M/s Telco Consturction Equipment Company Ltd, Bangalore V. CIT-III, Bangalore

ITA 407/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9501 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 30-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWATHI S PATIL
• Assessee Lawyers: S ANANTHA
• Keywords: Bad and doubtful debts
• Section: 115JB

Judgement Text

ITA.407/B/09 PAGE - 1 IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B' BEFORE SHRI. K. P. T. THANGAL, VICE PRESIDENT AND SHRI. K. K. GUPTA, ACCOUNTANT MEMBER I.T.A.NO.407/BANG/2009 (ASSESSMENT YEAR : 2004-05 ) M/S. TELCO CONSTRUCTION EQUIPMENT CO. LTD., NO.45, JUBILEE BUILDING, MUSEUM ROAD, BANGALORE 560 025 .. APPELLANT V. COMMISSIONER OF INCOME TAX, BANGALORE -III, BANGALORE .. RESPONDENT APPELLANT BY : SHRI. S. ANANTHA RESPONDENT BY : SMT. SWATHI S. PATIL O R D E R PER K. P. T. THANGAL, VICE PRESIDENT : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F THE COMMISSIONER OF INCOME-TAX, BANGALORE-III, BANGALOR E, DT.27.1.2009, U/S.263 OF THE INCOME TAX ACT, 1961. 2. ON PERUSAL OF THE RECORDS, THE COMMISSIONER OF I NCOME-TAX FORMED AN OPINION THAT THE ORDER PASSED BY THE ASSE SSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. HE NOTICED THAT ITA.407/B/09 PAGE - 2 THE ASSESSEE PAID TAXES UNDER MAT PROVISIONS U/S.11 5JB OF THE INCOME TAX ACT, 1961. WHILE COMPUTING THE PROFIT U NDER THE MAT PROVISIONS, THE FOLLOWING THREE ITEMS WERE NOT ADDE D TO THE TOTAL PROFIT FOR THE RELEVANT PREVIOUS YEAR : I) PROVISIONS FOR WARRANTY AND FOC SPARES - RS.418. 21 LAKHS II) BHAVISHYA KALYANA YOJANA - RS. 17.48 LAKHS III) PROVISION FOR DOUBTFUL DEBT - RS.376.00 LAKH S THE COMMISSIONER OF INCOME-TAX HELD THAT THIS HAS R ESULTED IN SHORT LEVY OF TAX TO THE TUNE OF RS.62,39,866/-. THE COM MISSIONER OF INCOME-TAX ISSUED NOTICE CALLING THE ASSESSEE TO GI VE REASONS AS TO WHY AN ORDER U/S.263 SHOULD NOT BE PASSED ENHANCING THE INCOME BY SETTING ASIDE THE ASSESSING OFFICER'S ORDER. IN RE PLY THE ASSESSEE STATED THAT IN RESPECT OF PROVISION FOR WARRANTY AN D FOC SPARES, THE ADJUSTMENT CONTEMPLATED IN ITEM (C) OF EXPLANATION TO SECTION 115JB IS IN RESPECT OF UNASCERTAINED LIABILITIES. IN THE CASE OF THE ASSESSEE, PROVISION FOR WARRANTY AND FOC SPARES IS AN ASCERTA INED LIABILITY BECAUSE THE PROVISIONS ARE CREATED HAVING REGARD TO THE OBLIGATION ARISING OUT OF SALE CONTRACT IN RESPECT OF GOODS SO LD DURING THE YEAR. IN OTHER WORDS, IT WAS STATED THAT THE LIABILITY TO WARRANTY AND FOC SPARES AROSE AT THE TIME OF SALE BECAUSE THE ASSESS EE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. THIS PROVISION IS MADE IN ACCORDANCE WITH THE MANDATORY ACCOUNTING STANDARD I (HEREINAFTER ITA.407/B/09 PAGE - 3 REFERRED TO AS 'AS-I' FOR SHORT), NOTIFIED BY THE C BDT U/S.145 (NO.SO 69(E), DT.25.01.1996) WHICH REQUIRES THAT THE PROVI SIONS SHOULD BE MADE FOR ALL KNOWN LIABILITIES EVEN THOUGH THE AMOU NT CANNOT BE DETERMINED WITH CERTAINTY AND IT REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. COMING TO THE PROV ISION FOR WARRANTY AND FOC SPARES IN THE CASE OF THE ASSESSEE IS IN RE SPECT OF GOODS SOLD DURING THE YEAR AND THAT IS COVERED BY AS-I. THE A SSESSEE FURTHER RELIED ON THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASES OF WIPRO AND MICO RESPECTIVELY. 3. COMING TO THE PROVISION FOR BHAVISHYA KALYAN YOJ ANA OF RS.17.48 LAKHS, IT WAS STATED THAT IT AROSE BY VIRT UE OF AN AGREEMENT BETWEEN THE ASSESSEES AND ITS EMPLOYEES MADE BEFORE THE LABOUR COMMISSIONER AND IT IS A SUBJECT MATTER FALLING UND ER THE INDUSTRIAL DISPUTES ACT. IN CASE OF AN EMPLOYEE'S DEATH, EMPL OYEE'S NOMINEE IS ENTITLED TO CERTAIN PAYMENT. AS PER CLAUSE (20) OF THE MEMORANDUM OF SETTLEMENT, THE NOMINEE WOULD BE ELIGIBLE FOR MO NTHLY KALYAN PAYMENT OF 50% OF EMPLOYEE'S SALARY OR RS.2,500/- P M WHICHEVER IS MORE. SAME IS THE SITUATION IN THE CASE OF ANY EMP LOYEE WHO SUFFERED PERMANENT TOTAL DISABILITY OR ATTAINED SUPER ANNUAT ION. ITA.407/B/09 PAGE - 4 4. COMING TO THE DOUBTFUL DEBTS OF RS.376 LAKHS, TH E ASSESSEE SUBMITTED THAT IT IS NOT A LIABILITY AT ALL. IT RE PRESENTED A PROVISION MADE FOR DIMINUTION IN THE VALUE OF AN ASSET. HENC E, ITEM (C) OF EXPLANATION (1) TO SECTION 115JB DOES NOT APPLY. T HE ASSESSEE RELIED ON THE DECISION OF ITAT IN ITS OWN CASE FOR THE ASS ESSMENT YEARS 2000-01 AND 2001-02, WHEREIN THE TRIBUNAL FOLLOWED THE SPECIAL BENCH CASE IN USHA MARTIN INDUSTRIES LTD., AND ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSION ER OF INCOME- TAX V. HCL COMNET SYSTEMS AND SERVICES LTD., (305 I TR 409). IN THIS CASE THE SUPREME COURT HELD THAT THE PROVISION FOR DOUBTFUL DEBTS IS NOT A PROVISIONAL LIABILITY AND PROVISIONS OF IT EM (C) OF EXPLANATION TO SECTION 115JA IS NOT ATTRACTED. THE COMMISSIONE R OF INCOME- TAX(A) REJECTED THE ASSESSEE'S CONTENTION AND PROCE EDED TO ADD BACK THE SAME. 5. AS FAR AS THE ISSUE IN RESPECT OF PROVISION FOR WARRANTY AND FOC SPARES IS CONCERNED, REFERRING TO THE WIPRO AND MICO DECISIONS RELIED BY THE ASSESSEE, THE COMMISSIONER OF INCOME- TAX WAS OF THE OPINION THAT SINCE THE REVENUE HAD NOT ACCEPTED THE DECISION OF THE HON'BLE HIGH COURT AND THE MATTER IS PENDING BEFORE THE SUPREME COURT, HE HELD THAT RS.4,89,21,201/- REPRESENTING U NASCERTAINED ITA.407/B/09 PAGE - 5 LIABILITIES IS LIABLE TO BE ADDED. COMING TO THE P ROVISION FOR BHAVISHYA KALYAN YOJANA OF RS.17.48 LAKHS, HE FURTH ER HELD THAT THE DEPARTMENT HAS NOT ACCEPTED THE ITAT'S DECISION (SU PRA) IN THE ASSESSEE'S OWN CASE AND THE SAME HAS BEEN CONTESTED BEFORE THE KARNATAKA HIGH COURT. 6. AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE OF T HE OPINION THAT THE ASSESSEE'S APPEAL DESERVES TO BE ALLOWED. THE FIRST ISSUE WITH REGARD TO PROVISION FOR WARRANTY AND FOC SPARES, WH ETHER IT IS AN UNASCERTAINED LIABILITY OR NOT, STANDS NOW SQUARELY COVERED IN ASSESSEE'S FAVOUR BY THE DECISION OF THE HON'BLE SU PREME COURT REJECTING THE SLP IN THE CASE OF COMMISSIONER OF IN COME-TAX V. PLASSER INDIA LTD., (309 ITR (ST) 54) WHEREIN THEIR LORDSHIPS HELD THAT THE PROVISION FOR WARRANTY UNDER THE CONTRACT WITH THE CUSTOMERS IS DEDUCTIBLE WHILE COMPUTING THE TOTAL INCOME. SO AL SO IN THE CASE OF COMMISSIONER OF INCOME-TAX V. MICO IN ITA 928/BANG/ 2006, DT.25.9.2007 AND ALSO THE DECISION OF THE ITAT IN A SSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2000-01 AND 2001-02 (SUPRA). WITH REGARD TO THE PROVISION OF BHAVISHYA KALYANA YOJANA, THE MERE NON-ACCEPTANCE OF THE DECISION OF THE TRIBUNAL IS NOT SUFFICIENT ITA.407/B/09 PAGE - 6 TO UPHOLD THE ORDER PASSED BY THE COMMISSIONER OF I NCOME-TAX U/S.263. WITH REGARD TO PROVISION FOR DOUBTFUL DEBTS, THE I SSUE IS AGAIN SQUARELY COVERED IN ASSESSEE'S FAVOUR BY THE HIGHER AUTHORITIES. SINCE ALL THE ISSUES ARE COVERED BY THE VARIOUS DECISIONS OF THE APEX COURT, HIGH COURT AND THE TRIBUNAL, THE APPEAL BY THE ASSE SSEE IS ALLOWED. 7. IN THE RESULT, ASSESSEE'S APPEAL IS ALLOWED AND THE ORDER IS PRONOUNCED IN OPEN COURT ON 11TH SEPTEMBER, 2009. SD/- SD/- (K. K. GUPTA) (K. P. T. THANGAL) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 11TH SEPTEMBER, 2009 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, NEW DELHI 7. GF, ITAT, BANGALORE