTERTAINED. SO, ACCORDING TO T HE ASSESSING OFFICER THIS AMOUNT CARRIED DOWN AS CLOSING BALANCE OF ` .3,82,74,060/- REQUIRES TO BE BROUGHT UNDER TAX AND THE SAME IS ADDED BACK TO THE INCOME OF THE ASSESSEE. FOR THIS YEAR. 5. THE LD. CIT(A) HAS DECIDED THE ISSUE RAISED IN THIS REGARD AGAINST THE ASSESSEE BY OBSERVING IN PARA 10 AT PAGE 15 OF HIS ORDER AS UNDER: 10. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY T HE APPELLANT AND ALSO THE ORDER OF THE ASSESSING OFFICER. THE AO REL YING ON THE DECISION IN THE CASE OF CIT VS. M/S. HATSUN AGRO PRODUCTS LT D., CHENNAI VIDE ITA NO.1200(MADRAS)/1999 HELD THE EXPENDITURE AS CA PITAL EXPENDITURE AND ADDED BACK TO THE INCOME OF THE ASSESSEE. THE H ONBLE ITAT C BENCH, CHENNAI IN THEIR ORDER IN ITA NOS. 475 AND 4 76/MDS/2009 IN APPELLANTS OWN CASE DISMISSED THE GROUNDS OF APPEA L OF THE APPELLANT IN SIMILAR FACTS, FOLLOWING THE DECISION OF THE ITA T, MUMBAI IN THE CASE OF DCIT VS. SARAF CHEMICALS LTD. (2006) 102 ITR 356 . RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE ITAT IN APPEL LANTS OWN CASE, THE GROUNDS OF APPEAL ARE DISMISSED. 6. NOW, THE ASSESSEE IS FURTHER AGGRIEVED. IT WAS ARGUED THAT THE LD. AR APPEARING BEFORE THE LD. CIT(A) HAD NEVER AGREED FO R THIS ADDITION. TO SUPPORT THIS CONTENTION THAT HE HAD NEVER WITHDRAWN THIS ISSUE O R HAD AGREED FOR THE ADDITION OF THE IMPUGNED AMOUNT A DULY SWORN-IN AND ATTESTED AF FIDAVIT OF SHRI KUTHALINGAM, CHARTERED .ACCOUNTANT HAS BEEN FILED. THE ORIGINAL AFFIDAVIT IS PLACED AT PAPER BOOK PAGE 21 AND 22. THE AVERMENT OF THE AFFIDAVIT IS EX TRACTED HEREIN BELOW IN TOTO: I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.2000 2000 2000 2000/MDS/ /MDS/ /MDS/ /MDS/1 11 10 00 0 5 AFFIDAVIT I, CA KUTHALINGAM, S/O K. THIRUMALAIAPPAN AGED 54 Y EAR, A PRACTICING CHARTERED ACCOUNTANT, PARTNER M/S. KUTHALINGAM & AS SOCIATES, CHARTERED ACCOUNTANTS, NO. 52/22-E, FIRST FLOOR, 100 FT. MOTH AM ROAD, NEAR VELANKANNI SCHOOL, HOSUR 635 109 DO HEREBY SOLEMN LY AND SINCERELY STATE AS FOLLOWS: 1. I STATE THAT I AM AN AUTHORIZED REPRESENTATIVE OF M/S. LUK INDIA (P) LTD A COMPANY WITH PAN. AAACL6817D WITH ITS REGISTE RED OFFICE AT RAYAKOTTAH ROAD, HOSUR FOR ITS INCOME TAX APPEAL BE FORE THE COMMISSIONER OF INCOME TAX (APPEALS) SALEM FOR THE ASST. YEAR 20 05-06. 2. I STATE THAT I HAVE APPEARED BEFORE THE COMMISS IONER OF INCOME TAX (APPEALS) SALEM FOR THE ASST. YEAR 2005-06 ON BEHAL F OF THE SAID COMPANY AND RAISED ALL THE ISSUES STATED IN THE APPEAL. 3. I STATE THAT NEITHER THE COMPANY NOR I HAVE MAD E ANY WRITTEN SUBMISSIONS TO WITHDRAW THE GROUND NO. 23 OF THE SA ID APPEAL IN ITA NO. 105/08-09 THAT UNDER NO CIRCUMSTANCES THE BALANCE AT THE YEAR END IN PRODUCT SUPPORT ACCOUNT OF ` .3,82,74,060 CAN BE TAXED. 4. I STATE THAT WHAT IS STATED ABOVE IS TRUE AND C ORRECT TO THE BEST OF MY KNOWLEDGE AND BELIEF. 7. IT WAS FURTHER ARGUED THAT THE ASSESSING OFFICE R HAS WRONGLY COME TO THE CONCLUSION THAT THE EXCESS OF PROVISION OVER THE AC TUAL PAYMENT MADE DURING THE YEARS 1999-2000 TO 2002-03 FALLS BEYOND TWO YEARS A ND HENCE HAS TO BE ADDED. ACCORDING TO THE LD. AR, THIS SURPLUS IN ONE YEAR I S A PART OF WARRANTY EXPENDITURE INCURRED IN THE SUBSEQUENT YEAR ALSO. HE HAS PLEADE D THAT THE PROVISIONS MADE FOR WARRANTY LIABILITY CLAIMED IN ACCORDANCE WITH THE P AST EXPENDITURE IN FULL AND ADDING BACK THE PROVISIONS OF WARRANTY ON THE ACCOUNT OF T WO YEARS LAPSE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE LD. AR HAS RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN ITS OWN CASE IN T. C.(A) NOS. 489 TO 494 OF 2010 I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.2000 2000 2000 2000/MDS/ /MDS/ /MDS/ /MDS/1 11 10 00 0 6 FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE IT AT CHENNAI C BENCH PASSED IN ITA NOS. 472 TO 477/MDS/2009 FOR THE ASSESSMENT YEA RS 1999-2000 TO 2004-05, WHEREIN THE HONBLE HIGH COURT HAS DISMISSED THE AP PEAL VIDE ITS JUDGMENT DATED 05.06.2010. 8. PER CONTRA, THE LD. DR HAS VEHEMENTLY OBJECTED THE SUBMISSIONS OF THE LD. AR THAT THE LD. AR APPEARING BEFORE THE LD. CIT(A) HAD NOT AGREED FOR THE ADMISSION OF THIS AMOUNT WITH REFERENCE TO THE ORDE R PASSED UNDER SECTION 154 OF THE ACT. TO COUNTER THE EVIDENCE IN THE FORM OF AFF IDAVIT, THE LD. DR HAS STATED THAT THIS AFFIDAVIT HAS BEEN FILED AFTER 5 TO 6 MONTHS O F THE ORDER OF THE LD. CIT(A) AND THAT TOO BEFORE THE TRIBUNAL, HENCE THIS HAS GOT NO LEGAL FORCE. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAV E FOUND THAT THE LD. AR, WHO APPEARED BEFORE THE LD. CIT(A) HAS CATEGORICALLY DE NIED HAVING ADMITTED THE ADDITION OF THE IMPUGNED AMOUNT. THE AFFIDAVIT IS D ULY ATTESTED AND IT HAS GOT A EVIDENTIAL VALUE IN THE EYES OF LAW. IN CASE THE AV ERMENTS OF THE AFFIDAVIT ARE FOUND TO BE FALSE, THE DEPONENT RUNS THE RISK OF BEING PR OSECUTED FOR THE OFFENCE OF PER- JURY. MOREOVER, THE CONTENTS OF THIS AFFIDAVIT HAVE NOT BEEN CONTROVERTED BY WAY OF A COUNTER-AFFIDAVIT BY THE DEPARTMENT. HENCE, AFTER BELIEVING THE LD. AR AND TAKING INTO CONSIDERATION OF THIS AFFIDAVIT, WE DEEM IT A FIT CASE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE LD. CIT(A) WITH THE DIRECTION THAT HE SHALL DECIDE THIS ISSUE, AFRESH, ON MERITS WITHOUT TAKING INTO CONSIDERATION THE SO CAL LED ADMISSION OF THE LD. AR. SINCE THE ISSUE IS STATED TO BE COVERED BY THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR EARLIER YEARS, WHICH HAS ALSO WITHSTOOD THE TEST OF THE HONBLE MADRAS HIGH COURT, AS STATED ABOVE, IT BECOMES IMPERATIVE TO EXAMINE T HIS ISSUE IN THE LIGHT THIS I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.2000 2000 2000 2000/MDS/ /MDS/ /MDS/ /MDS/1 11 10 00 0 7 DECISION AS WELL. CONSEQUENTLY, WE ALLOW GROUND NO. 2 OF THIS APPEAL FOR STATISTICAL PURPOSE ONLY. 10. THE NEXT ISSUE OF THIS APPEAL TAKEN VIDE GROUN D NO. 3(3.1 TO 3.3) PERTAINS TO CONFIRMATION OF ADDITION MADE ON ACCOUNT OF UNEXPLA INED PAYMENT MADE TO M/S. RANE (MADRAS) LTD. FOR THE USE OF TRADE MARK, HOLD ING IT AS A NON-COMPETE FEE AND HENCE, CAPITAL IN NATURE. THIS PAYMENT WAS ALLEGEDL Y GIVEN BY THE ASSESSEE FOR ALLOWING IT TO SELL THE PRODUCTS WITH THE TRADE MAR K OWNED BY M/S. RANE (MADRAS) LTD., BUT WITHOUT ACQUIRING ANY RIGHT IN THE TRADE MARK. IT WAS ARGUED THAT IT WAS A, SIMPLECITER, USER OF THE TRADE MARK AND NO RIGHT WA S CREATED IN IT LEADING TO ANY BENEFIT OF PERMANENT OR ENDURING NATURE. SO, ACCORD ING TO THE LD. AR, IT SHOULD BE TREATED AS REVENUE EXPENDITURE. IN THE ALTERNATIVE, IT WAS PLEADED THAT IN CASE THIS AMOUNT IS TREATED AS NON-COMPETE FEE, DEPRECIATION ON THE SAME SHOULD BE ALLOWED AS PER LAW. IN FACT, THIS ISSUE STANDS COVE RED AGAINST THE ASSESSEE IN SO FAR AS FIRST PART OF THE CLAIM OF TREATING THIS PAYMENT AS REVENUE IN NATURE IS CONCERNED, IN ASSESSEES OWN CASE IN THE AFOREMENTIONED ORDER DATED 28.08.2009. THIS VERY BENCH HAS HELD THAT THIS PAYMENT CANNOT BE TREATED AS REVENUE IN NATURE, BUT HAS TO BE TREATED AS CAPITAL IN NATURE. IN SO FAR AS TH E ALTERNATIVE PLEA RAISED BY THE ASSESSEE IS CONCERNED, SIMILAR PLEA WAS RAISED IN T HOSE YEARS AND THE BENCH HAS REMITTED BACK THIS ISSUE TO THE FILE OF THE LD. CIT (A) WITH A DIRECTION TO EXAMINE THE AFORE-STATED ALTERNATIVE PLEA OF THE ASSESSEE AND T O PASS FRESH ORDER AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. BY RESP ECTFULLY FOLLOWING THE ABOVE DECISION, WE ALSO REMIT BACK THE ALTERNATIVE GROUND NO. 3.3 TO THE FILE OF THE LD. I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.2000 2000 2000 2000/MDS/ /MDS/ /MDS/ /MDS/1 11 10 00 0 8 CIT(A) WITH SIMILAR DIRECTIONS. ACCORDINGLY, THIS I SSUE IS ALLOWED FOR STATISTICAL PURPOSE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 03.10.2011. SD/- SD/- (O.K. NARAYANAN) VICE PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER CHENNAI, DATED, THE 03.10.2011 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.