Spicer India Ltd, Pune V. ACIT,CIR-10 Akurdi Pune, Pune

ITA 242/PUN/2012

• Counselvise Citation: 24224514 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 06-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: R D ONKAR
• Keywords: Bad and doubtful debts
• Section: 115JB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 242/PN/2012 (ASSESSMENT YEAR 2006-07) SPICER INDIA LTD. 29 MILESTONE, PUNE-NASHIK HIGHWAY, VILLAGE : KURULI, CHAKAN TAL : KHED, DIST.PUNE .. APPELLANT PAN NO. AAES 1869C VS. ACIT, CIRCLE-10, AKURDI, PUNE .. RESPONDENT APPELLANT BY : SHRI R.D. ONKAR RESPONDENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 20-06-2013 DATE OF PRONOUNCEMENT : 25-06-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 19-10-2011 OF THE CIT(A)-V, PUNE RELATING TO ASSESS MENT YEAR 2006-07. 2. GROUNDS OF APPEAL NO.1 BY THE ASSESSEE READS AS UNDER : ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DISALLOWING AND ADDING BACK TO THE TOTAL INCOME OF THE APPELLANT AMOUNT OF RS.29,70,479/- BEING EMP LOYERS CONTRIBUTION TO THE SUPERANNUATION FUND RS.12,14,99 3/- BEING EMPLOYERS CONTRIBUTION TO THE GRATUITY FUND ( PAGE NOS. 2 TO 4 OF THE CIT(A)S ORDER). 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS ING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED FROM THE T AX AUDIT REPORT THAT THE AUDITORS IN COLUMN 17(I) HAS GIVEN A NOTE THAT PAYMENT TO A GRATUITY FUND MANAGED BY LIC, WHICH IS PENDING APPR OVAL OF THE 2 INCOME TAX AUTHORITIES HAS BEEN CONSIDERED ALLOWABL E UNDER THIS CLAUSE. THE ASSESSING OFFICER THEREFORE ASKED THE ASSESSEE TO FURNISH THE PROOF OF APPROVAL FOR SUPERANNUATION FUND AND G RATUITY FUND TO CHECK THE ALLOWABILITY OF THE SAID CONTRIBUTIONS U/ S. 36(1)(IV) & 36(I)(V) OF THE I.T. ACT RESPECTIVELY. SINCE THE ASSESSEE EX PRESSED ITS INABILITY TO FURNISH THE PROOF OF APPROVAL FOR SUPERANNUATION FU ND AND GRATUITY FUND THE ASSESSING OFFICER DISALLOWED CONTRIBUTION OF RS.29,70,479 FOR SUPERANNUATION FUND AND RS.12,14,993/- FOR GRATUITY FUND U/S.36(I)(IV) AND 36(I)(V) OF THE ACT RESPECTIVELY. HE ALSO REJ ECTED THE CONTENTION OF THE ASSESSEE THAT IF THE SAME IS NOT ALLOWED U/S.36 (I)(IV) AND 36(I)(V) OF THE I.T ACT THEN THE SAME SHOULD BE ALLOWED U/S.37 OF THE I.T. ACT ON THE GROUND THAT THOUGH SECTION 37 IS RESIDUAL SECTION, AN EXPENDITURE WHICH OTHERWISE IS NOT ALLOWABLE SPECIFICALLY UNDER SOME SECTION OR SUB-SECTION THE SAME CANNOT BE ALLOWED U/S.37. IN APPEAL THE L D.CIT(A) DISTINGUISHING THE VARIOUS DECISIONS CITED BEFORE H IM UPHELD THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED WITH SUCH ORDER O F THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING FAIRLY CONCEDED THAT THE ASSESSEE HAD APPLIED FOR APPROVAL OF THE SUPERANNUATION FUND AND GRATUITY FUND TO THE CIT ON 13-06-2013 AND HIS APPROVAL IS AWAITED. THEREFORE, THIS GROUND IS COVERED AGAINST THE ASSESSEE IN VIEW OF PROVISIONS OF SECTION 40A(9) R. W.S. U/S.36(I)(IV) AND 36(I)(V). IN VIEW OF THE ABOVE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THE ORDER OF THE LD. CIT(A) BEING IN ACCOR DANCE WITH LAW IS UPHELD. THE GROUND RAISED BY THE ASSESSEE IS ACCOR DINGLY DISMISSED. 3 5. GROUND OF APPEAL NO. 2 BY THE ASSESSEE READS AS UNDER : ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DISALLOWING AND ADDING BACK TO THE BOOK PROFITS DETERMINED UNDER THE PROVISIONS OF SECTION 115JB TH E AMOUNT PROVIDED FOR ROYALTY RS.11,87,506/- BY HOLDING THE SAID AMOUNT AS EXCESS PROVISION MADE WHICH INVOLVED DEGREE OF ESTI MATION EVEN WHEN SUCH AMOUNT RENDERED EXCESS AT THE TIME OF ACT UAL PAYMENT WAS FULLY REVERSED, CREDITED TO THE PROFIT & LOSS A CCOUNT AND OFFERED TO TAX BY THE APPELLANT ( PAGE NOS. 6 TO 8 OF THE CIT(A)S ORDER). 6. FACTS OF THE CASE, IN BRIEF, THAT THE ASSESSEE D URING THE IMPUGNED ASSESSMENT YEAR HAS PAID TAXED AS PER PROVISIONS OF SECTION 115JB OF THE I.T. ACT. WHILE EXAMINING THE COMPUTATION OF BOOK PROFIT U/S.115JB THE ASSESSING OFFICER NOTED THAT THE FOLLOWING UNASCERT AINED LIABILITIES WERE NOT ADDED BACK TO ARRIVE AT BOOK PROFIT AS PER CLAU SE C OF EXPLANATION (1) OF SECTION 115JB : SR.NO. PARTICULARS AMOUNT (RS.) 1 PROVISION FOR WARRANTY 15,29,737/- 2 PROVISION FOR DOUBTFUL DEBTS 9,51,000/- 3 EXCESS PROVISION FOR ROYALTY 11,87,506/- TOTAL UNASCERTAINED LIABILITY 36,68,243/- THE ASSESSING OFFICER THEREFORE ADDED BACK AN AMOUN T OF RS.36,68,243/- BEING UNASCERTAINED LIABILITY AS PER CLAUSE C OF EX PLANATION (1) OF SECTION 115JB TO ARRIVE AT CREDIT VALUE OF BOOK PRO FIT. 7. IN APPEAL THE LD. CIT(A) DELETED THE ADDITION ON ACCOUNT OF PROVISION FOR WARRANTY AT RS.15,29,737/- FOR WHICH THE REVENUE IS NOT IN APPEAL. SO FAR AS THE ADDITION ON ACCOUNT OF PROVI SION FOR DOUBTFUL DEBTS IS CONCERNED THE ASSESSEE DID NOT PREFER ANY APPEAL BEFORE LD. CIT(A). THEREFORE, THE ONLY ISSUE THAT SURVIVES BEFORE THE TRIBUNAL IS THE ADDITION RELATING TO EXCESS PROVISION FOR ROYALTY WHICH WAS UPHELD BY THE LD. CIT(A) BY HOLDING AS UNDER : 4 12. I HAVE CONSIDERED THE APPELLANTS EXPLANATION ON THE ABOVE SUBJECT. IT IS NOTICED THAT THE ROYALTY HAS BEEN C ALCULATED @2.85% ON NET SALES EXCLUDING THE SALES TO DANA CORPORATIO N AND ITS WHOLLY OWNED AFFILIATES. IT HAS ALSO BEEN EXPLAINE D THAT THE SAME HAS ALSO BEEN APPROVED BY THE GOVERNMENT OF INDIA A ND THE RBI. HOWEVER, THE EXPLANATION GIVEN BY THE APPELLANT REV EALS THAT THERE IS AN ELEMENT OF ESTIMATION IN MAKING THE ROYALTY P ROVISION AND THERE IS ALSO VARIATION ON ACCOUNT OF FOREIGN CURRE NCY FLUCTUATION. THE PROVISION FOR FREIGHT AND PACKING CHARGES HAVE BEEN STATED TO HAVE BEEN MADE ON ESTIMATED BASIS TO ARRIVE AT THE FIGURE OF NET SALES. IT IS THUS CONTENDED THAT BECAUSE OF THESE FACTORS, THE AMOUNT OF ROYALTY PAID UNDERGOES CHANGE AT THE TIME OF ACTUAL PAYMENT AND THEREFORE, EXCESS PROVISION MADE IS REV ERSED AND CREDITED IN THE NEXT FINANCIAL YEAR. HOWEVER, CONS IDERING THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER IS RIGHT IN ARRIVING AT THE CONCLUSION THAT AN AMOUNT OF RS. 11,87,506/- WAS AN EXCESS PROVISION MADE ON ACCOUNT OF A CERTAIN DE GREE OF ESTIMATION DURING THIS YEAR, AND IT ACTUALLY EXCEED S THE ACTUAL LIABILITY ON ACCOUNT OF ROYALTY PERTAINING TO THIS YEAR. THE CORRESPONDING ADJUSTMENT MADE TO THE BOOK PROFIT ON THAT BASIS IS THEREFORE UPHELD AND THIS PARTICULAR ISSUE IS DECID ED AGAINST THE APPELLANT. IN VIEW OF THIS DISCUSSION, GR.NO.2 IS HELD TO BE PARTLY ALLOWED. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ROYALTY OF RS.3,32,45,974/- WAS PROVIDED AT THE YEAR END IN TH E ACCOUNTS BY ESTIMATING THE LIABILITY. HE SUBMITTED THAT ESTIMA TION WAS REQUIRED TO BE MADE TO ARRIVE AT THE NET SALES BY DEDUCTING COST O F IMPORTED BOUGHT OUTS, FREIGHT AND PACKING CHARGES EXPRESSED IN FOREIGN CU RRENCY. THEREFORE, THE AMOUNT OF ACTUAL PAYMENT AT THE ACTUAL PREVAILI NG CURRENCY RATE HAPPENED TO BE LOWER THAN THE PROVISION. HE SUBMIT TED THAT THE AMOUNT RENDERED EXCESS AT THE TIME OF ACTUAL PAYMENT WAS C REDITED TO THE PROFIT & LOSS ACCOUNT AND OFFERED TO TAX BY THE ASSESSEE I N THE SUCCEEDING YEAR WHEREIN ALSO THE ASSESSEE HAD MAT LIABILITY. ACCOR DING TO THE LD. AR THE ROYALTY LIABILITY WAS AN ASCERTAINED KNOWN LIAB ILITY COMPUTED IN ACCORDANCE WITH THE TERMS OF AGREEMENT ENTERED INTO BY THE ASSESSEE FOR THE USE OF LICENSED KNOW-HOW. THE SAID AGREEMENT W AS DULY APPROVED BY GOVT. OF INDIA AND RESERVE BANK OF INDIA AND THE LIABILITY WAS PROVIDED FOR IN CONSONANCE WITH THE TERMS OF AGREEM ENT. HE SUBMITTED 5 THAT THE ADDITION OF THE EXCESS AMOUNT DID NOT FALL WITHIN THE ADJUSTMENT PERMISSIBLE UNDER EXPLANATION 1 TO SEC.11JB (2) AS THE PROFIT & LOSS ACCOUNT WAS PREPARED IN ACCORDANCE WITH THE PROVISI ONS OF COMPANIES ACT, 1956 BY THE ASSESSEE COMPANY. FOR THIS PROPOS ITION HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AP OLLO TYRES LTD. 255 ITR 273. 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE ROYALTY HAS BEEN CALCULATED BY THE AS SESSEE @2.85% OF NET SALES INCLUDING THE SALES TO DANA CORPORATION ON ES TIMATED BASIS. AS PER PROVISIONS OF CLAUSE (C) OF EXPLANATION (1) TO SECT ION 115JB(2) BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTI ON (2) AS INCREASED BY THE AMOUNT OR AMOUNTS SET-ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES. 10.1 IN THE INSTANT CASE THE PROVISION FOR ROYALTY WAS MADE ON THE BASIS OF ESTIMATION FOR WHICH AN AMOUNT OF RS.11,87,506/- WAS FOUND TO BE IN EXCESS. THEREFORE, THE ASSESSEE WAS DUTY BOUND TO ADD THIS AMOUNT TO THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB. SINC E THE ASSESSEE HAS NOT DONE THE SAME, THEREFORE, THE LD. CIT(A) WAS JUSTIF IED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN MAKING THE ADDITI ON. WE DO NOT FIND ANY FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE 6 SAME WAS AN ASCERTAINED KNOWN LIABILITY AND THAT TH E SAME DO NOT FALL WITHIN THE ADJUSTMENT PERMISSIBLE UNDER EXPLANATION (1) TO SECTION 115JB(2). THIS GROUND BY THE ASSESSEE IS ACCORDING LY DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 25 TH DAY OF JUNE 2013 SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA ) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE DATED: 25 TH JUNE 2013 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-V, PUNE 4 CIT-V, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE