Appeal details
Counselvise Citation
[2014] 120 COUNSELVISE.COM (IT) 5460 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 8 month(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-02-2014
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
H
Next Hearing Date
21-01-2014
Assessment Year
2000-2001
Appeal Filed On
26-05-2008
Judgement Text
ITA NO. 2049/DEL/2008 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER I.T.A. NO. 2049/DEL/2008 A.Y. : 2000-01 DCIT, CIRCLE 18(1), NEW DELHI VS. M/S WHIRLPOOL OF INDIA LTD. B-1/A-2, MOHAN COOPERATIVE ESTATE, MATHURA ROAD, NEW DELHI (PAN: AAACW1336L) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. RUPESH JAIN, ADVOCATE DEPARTMENT BY : SH. R.S. MEENA, CIT(DR) & SH. SHAMEER SHARMA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS-IX), NEW DE LHI DATED 07.2.2088 PERTAINING TO ASSESSMENT YEAR 2000-01. 2. THE GROUNDS OF APPEAL READ AS UNDER:- I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 48,25,600/- ON ACCOUNT OF VRS EXPENDITURE. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO ITA NO. 2049/DEL/2008 2 OF RS. 20,06,000/- ON ACCOUNT OF SWITCHING OVER FR OM THE CASH SYSTEM OF ACCOUNTANCY TO THE MERCANTILE SYSTE M IN RESPECT OF LTA AND MEDICAL EXPENSE. III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 13,50,33,619/- ON ACCOUNT OF WARRANTY AND OPTIONAL SERVICE CONTRACT EXPENSES. IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS . 39,99,27,770/- (WRONGLY MENTIONED AS RS. 13,99,27,7 70/- 3.. APROPOS DELETION OF DISALLOWANCE VRS EXPENSES R S. 4825600/-. ON THIS ISSUE AO HELD THAT THE VRS EXPENDITURE OF RS. 60,32,000/- INCURRED BY THE ASSESSEE WAS CAPITAL EXPENDITURE AN D ACCORDINGLY, AO HELD THAT THE SAME IS TO BE AMORTIZED U/S. 35DDA . ACCORDINGLY, AO HELD THAT ONLY 1/5 TH OF THE EXPENDITURE WOULD BE ALLOWED DURING THE YEAR AND THE BALANCE OF RS. 4825600/- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4. UPON ASSESSEES LD. CIT(A) FOLLOWING HIS APPELL ATE ORDER FOR THE ASSESSMENT YEAR 1998-99 IN ASSESSEES OWN CASE HELD THAT THE EXPENDITURE WAS TO BE TREATED AS REVENUE EXPENDITU RE. FURTHER, LD. CIT(A) NOTED THAT SECTION 35DDA CAME INTO EFFE CT FROM ASSTT. YEAR 2001-02 AND AS SUCH APPORTIONMENT CANNOT BE DONE IN THIS YEAR, AS IT WAS NOT APPLICABLE. ACCORDINGLY, LD. C IT(A) HELD THAT THE VRS HERE IS ALLOWABLE IN FULL. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY ITA NO. 2049/DEL/2008 3 COVERED IN FAVOR OF THE ASSESSEE BY THE DECISION O F THIS TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 2058/DEL/2007 FOR ASSTT. YEAR 1998-99. IN THIS CASE THE TRIBUNAL HAS HELD THAT THE PROVISION OF SECTION 35DDA PROVIDING FOR AMORTIZATION OF EXPENDI TURE INCURRED UNDER VRS HAVE COME INTO STATUTE BY THE FINANCE A CT, 2001, EFFECTIVE FROM 2001. THEREFORE, THESE WERE NOT A PPLICABLE TO ASSTT. YEAR 1998-99. FURTHER THE TRIBUNAL HELD THAT THE E XPENDITURE IN THIS CASE HAS TO BE TREATED AS REVENUE EXPENDITURE. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. W E FIND THAT THE AS HELD BY THE CIT(A) AND THE TRIBUNAL AS ABOVE THE PROVISION OF SECTION 35DDA ARE EFFECTIVE FROM APRIL, 2001. HENC E, THE SAME ARE NOT APPLICABLE TO THE CURRENT ASSESSMENT YEAR. FURTHERMORE, IT HAS ALREADY BEEN HELD IN DECISION CITED ABOVE T HAT THE EXPENDITURE ON VRS ARE OF REVENUE IN NATURE. AC CORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DECIDE THE I SSUE IN FAVOR OF THE ASSESSEE. 8. APROPOS DELETION OF LTA AND MEDICAL EXPENSES ON THIS ISSUE AO NOTED THAT THE TAX AUDITORS IN T HEIR REPORT HAVE MENTIONED THAT THERE IS A CHANGE IN THE METHOD OF ACCOUNTING VIS-A-VIS METHOD EMPLOYED IN THE IMMEDIATELY PRECED ING PREVIOUS YEAR. AO REFERRED TO THE FOLLOWING OBSERVATIONS:- S.NO. S.NO. S.NO. S.NO. CHANGE CHANGE CHANGE CHANGE EFFECT ON BOOK LOSS FOR THE EFFECT ON BOOK LOSS FOR THE EFFECT ON BOOK LOSS FOR THE EFFECT ON BOOK LOSS FOR THE PREVIOUS YEAR. PREVIOUS YEAR. PREVIOUS YEAR. PREVIOUS YEAR. I) THE COMPANY HAS ACCOUNTED FOR MEDICAL REIMBURSEMENT (EXCEPT IN CASE OF EMPLOYEES OF WASHER DIVISIONS) AND LEAVE TRAVEL ASSISTANCE (EXCEPT IN CASE OF EMPLOYEES OF GNF DIVISION), LONG SERVICE AWARDS TO EMPLOYEES OF REFRIGERATOR AND WASHES DIVISIONS, ADDITIONAL LOSS FOR THE YEAR IS OVER STATED BY RS. 462.89 LACS. ITA NO. 2049/DEL/2008 4 DEATH BENEFITS TO THE BLUE COLLAR EMPLOYEES OF THE REFRIGERATOR DIVISION, DURING THE CURRENT YEAR ON ACCRUAL BASIS, INSTEAD OF CASH BASIS BEING FOLLOWED HITHERTO. 9. UPON ENQUIRY IN THIS REGARD, ASSESSEE HAS SUBMI TTED AS UNDER:- I) OVER STATEMENT OF LOSS ON ACCOUNT OF EMPLOYEES WELFARE SCHEMES ETC. RS. 462.89 LACS. THE OVERSTATEMENT OF LOSS ON ACCOUNT OF CHANGE IN T HE ACCOUNTING POLICY FROM CASH BASIS TO ACCRUAL BASI S ARISES ON ACCOUNT OF THE CHANGES IN THE BASIS OF ACCOUNTI NG AS UNDER:- A) ACCOUNTING OF STAFF WELFARE EXPENSES FROM CASH TO ACCRUAL BASIS RS. 442.83 LACS. B) ACCOUNTING OF MEDICAL AND LTA EXPENSES / REIMBURSEMENT FROM CASH TO ACCRUAL BASIS RESULTED IN THE NET IMPACT OF RS. 20.06 LACS. WE SUBMIT THAT THE PROVISION ON ACCOUNT OF EMPLOYEES WELFARE SCHEMES OF RS. 442.83 LACS DUE TO CHANGE IN THE METHOD IN ACCOUNTING HAVE OFFERED IN THE COMPUTING OF INCOME FOR THE YEAR. HOWEVER, CONSIDERING THE NATURE OF MEDICAL AND LTA EXPENSES/ REIMBURSEMENT HAVE BEEN CLAIMED BY THE ASSESSEE. WE FURTHER SUBMIT THAT THE ASSESSEE IS OPERATING THROUGH DIFFERENT ACCOUNTING DIVISIONS, PRIOR TO THE PREVIOUS YEAR UNDER CONSIDERATION THERE WAS NO UNIFORMITY IN METHOD OF ACCOUNTING OF THE ABOVE EXPENSES SINCE ONE UNIT ITA NO. 2049/DEL/2008 5 WAS ADOPTING CASH AND THE OTHER UNIT WAS ADOPTING MERCANTILE BASIS. THIS WAS DUE TO THE FACT THAT DURING THE PRECEDING 3 ASSESSMENT YEARS 3 DIFFERENT LEGAL ENTITY HAD MERGED WITH THE ASSESSEE COMPANY. TO ADOPT A UNIFORM ACCOUNTING METHOD FOR ACCOUNTING OF THE ABOVE EXPENSES, THE ASSESSEE HAS CHANGED THE METHOD OF ACCOUNTING AND IN FUTURE YEARS CONSISTENTLY FOLLOWS THE SAME METHOD OF ACCOUNTING. HENCE, CONSIDERING THE FACTS OF THE CASE AND THE NATURE OF EXPENSES WHICH IS NOT SPECIFICALLY DEBARRED IN LAW, THE AMOUNT CLAIMED BY THE ASSESSEE DUE TO CHANGE IN THE METHOD OF ACCOUNTING SHOULD BE ACCEPTED. 10. HOWEVER, THE AO WAS NOT SATISFIED WITH THE ABOV E, HE HELD THAT THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS BY FU RNISHING DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CONTENTION. ACCORDINGLY, AO HELD THAT THE ADDITION OF RS. 20.06 LACS SHALL BE M ADE TO THE TOTAL INCOME OF THE ASSESSEE. 11. BEFORE THE LD. CIT(A) ASSESSEE SUBMITTED THAT S OME OF THE DIVISIONS WERE ACCOUNTING ACCOUNTS FOR MEDICAL EXPE NSES AND LTA EXPENSES ON MERCANTILE BASIS, BUT SOME OF THE DIVIS IONS WERE FOLLOWING THE CASH BASIS. ASSESSEE SUBMITTED THAT AS PER THE PROVISION OF SECTION 209(3) OF THE COMPANIES ACT AN D THE ACCOUNTING GUIDELINES / STANDARD ISSUED BY THE ICAI, THE ASSES SEE WAS MANDATORILY REQUIRED TO MAINTAIN ITS BOOKS ON MERCA NTILE BASIS. PROVISION FOR LTA EXPENSES AND MEDICAL EXPENSES WER E COMPUTED ON THE ELIGIBILITY BASIS FOR VARIOUS GRADES AND IT WAS KNOWN AS TO PRECISELY HOW MUCH WAS TO BE PAID TO DIFFERENT EMPL OYEES. HENCE, IT WAS ARGUED THAT LIABILITY OF RS. 20.06 LACS WAS QUANTIFIED AND HENCE, NOT UNDER CONTINGENT IN NATURE. IT WAS F URTHER SUBMITTED ITA NO. 2049/DEL/2008 6 THAT THE CHANGE IS BONAFIDE AND WAS CONSISTENTLY F OLLOWED IN SUCCEEDING YEARS. IN THIS REGARD, ASSESSEE PLACED RELIANCE THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF C IT VS. DOLAGURI TEA COMPANY (P) LTD. 76 TAXMAN 257 AND ITAT DECISION IN THE CASE OF NATIONAL HEAVY ENGINEERING COOPERATIVE LTD. VS. DC IT 105 ITD 485. CONSIDERING THE ABOVE, LD. CIT(A) HELD THAT THE ADD ITION NEEDS TO BE DELETED. 12. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPE AL BEFORE US. 13. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED TH E RECORDS. WE FIND THAT IN THIS CASE SOME DIVISIONS OF THE A SSESSEE WERE MAINTAINING BOOKS OF ACCOUNTS FOR MEDICAL EXPENSES AND LTA EXPENSES ON CASH BASIS WHILE SOME OF THE DIVISIONS WERE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE IN O RDER TO BRING UNIFORMITY AND TO COMPLY WITH THE PROVISIONS OF COM PANIES ACT AND ACCOUNTING STANDARD ACCOUNTED FOR THE LIABILITY TOW ARDS THESE EXPENSES ON MERCANTILE BASIS. THE ASSESSEE HAS C LAIMED THAT THE EXPENSES WERE COMPUTED PRECISELY. HENCE, IT WAS CE RTAIN LIABILITY AND NOT THE CONTINGENT ONE. THE CASE LAW REFERRED BY THE ASSESSEES COUNSEL BEFORE THE LD. CIT(A) ARE GERMA NE AND SUPPORT THE CASE OF THE ASSESSEE. THUS, WE AGREE WITH THE LD. CIT(A) THAT SWITCHING OVER FROM CASH SYSTEM OF ACCOUNTING TO TH E MERCANTILE SYSTEM IN RESPECT OF LTA AND MEDICAL EXPENSES WAS ON A BONAFIDE CHANGE AND JUSTIFIED. 14. HOWEVER, IN THIS REGARD, LD. DR HAS POINTED OU T THAT HOW THE LIABILITY HAS BEEN ASCERTAINED IN THIS REGARD WAS N OT PRODUCED BEFORE THE AO, AS THE AO HAS NOTED THAT NO DOCUMENTARY EVI DENCE WAS FURNISHED TO THE AO IN THIS REGARD. HENCE, HE SUBM ITTED THAT FOR THE NECESSARY EXAMINATION IN THIS REGARD MATTER SHOULD BE SENT BACK TO THE AO. ITA NO. 2049/DEL/2008 7 15. AS HELD BY US IN THE PRECEDING PARAGRAPH, WE AR E PRINCIPALLY IN AGREEMENT WITH THE ORDER OF THE LD. CIT(A). THE AS SESSEES DECISION TO ACCOUNT FOR THESE EXPENDITURE ON MERCANTILE BASI S HAS TO BE SUSTAINED. HOWEVER, WE FIND THAT THE COMPUTATION O F LIABILITIES IN THIS REGARD HAS NOT BEEN THE SUBJECT MATTER OF VERI FICATION BY THE AO. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE O F THE AO FOR THE LIMITED PURPOSE OF EXAMINING THE VERACITY OF COMPUT ATION OF THE LIABILITY IN THIS REGARD. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD. 16. APROPOS DELETION OF DISALLOWANCE OF WARRANTY AN D OPTION SERVICES CONTRACT EXPENSES ON THIS ISSUE THE AO DISALLOWED RS. 13,50,33,619/- BEING PROVISION OF WARRANTY AND OPTIONAL SERVICES CONTRA CT EXPENSES PROVIDED ON THE BASIS OF ACTUARIAL VALUATION CERT IFICATE. 17. BEFORE THE LD. CIT(A) ASSESSEE SUBMITTED THAT T HIS ISSUE HAS TO BE DECIDED IN FAVOR OF THE ASSESSEE AS THEY ARE DE CISIONS IN FAVOR OF THE ASSESSEE. FURTHERMORE, IT WAS SUBMITTED THAT T HIS ISSUE WAS DECIDED IN ASSESSEES OWN CASE BY ITAT FOR ASSTT. Y EAR 1993-94 IN ITA NO. 1722/DEL/99 WHERE THE ITAT HAS OBSERVED THA T PROVISION HAD BEEN MADE ON ACTUARIAL VALUATION AND AO HAS NOT B EEN POINTED OUT ANY DISCREPANCY AND THE DEFECT IN THE ACTUARIA L CALCULATION. THE ITAT OPINED THAT AO WAS NOT JUSTIFIED IN MAKING DISALLOWANCE, ACCORDINGLY, LD. CIT(A) DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE. 18. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORDS. WE FIND THAT ASSESSEE HAS MADE THE PROVI SION IN THIS REGARD ON THE BASIS OF ACTUARIAL VALUATION. WE ALSO FIND THAT THE ISSUE IS COVERED IN THIS CASE BY THE TRIBUNAL DECISION IN ASSESSEES OWN ITA NO. 2049/DEL/2008 8 CASE AS ABOVE. HENCE, RESPECTFULLY FOLLOWING THE PRECEDENT, AS ABOVE, WE AFFIRM THE ORDER OF THE LD. CIT(A). 20. APROPOS DISALLOWANCE ON ACCOUNT OF DEPRECIATIO N ON THIS ISSUE AO NOTED THAT ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 110,58,57,287/-. HOWEVER ON 11.3.2013 ASSES SEE FILED A REVISED COMPUTATION ALLOWABLE AS ALLOWABLE AS PER RULES, THE DEPRECIATION SHOULD BE RS. 70,59,29,517/-. HENCE, AO HELD THAT DIFFERENCE OF RS. 39,99,27.770/- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 21. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT TH E FACTS ARE THAT THE ASSESSEE HAS NOT CLAIMED DEPRECIATION O N ITS FIXED ASSETS FOR ASSTT. YEAR 1997-98, 98-99 AND 99-2000. THE A O HOWEVER, GRANTED DEPRECIATION TO THE ASSESSEE IN THE ASSESSM ENT ORDER PASSED BY HIM IN THESE YEARS HOLDING THAT THE GRAN T OF DEPRECIATION WAS COMPULSORY. DURING THE YEAR UNDER APPEAL THE A SSESSEE HAS CLAIMED DEPRECIATION ON THE ORIGINAL WDV OF THE FIX ED ASSETS WITHOUT SETTING OF DEPRECIATION ON THE FIXED ASSETS FOR THE AFORESAID THREE YEARS. HOWEVER, THE AO GRANTED DEPRECIATION AFTER SETTING OF THE DEPRECIATION, WHICH HE ALLOWED IN THE AFORESAID YE ARS. THE LD. CIT(A) HELD THAT SINCE THE DEPRECIATION FOR THE A FORESAID THREE YEARS IS NOT TO BE COMPULSORILY GRANTED, THE WDV WOULD NOT STAND REDUCED BY THE AMOUNT OF THE DEPRECIATION WHICH WAS OTHERWISE ALLOWABLE IN RESPECT OF THE AFORESAID THREE YEARS. LD. CIT(A) NOTED THAT FOR THE ASSTT. YEARS 1997-98, 98-99 & 99-2000 AS ALREADY HELD THAT THE ASSESSEE COULD NOT BE FORCED TO CLAIM DEPR ECIATION. ACCORDINGLY, LD. CIT(A) DIRECTED THE AO TO RECOMPUT E THE DEDUCTION ON ACCOUNT OF DEPRECIATION ACCORDINGLY. 22. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. ITA NO. 2049/DEL/2008 9 23. WE HAVE HEARD THE BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT TRIBUNAL IN ASSESSEES OWN CASE FOR TH E ASSTT. YEAR 1997-98, 98-99 AND 1999-2000 HAS ALREADY HELD THAT THE ASSESSEE CANNOT BE FORCED TO CLAIM DEPRECIATION. IT WAS HEL D THAT THE AMENDMENT IN SECTION 32(1), EXPLANATION 5 FOR MAKIN G THE ALLOWABILITY OF DEPRECIATION COMPULSORY WAS PROSPE CTIVE IN NATURE AND WAS EFFECTIVE FROM 1.4.2002. HENCE, THE ABOV E AMENDMENT IS ALSO NOT APPLICABLE FOR ASSTT. YEAR UNDER CONSIDERA TION. HENCE, AO, ACTION FOR FORCING DEPRECIATION ON THE ASSESSEE IN PRECEDING ASSESSMENT YEARS AND FOLLOWING THE SAME IN THIS YEA R IS NOT SUSTAINABLE. ACCORDINGLY, RESPECTFULLY FOLLOWING T HE PRECEDENT, AS ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, WE AFFIRM THE SAME. 24. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21/2/2014. SD/- SD/- [ [[ [A.T. VARKEY A.T. VARKEY A.T. VARKEY A.T. VARKEY] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 21/2/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 2049/DEL/2008 10
