The DCIT, Circle-2(1)(2), Baroda V. M/s. Nik-San Engineering Co. Pvt. Ltd., Mumbai

ITA 3314/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8468 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 11-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH SINGH
• Keywords: Business expenditure; Bad and doubtful debts

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO. 3314/AHD/2014 / ASSESSMENT YEAR : 2011-12 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 2(1)(2), BARODA VS M/S. NIK-SAN ENGINEERING COMPANY PRIVATE LIMITED, 201-204, VIKAS CHAMBER, JUNTION OF LINK AND MARVE ROAD, MALAD WEST, MUMBAI PAN : AABCN 8963 D / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI SAURABH SINGH, SR DR ASSESSEE BY : SHRI HEMANT SUTHAR, AR DATE OF HEARING : 09/04/2018 DATE OF PRONOUNCEMENT IN COURT : 10/04/2 018 / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINS T THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II I, BARODA DATED 08.09.2014 PASSED FOR ASSESSMENT YEAR 2011-12. 2. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT TH E LD. CIT(A) HAS ERRED IN ALLOWING THE PROVISION MADE FOR WARRANTY W HICH IS A CONTINGENT LIABILITY. 3. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND DISTRIBUTION OF TRANSFORMERS, LTCTS, PTS, CT/PT AND TRADING OF STEE L MATERIALS. IT HAS FILED ITS RETURN OF INCOME ON 30.09.2011 DECLARING TOTAL INCOME AT RS.27,86,743/-. ON SCRUTINY OF THE ACCOUNT, IT REV EALED TO THE ASSESSING ITA NO. 3314/AHD/2014 DCIT VS. NIK-SAN ENGINEERING CO. PVT. LTD AY : 2011-12 2 OFFICER THAT THE ASSESSEE HAS MADE A PROVISION QUA WARRANTY. IN THE OPINION OF ASSESSING OFFICER, IT IS A CONTINGENT LI ABILITY. LEARNED ASSESSING OFFICER ACCORDINGLY MADE A DISALLOWANCE O F RS.82,98,967/-. THE RELEVANT FINDINGS RECORDED BY THE ASSESSING OFF ICER IN PARAGRAPH NOS. 3.8 & 3.9 READ AS UNDER:- 3.8 IN FACT, TAKING THE PRINCIPLE, THE CONTINGENT LIABILITY, WHICH IS NOT ARISING IN PRAESENTI AND DEPENDS ON SEVERAL CIRCUMS TANCES WHICH CRYSTALLIZE ONLY ON A FUTURE DATE, CANNOT BE ALLOWE D AS BUSINESS EXPENDITURE IN THE ASSESSMENT YEAR IN QUESTION. WIT HOUT PREJUDICE TO THIS, THE ASSESSEE HAS NOT PROVIDED THE BASIS OF QUANTIFI CATION OF EXPENDITURE BUT HAD MADE PROVISION ON AN AD-HOC BASE CONSIDERING 1% O TO 5% PERCENT OF SALES. IT IS ALSO PERTINENT TO MENTION HERE THAT TH E STATUE HAS MADE SPECIFIC PROVISIONS FOR ALLOWING LIABILITY DEFUTURE UNDER SE CTION 36 (VIIA). IT ENVISAGES DEDUCTION IN RESPECT OF ANY PROVISION FOR BAD & DOUBTFUL DEBTS FOR BANKING SECTOR. THE STATUTE THEREFORE HAS MADE IT CLEAR THAT ALLOWING OF LIABILITY DEFUTURE IS AVAILABLE ONLY TO SPECIFIC EN TITIES OF BANKING SECTOR AND NOT TO OTHERS THAT TOO WITH RIDERS. 3.9 IT IS THEREFORE CLEAR THAT THE PROVISION MADE BY THE ASSESSEE FOR CONTINGENT LIABILITY IS ONLY A LIABILITY WHICH IS T O ACCRUE IN FUTURE YEARS. HENCE THE PROVISION MADE BY THE ASSESSEE OF RS.1,08 ,96,884/- BEING CONTINGENT, IS DISALLOWED AND IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, AS IN THE PRESENT CASE, THE LD. CIT(A) HAS CONFIRMED THE ADDITION OF CONTINGENCIES PROVISION FOR THE A.Y. 20 09-10, THE EXPENSES INCURRED DURING THE YEAR FOR THAT YEAR AMOUNTING TO RS.25,97,917/- HAS BEEN ALLOWED AS EXPENSES FOR THE YEAR UNDER CONSIDE RATION TOWARDS THE WARRANTY EXPENSES. THE NET DISALLOWANCE COMES TO RS .82,98,967/- AND THE SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND HENC E, IT IS LIABLE FOR PENAL PROCEEDINGS U/S 271(1)(C) OF THE ACT AND THE SAME A RE INITIATED SEPARATELY. 4. ON APPEAL, LEARNED CIT(A), AFTER QUOTING RELIANC E ON THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR S 2009-10, DELETED THE DISALLOWANCE. THE FINDINGS RECORDED BY THE LD. CIT (A) READ AS UNDER:- 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, THE AOS OBSERVATIONS AND SUBMISSION MADE BY THE AR OF THE APPELLANT. THE AO IN PARA 3.4 OF HIS ORDER REPRODUCED ABOVE HAS GIVEN A CLEAR FINDING TH AT THE APPELLANT ITA NO. 3314/AHD/2014 DCIT VS. NIK-SAN ENGINEERING CO. PVT. LTD AY : 2011-12 3 COMPANY HAD NOT MAINTAINED SEPARATE RECORDS FOR IDE NTIFYING THE EXPENSES ON THE CONSUMPTION OF MATERIALS FOR REPAIRING, REPL ACEMENT ETC. DURING THE PERIOD OF WARRANTY. ACCORDING TO THE ASSESSEE, THE EXPENSES ON PURCHASE AND CONSUMPTION OF THE MATERIAL/SPARES UTILIZED/REF URBISHING THE EQUIPMENT SUPPLIED DURING THE WARRANTY PERIOD IS AC COUNTED AND CHARGED TO P & L ACCOUNT IN THE YEAR IN WHICH SUCH EXPENSES ARE PROVIDED. AFTER THIS, THE AO HAS REACHED THE CONCLUSION THAT THE AS SESSEE HAD ADMITTED THAT QUANTIFICATION OF EXPENSES INCURRED ON WARRANTY BAS ED EQUIPMENT HAS NOT BEEN SEPARATELY DONE BY THE ASSESSEE. ACCORDINGLY, THE LIABILITY FOR EXPENDITURE IS NOT QUANTIFIED. IT MAY BE STATED HER E THAT IN THE APPELLATE ORDER FOR AY 2009-10 IN APPELLANT'S OWN CASE, SIMIL AR FACTS WERE INVOLVED AND HENCE, THE DISALLOWANCE MADE BY THE AO IN THAT YEAR HAD BEEN UPHELD IN THE APPELLATE ORDER BY RELYING UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS ROTORK CONTROLS INDIA P VT. LTD. 314 ITR 62 (SC). IN FURTHER APPEAL, THE ITAT HAS DELETED THIS ADDITION AS SUSTAINED BY THE CIT(A) BY STATING AS FOLLOWS: '5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. AS PER CONTRACT MADE BETWEEN THE PARTIES , THE ASSESSEE HAS TO REPAIR AND MAINTAIN THE TRANSFORMERS AND OTH ER EQUIPMENTS. ACCORDINGLY, HE HAD MADE PROVISIONS FOR LIABILITY A ND DEBITED THE EXPENDITURE IN P & L ACCOUNT ASSESSEE EVEN DID NOT HAVE SEPARATE REPAIR AND MAINTENANCE ACCOUNTS BUT HAD PROVED THAT IT INCURRED THE EXPENDITURE OF REPAIR AND MAINTENANCE ON ACCOUN T OF PAST SUPPLY MADE TO THE DIFFERENT PARTIES. WHEN THE CONT RACT IS COMPLETE, AN EXCESS PROVISION IS REVERSED WHICH HAS BEEN DEMO NSTRATED BY THE APPELLANT. THE PROVISION FOR WARRANTY IS ON SCIENTI FIC BASIS AND AS PER CONTRACT. THE ASSESSEE RELIED UPON VARIOUS DECI SIONS ARE ALSO SQUARELY APPLICABLE AS ARGUED ABOVE. WE HAVE CONSID ERED VIEW THAT THE ASSESSEE'S METHOD OF ACCOUNTING FOR DEBITING TH E EXPENSES ON ACCOUNT OF WARRANTY IS REQUIRED TO BE ACCEPTED. THU S, WE REVERSE . THE ORDER OF THE CIT(A) AND ALLOW THE ASSESSEE'S AP PEAL ON ALL GROUNDS.' 5.3.1. SINCE, THE FACTS OF THE PRESENT ASSESSMENT ORDER ARE SIMILAR TO THE FACTS OF THE ASSESSMENT ORDER FOR 2009-10, HENCE, F OLLOWING THE SAME, THE DECISION OF THE ITAT IN APPELLANTS OWN CASE, THE D ISALLOWANCE MADE BY THE AO IS DIRECTED TO BE DELETED. 5. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD A COPY OF THE TRIBUNALS ORDER IN ITA NO.2559/AHD/201 2 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10. LEARNED REPRES ENTATIVES HAVE AGREED ITA NO. 3314/AHD/2014 DCIT VS. NIK-SAN ENGINEERING CO. PVT. LTD AY : 2011-12 4 THAT THE ISSUE IS SQUARELY COVERED BY THIS ORDER OF THE ITAT IN ASSESSEES OWN CASE. THERE IS NO DISPARITY ON FACTS. LEARNED FIRST APPELLATE AUTHORITY HAS ALSO PASSED HIS ORDER BASED ON THESE FINDINGS. WE, THEREFORE, UPHOLD THE ORDER OF THE LD. CIT(A) AND T HE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 10 TH APRIL, 2018 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 10/04/2018 *BIJU T., SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION- 09.04.2018 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 09.04.2018 OTHER MEMBER 10.04.2018. 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S. - 10.04.2018 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10. 04.2018 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER 8. DATE OF DESPATCH OF THE ORDER