AddlCIT, Special Range-2, New Delhi V. Continental India Ltd., Meerut

ITA 5450/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2006 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 25-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH SINGH
• Keywords: Depreciation; TDS
• Section: 143(3); 201; 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DLEHI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA. NO 5450/DEL/2017 ASSESSMENT YE AR: 2011-12 ADD. CIT, SPL. RANGE-2, NEW DELHI VS. M/S. CONTINENTAL INDIA LIMITED (FORMERLY KNOWN AS MODI TYRES COMPANY PVT. LTD) NH-58, ROORKEE ROAD, MODIPURAM, MEERUT-250 110. PAN:AAFCM 5366B (APPLICANT) (RESPONDENT) APPELLANT BY: SH . JAGDISH SINGH, SR. DR RESPONDENT BY: SH. R OHIT JAIN, ADV. SH. DEEPESH JAIN, CA DATE OF HEARING: 16/3/2020 DATE OF ORDER : 20/3/2020 ORDER PER K. NARASIMHA CHARY, J.M. CHALLENGING THE ORDER DATED 31/3/2017 IN APPEAL NO. 455/14-15 OF CIT(A)-2 PASSED BY THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS)-2, NEW DELHI (LD. CIT(A)), FOR THE ASSE SSMENT YEAR 2011-12, 2 ITA NO.5450/DEL/2017 ASST. YEAR: 2011-12 IN THE CASE OF M/S CONTINENTAL INDIA LIMITED (THE ASSESSEE), REVENUE PREFERRED THIS APPEAL ON THE FOLLOWING GROUNDS:- 2. BRIEF FACTS OF THE CASE, RELEVANT FOR THE DISPOS AL OF THIS APPEAL ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MAN UFACTURING AND TRADING OF TYPES OF HEAVY VEHICLES. FOR THE ASSESSM ENT YEAR 2011-12 THEY HAVE FILED THEIR RETURN OF INCOME ON 3/9/2011 DECLARING A LOSS OF RS.1,37,24,65,961/-. ASSESSMENT, HOWEVER, BY ORDE R DATED 19/02/2014 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) WAS COMPLETE AT THE DETERMINATION OF THE TOTA L LOSS OF THE ASSESSEE AT A RS.1,21,66,98,041/- BY MAKING CERTAIN ADDITIONS/DISALLOWANCES, NAMELY, ON ACCOUNT OF PROV ISION FOR WARRANTY TO THE TUNE OF RS.7,27, 77, 300/-, DEPRECIATION ON LICENCE FEE TO THE TUNE OF RS. 55,34, 331/-, LOSS ON SALE OF CAPITAL WORK IN PROGRESS TO THE TUNE OF RS.7,02, 59, 902/- AND A PROCESSING FEE TO THE T UNE OF RS. 71,96, 387/. 3. AGGRIEVED BY THE ACTION OF THE LEARNED ASSESSIN G OFFICER, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). LD . CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND ALLOWED THE APPEAL BY DIRECTING THE DELETION OF THE ADDITIONS/DISALLOWANCES. REVENUE HO WEVER, HAS CHOSEN TO CHALLENGE IN THIS APPEAL ONLY THE DELETION OF TH E ADDITIONS TO THE TUNE OF RS.7,27,77,300/- ON ACCOUNT OF DISALLOWANCE OF P ROVISION FOR WARRANTY AND THE ADDITION OF RS. 71, 96, 387/-ON AC COUNT OF PROCESSING FEE AND INTEREST PAID, ON THE ABOVE-MENTIONED GROUN DS. 3 ITA NO.5450/DEL/2017 ASST. YEAR: 2011-12 4. IN RESPECT OF FIRST GROUND, THE COUNSEL SUBMITTE D THAT SINCE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND TRADING OF TOYS FOR HEAVY VEHICLES, WHICH ARE SOLD ALONG WITH WARRANTY, THE MOMENT THE SALE TAKES PLACE, THE ASSESSEE PLACES IT SELF UNDER THE OBLIGATION TO REPLACE DURING THE WARRANTY PERIOD, F REE OF COST, ANY COMPETENT SUFFERING FROM MANUFACTURING DEFECTS. ASS ESSEE, THEREFORE, MADE A PROVISION TOWARDS THE WARRANTY EXPENSES TO T HE TUNE OF RS.7,27,77,300/- DURING THE RELEVANT ASSESSMENT YEA R IN THEIR BOOKS OF ACCOUNTS. 5. LEARNED ASSESSING OFFICER, HOWEVER, DISALLOWED T HE SAME HOLDING THAT THE ASSESSEE COULD NOT PROVE THE ACTUAL INCURR ENCE OF LIABILITY UNDER THE WARRANTY CLASS ON THE BASIS OF FIXING A P ERCENTAGE ON TURNOVER AND IN THE ABSENCE OF ANY SUCH DETAILS, PREPARED ON SCIENTIFIC METHOD FOR MAKING SUCH A PROVISION, THE PROVISION IS NOT A LLOWABLE. LEARNED ASSESSING OFFICER HELD THAT SUCH A PROVISION WAS MA DE ON UNCERTAIN FACTS AND WITHOUT ANY SCIENTIFIC BASIS. 6. LD. CIT(A) CONSIDERED THIS ASPECT IN DETAIL, AND AS A MATTER OF FACT, FOUND FROM THE RECORD THAT CONTRARY TO THE OBSERVAT IONS OF THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT NO D ETAILS ARE SCIENTIFIC METHOD OF COMPUTATION OF PROVISION FOR WARRANTY WAS FILED BY THE ASSESSEE, THE ASSESSEE IN FACT, FURNISH A COMPUTATI ON OF THE PROVISION FOR WARRANTY ALONG WITH ITS REPLY DATED 17/02/2014. LD. CIT(A), FURTHER FOUND THAT IN FACT THIS ISSUE HAD ARISEN IN ASSESSE ES OWN CASE FOR THE 4 ITA NO.5450/DEL/2017 ASST. YEAR: 2011-12 EARLIER ASSESSMENT YEAR AND SUCH AN ADDITION WAS DE LETED BY THE LD. CIT(A) IN APPEAL NO.580/14-15/IT/DEL/2015-16 VIDE O RDER DATED 15/10/2015 WHILE FOLLOWING THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA LTD VS. CIT 314 ITR 62 . SINCE THE FACTS ARE SIMILAR, LD. CIT(A) WHILE FOLLOWING THE DECISIO N OF HIS PREDECESSOR ALLOWED THE CONTENTION OF THE ASSESSEE AND DIRECTED THE DELETION OF THE ADDITION. 7. IT IS THE ARGUMENT ON BEHALF OF THE REVENUE THAT THE DECISION OF VARIOUS COURTS INCLUDING THE DECISION OF THE HONBL E SUPREME COURT HAVE ALREADY BEEN CONSIDERED AND REPLY DATED 17/02/ 2014 OF THE ASSESSEE WAS ALSO CONSIDERED BY THE LEARNED ASSESSI NG OFFICER BEFORE MAKING THE ADDITION ON ACCOUNT OF THE DISALLOWANCE OF THE PROVISION OF WARRANTY EXPENSES. LD. DR FURTHER SUBMITTED THAT TH E ADDITION MADE ON THIS BEHALF IS BASED ON FACTS AND THE METHOD OF COM PUTATION-WHETHER IT IS BASED ON ACTUAL BASIS OR ON ESTIMATE BASIS HAS T O BE CHECKED AND THEREFORE, THE MATTER DESERVES TO BE REMANDED TO TH E FILE OF THE LEARNED ASSESSING OFFICER FOR VERIFICATION OF SUCH FACTS. 8. PER CONTRA, IT IS THE SUBMISSION OF THE LD. DR THAT THE ASSESSMENT ORDER DOES NOT INDICATE THAT THE LEARNED ASSESSING OFFICER HAD CONSIDERED THE REPLY DATED 17/2/2014 SUBMITTED BY T HE ASSESSEE ALONG WITH THE DETAILS WHEREIN THE MATTER AND BASIS FOR C OMPUTATION OF THE PROVISION WAS GIVEN, AND IT BEING A CAUTION OF FACT , LD. CIT(A) AFTER VERIFYING THE FACT REACHED THE CONCLUSION THAT THE OBSERVATION OF THE 5 ITA NO.5450/DEL/2017 ASST. YEAR: 2011-12 LEARNED ASSESSING OFFICER AS TO THE NON-SUBMISSION OF DETAILS BY THE ASSESSEE IS FACTUALLY INCORRECT. SINCE THE LD. CIT( A) APPLIED THE LAW LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA LTD. (SUPRA) TO THE FACTS HE FOUND ON VERIFICATION OF RECORD, T HE MATTER DOES NOT REQUIRE ANY DEMAND TO THE FILE OF THE LEAR NED ASSESSING OFFICER. 9. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. AS RIGHTLY POINTED OUT BY THE LD. AR, ASSESSMENT ORDER NOWHERE SHOW THAT THE LEARNED ASSESSING OFFIC ER CONSIDERED THE DETAILS FURNISHED BY THE ASSESSEE ALONG WITH THE LE TTER DATED 17/02/2014 NOT READY COMMENT ON SUCH DETAILS AS TO THEIR CONSISTENCY AND GENUINENESS. IT IS ONLY ON VERIFICATION OF THE RECORD LD. CIT(A) FOUND THAT THE LEARNED ASSESSING OFFICER ADDED IN OBSERVI NG THAT NO DETAILS ARE SCIENTIFIC METHOD OF COMPUTATION OF PROVISION FOR W ARRANTY WAS FILED BY THE ASSESSEE, BECAUSE SUCH DETAILS TO BE FOUND IN R ECORD BEING FILED ALONGWITH THE REPLY DATED 17/02/2014. THERE IS NO R EASON FOR US NOT TO BELIEVE THE FACTUAL FINDINGS RETURNED BY THE LD. CI T(A) AFTER GOING THROUGH THE RECORD. A READING OF THE ORDERS OF THE AUTHORITIES BELOW NOT SUPPORT THE ARGUMENT ADVANCED ON BEHALF OF THE REVE NUE. 10. FURTHER, IT COULD BE SEEN FROM THE RECORD THAT AGAINST THE ORDER OF THE LD. CIT(A) FOR ASSESSMENT YEAR 2010-11, REVENUE PREFERRED AN APPEAL BEFORE THE TRIBUNAL IN ITA NO. 207 /DEL/ 201 6 AND BY ORDER DATED 19/3/2019 A COORDINATE BENCH OF THIS TRIBUNAL WHILE FOLLOWING THE 6 ITA NO.5450/DEL/2017 ASST. YEAR: 2011-12 DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ROTORK CONTROLS INDIA LTD (SUPRA) UPHELD THE FINDINGS OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE. 11. THERE IS NO DISPUTE THAT THE FACTS INVOLVED FOR THIS YEAR ARE SIMILAR TO THE FACTS INVOLVED FOR THE IMMEDIATELY PRECEDING YEAR, I.E. 2010-11. SINCE NO CHANGE OF FACTS AND CIRCUMSTANCES IS PLEAD ED AND NO DECISION TO THE CONTRARY IS BROUGHT TO OUR NOTICE, WHILE FOL LOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA LTD (SUPRA) WE UPHOLD THE FINDINGS OF THE LD. CIT(A) AND WHILE ALLOWING GROUND NO.1, DIRECT THE LEARNED ASSESSING OFFICER TO DELET E THE DISALLOWANCE AND CONSEQUENTIAL ADDITION. 12. NOW COMING TO GROUND NO. 2, IT RELATES TO THE DISALLOWANCE OF EXPENDITURE TO THE TUNE OF RS. 71, 96, 387/-, AND I T IS SUBMITTED THAT THIS IS COMPRISING OF 2 COMPONENTS, NAMELY, PROCESSING F EE OF RS. 66, 18, 000/-AND INTEREST OF RS. 5,78,387/-IN RESPECT OF TH E LOAN TAKEN FROM SPIN INVESTMENTS (INDIA) LTD FOR BUSINESS PURPOSE. ACCOR DING TO THE ASSESSEE, UNDER THE LOAN AGREEMENT ENTERED INTO BY THE ASSESS EE WITH M/S SPIN INVESTMENTS (INDIA) LTD ON 22/3/2011, ASSESSEE HAS BEEN UNDER AN OBLIGATION TO PAY AN UPFRONT FEE OF RS. 66, 18, 000 /-AND ALSO INTERESTED 19% THEREON, WHICH CAME TO RS. 5, 78, 380/-PROPORTI ONATELY FOR THE PERIOD BETWEEN 22/3/2011 AND 31/3/2011. THE CONTENT ION OF THE ASSESSEE HAS BEEN THAT SINCE THE TAX WAS NOT DEDUCT ED AT SOURCE BY THE 7 ITA NO.5450/DEL/2017 ASST. YEAR: 2011-12 ASSESSEE, THE ASSESSEE SUO MOTO DISALLOWED THE UPFRONT/PROCESSING FEE IN THE RETURN OF INCOME AS IS REFLECTED IN THE COMP UTATION OF INCOME. 13. LEARNED ASSESSING OFFICER AGAIN DISALLOWED THE UPFRONT/PROCESS FEE, WHICH ON VERIFICATION OF THE DETAILS LD. CIT(A ) DELETED STATING THAT SUCH AN AMOUNT HAD ALREADY BEEN ADDED BACK IN THE C OMPETITION OF INCOME OF THE ASSESSEE UNDER THE HEAD TDS NOT DEDU CTED-ANNEXURE-IV OF TAX AUDIT. 14. LD. DR ARGUED THAT FROM THE PERUSAL OF GROUNDS OF APPEAL TAKEN BEFORE THE ITAT, THE LEARNED ASSESSING OFFICER MENT IONED THAT THE ASSESSEE HAD OFFERED RS. 66, 18, 000/-PAID AS PROCE SSING FEE FOR TAXATION FOR NON-DEDUCTION OF TDS AND RS.5,78,387/- REMAINE D UNEXPLAINED, AND THEREFORE, THE QUESTION AS TO WHETHER THE ASSESSEE HAD CORRECTLY DEDUCTED TDS ON REMAINING AMOUNT OF RS.5,78,387/-WI LL HAVE TO BE CHECKED FROM THE RECORD. 15. THIS ARGUMENT OF THE LD. DR IS UNTENABLE BECAUS E HAVING ACCEPTED THAT THE ASSESSEE HAD OFFERED RS.66,18,000 /- PAID AS PROCESSING FEE FOR TAXATION, THE ASSESSING OFFICER SHALL NOT BE HEARD TO SAY ANYTHING CONTRARY. FINDING OF THE LD. CIT(A) DO NOT SUFFER ANY LEGAL INFIRMITY. INSOFAR AS THE AMOUNT OF RS.5,78, 387/- IS CONCERNED, ASSESSEE HAD DEDUCTED THE TDS ON INTEREST AMOUNT AND, THEREF ORE, THE ADDITION IS UNSUSTAINABLE. GROUND NO. 2 OF THE REVENUES APP EAL IS DEVOID OF MERITS AND IS DISMISSED. 8 ITA NO.5450/DEL/2017 ASST. YEAR: 2011-12 16. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN OPEN COURT ON THIS THE 20 TH MARCH, 2020. SD/- SD/- (G.S. PANNU) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIA L MEMBER DATED: 20 /3/2020 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI