Shri Rishi Arora, Lucknow V. Joint Commissioner of Income Tax, Lucknow

ITA 62/LKW/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1151 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 21-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit
• Section: 133(6); 68

Judgement Text

I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 SHRI RISHI ARORA, FLAT NO. 4, 2 ND FLOOR, DIKSHA PLAZA, HUSSAINGANJ, LUCKNOW. PAN;ADLPA 6081 B VS. JT.C.I.T., RANGE-II, KANPUR. (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 05/11/2014. 2. IN THIS APPEAL THE ASSESSEE HAS TAKEN VARIOUS GR OUNDS HOWEVER, THE CRUX OF GRIEVANCE OF THE ASSESSEE IS THE ACTION OF LEARNED CIT(A) BY WHICH HE HAS CONFIRMED THE ADDITIONS MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF CMC CHARGES TO THE TUNE OF RS.1,98,72,011/- AND ALS O THE ADDITION WHICH THE CIT(A) HAS CONFIRMED U/S 68 OF THE ACT REPRESEN TING UNPAID TRADE CREDITORS TO THE TUNE OF RS.22,68,192/-. APPELLANT BY SHRI ABHINAV MEHROTRA, ADVOCATE RESPONDENT BY SHRI R. K. VISHWAKARMA, SR. D. R. DATE OF HEARING 11/12/2017 DATE OF PRONOUNCEMENT 11 / 01 /201 8 I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 2 3. THE BRIEF FACTS, AS NOTED IN THE ASSESSMENT ORDE R, ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF MEDICAL EQUIP MENTS AND CONSUMABLES TO VARIOUS HOSPITALS UNDER THE NAME AND STYLE OF RI SHI ENTERPRISES. THE SALES OF THE ASSESSEE MAINLY CONSTITUTED SUPPLY OF MEDICAL EQUIPMENTS TO VARIOUS HOSPITALS THROUGH NODAL AGENCIES ESTABLISHE D BY THE STATE GOVERNMENT. DURING ASSESSMENT PROCEEDINGS THE ASSE SSING OFFICER OBSERVED THAT ASSESSEE HAD DEBITED AN AMOUNT OF RS. 2,98,72,011/- UNDER THE HEAD CMC CHARGES AND THEREFORE, THE ASSESSEE WA S SHOW CAUSED TO EXPLAIN THE SAME. IN REPLY, THE ASSESSEE SUBMITTED THAT THE CMC CHARGES ARE MAINTENANCE CHARGES WHICH HAVE TO BE INCURRED B Y THE ASSESSEE FOR A CERTAIN PERIOD FOR MACHINERY AND EQUIPMENTS SUPPLIE D BY HIM. IT WAS FURTHER SUBMITTED THAT INVOICES FOR SALES INCLUDED THE CHARGES FOR MAINTENANCE ALSO AND THEREFORE, THE SAME HAS BEEN D EBITED IN THE TRADING ACCOUNT BY MAKING A PROVISION FOR EXPENSES TO BE PA YABLE AT THE TIME OF ANY COMPLAINT MADE BY THE CUSTOMER. IT WAS FURTHER SUB MITTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE ACCOUNTING POLICY F OR CREATING THE PROVISION BY DIVIDING THE TOTAL CMC PAYABLE BY THE NUMBER OF YEARS FOR WHICH THE MAINTENANCE GUARANTEE IS GIVEN AND IF ANY SURPLUS R EMAINS FOR CMC PAYABLE FOR THE YEAR, THEN THE SAME IS REVERSED AND IS TAKE N INTO INCOME ACCOUNT AND IF ANY EXCESS AMOUNT IS SPENT OVER AND ABOVE TH E PROVISION THEN THE EXCESS AMOUNT IS DEBITED TO PROFIT & LOSS ACCOUNT. THE ASSESSEE ALSO RELIED ON A NUMBER OF CASE LAWS FOR THE PROPOSITION THAT S UCH PRACTICE WAS AN ACCEPTABLE ACCOUNTING POLICY. HOWEVER, THE ASSESSI NG OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND MADE THE DISALLO WANCE BY HOLDING AS UNDER: 3. THE ABOVE SUBMISSIONS OF THE ASSESSEE MADE IN H IS VARIOUS REPLIES HAS BEEN DULY CONSIDERED. THE PURCHASE VALU E OF SUPPLY ORDER RECEIVED BY THE ASSESSEE CONSTITUTED SALES OF THE ASSESSEE ON WHICH VAT @4% WAS CHARGED BY THE ASSESS EE IN THE SALE INVOICES. THEREFORE THE CMC CHARGES, IF AN Y, INCLUDED IN I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 3 THE PURCHASE VALUE OF EQUIPMENT INDICATED IN THE SU PPLY ORDER PARTAKES THE CHARACTER OF SALES AND NO OTHER CHARAC TER CAN BE ASSIGNED TO ANY PART OF SUCH SALE PRICE OF COMPOSIT E NATURE. IF IT IS TO BE CONSTRUED OF ANY OTHERWISE NATURE, THE CON SIDERATION RECEIVED FOR CMC CAN ONLY PARTAKE THE CHARACTER OF AN ADVANCE AGAINST FUTURE MAINTENANCE CHARGES ATTRACTING THE S TATUTORY PROVISIONS RELATING TO SERVICE TAX PAYMENTS AS ALSO DEDUCTION OF TAX AT SOURCE. AS PER ACCOUNTING STANDARD RECOGNITI ON OF SALES SHOULD BE AT THE TIME OF SALE. IF AMOUNT OF COLLECT ION IS REASONABLY EXPECTED, WHEN RISKS AND REWARDS OF OWNE RSHIP IS TRANSFERRED THE BUYER, WHEN EFFECTIVE CONTROL OF TH E SELLER AS A OWNER IS LOST, THEN REVENUE MUST BE RECOGNISED. 3.1 THE CASE LAWS CITED BY THE ASSESSEE HAVE ALSO B EEN CONSIDERED. THE ESSENCE OF THESE JUDICIAL DECISIONS ARE THAT (I) SUCH TYPE OF PROVISIONS SHOULD BE BASED ON A SCIENT IFIC BASIS AND A CONSISTENT POLICY APPLIED BY ASSESSEE (II) TH E PROVISION MADE SHOULD RESULT INTO AN OUTFLOW OF RESOURCES I.E . EXPENSES TOWARDS REPAIRS AND REPLACEMENT OF THE EQUIPMENTS W HICH HAD BEEN RELIABLY ESTIMATED BY THE ASSESSEE BASED ON TH E PAST TREND OR EXPERIENCE (III) SETTLEMENT OF WHICH IS EX PECTED TO RESULT IN AN OUTFLOW OF RESOURCES AND IN RESPECT OF WHICH A RELIABLE ESTIMATE OF AMOUNT OF OBLIGATION IS POSSIB LE. (IV)THE PROVISION SHOULD BE ON BASIS OF SCIENTIFIC STUDY AN D ACTUARIAL BASIS. NONE OF THE ABOVE ESSENTIAL PARAMETERS REFLECTED FR OM THE CMC CHARGES PROVISIONS CREATED BY THE ASSESSEE. THE PROVISON WAS BASED ON PURE ESTIMATE CONSIDERING FEW SALE TRANSACTIONS AS IS EVIDENT FROM THE NOTES OF ACCOUN TS AND FROM THE REPLIES OF THE ASSESSEE QUOTED IN PARA 2.2, PAR A 2.3, PARA 2.4 & PARA 2.5. 3.2 PARA 4.1 OF AS-4 (REVISCD) 'CONTINGENCIES AND E VENTS OCCURRING AFTER THE BALANCE SHEET DATE ISSUED BY TH E ICAI HAS DEFINED THE TERM 'CONTINGENCY' AS A CONDITION OR SI TUATION, THE ULTIMATE OUTCOME OF WHICH, GAIN OR LOSS, WILL BE KN OWN OR DETERMINED ONLY ON THE OCCURRENCE, OR NON-OCCURRENC E OF ONE OR MORE FUTURE EVENTS'. PARAS 10 AND 11 OF AS-4 (RE VISED) SUGGESTS TO PROVIDE A REASONABLE AMOUNT FOR THE CON TINGENCIES BY WAY OF CHARGE TO PROFIT AND LOSS ACCOUNT IF, IT IS PROBABLE THAT FUTURE EVENTS WILL CONFIRM THAT, AN ASSET HAS BEEN IMPAIRED I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 4 OR A LIABILITY HAS BEEN INCURRED. OTHERWISE, THE EX ISTENCE OF CONTINGENT LIABILITIES SHOULD ONLY BE DISCLOSED. IN VIEW OF THE ABOVE DISCUSSION IT IS CONCLUDED THA T CMC CHARGES ARE NOT AN ASCERTAINED LIABILITY AND IS PUR ELY A CONTINGENT LIABILITY CREATED ONLY BY AN UN-SCIENTIF IC MANNER OF ESTIMATION OF A NOTIONAL FUTURE CONTINGENT LIABILIT Y. ACCORDINGLY THE AMOUNT OF CMC PAYABLE ACCOUNT PROVISION IS ADDE D BACK TO THE INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S 271(L)(C) ARE BEING INITIATED ON THIS ISSUE FOR FURNISHING IN ACCURATE PARTICULARS OF INCOME. 3.1 THE ASSESSING OFFICER FURTHER OBSERVED IN RESPO NSE TO NOTICE U/S 133(6) OF THE ACT THAT TWO CREDITORS HAD DENIED TRA NSACTIONS WITH THE ASSESSEE AND HAD DISOWNED THE CREDITS APPEARING IN THEIR NAME AND THEREFORE, THE ASSESSEE WAS CONFRONTED AND EXPLANAT ION WAS CALLED FOR. IN THE ABSENCE OF ANY EXPLANATION BY THE ASSESSEE, THE ASSESSING OFFICER MADE THE ADDITION ON ACCOUNT OF UNCONFIRMED SUNDRY CREDI TORS TO THE TUNE OF RS.22,68,192/- REPRESENTING TWO CREDITORS NAMELY M/ S KUMAR ENTERPRISES, GORAKHPUR AND M/S CALCUTTA HANDLOOM INDUSTRIES, SAN DILA, HARDOI. AGGRIEVED WITH THE ADDITION THE ASSESSEE FILED APPE AL BEFORE CIT(A) AND FILED VARIOUS SUBMISSIONS AND RELIED ON A NUMBER OF CASE LAWS. HOWEVER, THE LEARNED CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND UPHELD THE ADDITIONS MADE BY THE ASSESSING OFFICER BY HOLD ING AS UNDER: 5. I HAVE CONSIDERED THE MATTER. IT IS A SETTLED L EGAL POSITION THAT PROVISIONS FOR WARRANTY BASED ON SCIENTIFIC ST UDY AND CALCULATED ON THE BASIS OF ACTUARIAL AND PAST HISTO RY OF CASE IS ALLOWABLE. IN THE CASES RELIED UPON BY THE APPELLAN T, IT HAS BEEN HELD THAT PROVISION FOR WARRANTY IS ALLOWABLE ONLY WHEN IT IS BASED ON SCIENTIFIC STUDY AND PAST HISTORY OF CASE. PROVISION FOR WARRANTY IS A PRESENT OBLIGATION AS A RESULT OF PAS T EVENTS RESULTING IN AN OUTFLOW OF RESOURCES AND A RELIABLE ESTIMATE COULD BE MADE OF THE AMOUNT OF OBLIGATION. THE ESTI MATE FOR PROVISION SHOULD BE BASED ON PAST HISTORY. THE METH OD OF ACCOUNTING FOR SUCH LIABILITY MUST BE SCIENTIFIC, B ASED ON REALITY AND ACTUAL INCIDENCES I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 5 5.1 DURING THE YEAR THE APPELLANT HAS SUPPLIED HEAL TH EQUIPMENTS TO HOSPITALS AND MEDICAL COLLEGES. THE O FFICE OF THE DIRECTOR GENERAL MEDICAL EDUCATION PLACES ORDER WIT H THE UPSIC FOR SUPPLY OF MEDICAL EQUIPMENTS TO MEDICAL COLLEGE S. UPSIC IS ACTING AS NODAL AGENCY FOR ALL THE SUPPLIERS INCLUD ING THE APPELLANT. IT IS NOTED THAT DURING THE YEAR THE APP ELLANT HAS MADE SALES OF RS.9,95,73,370/-, 30% OF WHICH AMOUNT ING TO RS.2,98,72,011/- HAS BEEN DEBITED AS CMC CHARGES IN THE PROFIT AND LOSS ACCOUNT DURING THE APPELLATE PROCEEDINGS T HE APPELLANT FURNISHED COPY OF ONE TENDER NOTICE, FEW LETTERS WR ITTEN BY THE DIRECTORATE GENERAL OF MEDICAL EDUCATION TO UPSIC A ND COPIES OF FEW SUPPLY ORDERS PLACED BY MEDICAL COLLEGES TO THE APPELLANT. ON PERUSAL OF THE SAMPLE DOCUMENTS FURNI SHED IT APPEARS THAT THE APPELLANT HAS PROVIDED FIVE YEARS WARRANTY/CMC IN RESPECT OF THE EQUIPMENTS SUPPLIED BY IT BUT THERE IS ABSOLUTELY NO BASIS FOR COMPUTING CMC CHAR GES @ 30% OF SALE INVOICE VALUE AND DEBITING THE SAME TO THE PROFIT AND LOSS ACCOUNT AS EXPENSES. 5.2 ON PERUSAL OF THE DETAILS FILED CMC CHARGES DEB ITED IN THE PROFIT AND LOSS ACCOUNT, CMC CHARGES PAYABLE AND CM C EXPENSES ACTUALLY INCURRED FOR THE IMPUGNED YEAR AN D NEXT TWO FINANCIAL YEARS CAN BE SUMMARIZED AS UNDER: FY 2009-10 CMC CHARGES DEBITED IN P & L A/C RS.2, 98,72,011 LESS: CMC EXPENSES INCURRED RS. 18,50,000 CLOSING BALANCE RS.2,80,22,011 FY 2010-11 CMC CHARGES DEBITED IN P & L A/C RS.1, 05,36,126 LESS: CMC EXPENSES INCURRED RS. 30,83,926 LESS: REVERSAL OF CMC CHARGES RS. 13,11,100 CLOSING BALANCE RS.3,41,63,111 FY 2011-12 CMC CHARGES DEBITED IN P&L A/C RS. 37,69,003 LESS: CMC EXPENSES INCURRED RS. 68,19,604 LESS: REVERSAL OF CMC CHARGES RS. 9,99,399 CLOSING BALANCE RS.3,01,13,111 IT IS NOTED THAT DURING FYS 2010-11 & 2011-12 THE A PPELLANT HAS REVERSED THE ENTRIES AND WRITTEN BACK THE AMOUNTS O F RS.13,11,100/- AND RS.9,99,399/- AS INCOME IN THE P ROFIT AND LOSS ACCOUNT ON SCRUTINY OF ACTUAL CMC EXPENSES INC URRED IT IS NOTED THAT IN FYS 2009-10 AND 2010-11 MOST OF THE C MC CHARGES HAS BEEN PAID TO ONE M/S. KAMLESH EQUIPMENT REPAIR I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 6 WORKS. FURTHER IN RESPECT OF CMC CHARGES OF RS.68,1 9,604/- PAID IN FY 2011-12 IT IS NOTED THAT AN AMOUNT OF RS .40 LAKH HAS BEEN SHOWN AS PAID TO ONE M/S. RIRANSA INC. HEALTHC ARE PVT. LTD. ON 31.03.2012 THROUGH A JOURNAL ENTRY WHICH ON THE FACE OF IT, DOES NOT APPEAR TO BE GENUINE. IT IS FOUND THAT THE PROVISION OF CMC CHARGES DEBITED BY THE APPELLANT IN THE PROF IT AND LOSS ACCOUNT IS NEITHER ON ACTUARIAL BASIS NOR ON THE BA SIS OF ANY SCIENTIFIC STUDY OF HISTORICAL TRENDS. THE COMPUTAT ION OF PROVISION, NOT BEING BASED ON ANY PAST TREND OR EXP ERIENCE IS NOT RELIABLE. AT THE END OF THIRD YEAR THE CMC CHAR GES PAYABLE IS MORE THAN RS.3 CRORE. IT IS ALSO, SEEN THAT THE ASS ESSEE COULD NOT SUBSTANTIATE THAT THE PROVISION WAS MADE BASED ON HISTORICAL ANALYSIS OF THE FACTS RELATING TO SALES AND SERVICE CHARGES PAYABLE DURING THE WARRANTY PERIOD AND THE PAST EVENTS RESULTING IN AN OUTFLOW OF RESOURCES. IN FACT I FIN D THAT IT IS NOT POSSIBLE FOR THE APPELLANT TO CONDUCT ANY SCIENTIFI C STUDY BECAUSE HE IS NOT A MANUFACTURER. THE APPELLANT IS A SUPPLIER AND SUPPLYING DIFFERENT KIND OF MEDICAL EQUIPMENTS TO THE CUSTOMERS. IN THE CASE OF CIT VS. FORBES CAMPBELL F INANCE LTD, 352 ITR 602 UNDER SIMILAR FACTS AND CIRCUMSTANCES T HE HON'BLE MADRAS HIGH COURT HELD AS UNDER: PROVISION FOR SERVICE CHARGES PAYABLE BY ASSESSEE BY WAY OF WARRANTY PROVISION WAS NOT MADE ON ANY SCIEN TIFIC DATA. ADMITTEDLY, PROVISION MADE WAS ONLY ON AD HOC BASIS. MORE THAN 60 PER CENT OF PROVISION REMAINED UNPAID EVEN AFTER MORE THAN TWO YEARS FROM DATE OF SALE. THEREFORE, ASSESSING OFFICER WAS JUSTIFIED IN DISAL LOWING THE ASSESSEE'S CLAIM. IN VIEW OF THE DISCUSSIONS MADE ABOVE ADDITION OF RS.1,98,72,011/- MADE BY THE AO IS CONFIRMED. GROUN D NO. 1 IS DECIDED AGAINST THE APPELLANT. 6. IN GROUND NO. 2 THE APPELLANT OBJECTED TO THE AD DITION OF RS.22,68,192/- AS UNEXPLAINED CREDIT FOR PURCHASES. DURING THE ASSESSMENT PROCEEDINGS THE AO ISSUED NOTICES U/S 13 6(6) TO SUNDRY CREDITORS. TWO OF THE SUNDRY CREDITORS VIZ. M/S. KUMAR ENTERPRISES AND M/S. CALCUTTA HANDLOOM INDUSTRIES D ENIED HAVING ANY TRANSACTION WITH THE ASSESSEE DURING FY 2009-10 AND DISOWNED THE CREDIT BALANCES APPEARING IN THEIR NAMES. WHEN CONFRONTED THE ASSESSEE DID NOT SUBMIT ANY EXP LANATION. THE AO MADE ADDITION OF RS.22,68,192/- ON ACCOUNT O F I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 7 UNEXPLAINED CREDITS OF PURCHASES STANDING IN THE NA MES OF THE AFOREMENTIONED SUNDRY CREDITORS. 3.2 AGGRIEVED, THE ASSESSEE IS AGAIN IN APPEAL BEFO RE US. AT THE OUTSET, LEARNED A. R. SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE SAME PRACTICE AND IT WAS IN ACCORDANCE WITH THE ACCOUNTI NG PRACTICES. EXPLAINING THE FACTS OF THE CASE, LEARNED A. R. SUBMITTED THAT THE SUPPLY OF MEDICAL EQUIPMENTS TO VARIOUS HOSPITALS ALSO CARRIED WARRAN TY FOR 3 TO 5 YEARS AND FOR WHICH ASSESSEE WAS TO INCUR EXPENDITURE AGAINST ANY COMPLAINT. IT WAS FURTHER SUBMITTED THAT SALES SPECIFICALLY INCLUDED AN AMOUNT EQUIVALENT TO 30% REPRESENTING PAYMENTS FOR SUCH WARRANTY CLAIMS AGAINST FUTURE COMPLAINTS. IT WAS SUBMITTED THAT SINCE THE EXPENS ES WERE TO BE INCURRED IN THE SUCCEEDING YEAR THEREFORE, APPROPRIATE AMOUNT W AS DEBITED TO PROFIT & LOSS ACCOUNT AND WHENEVER THE CLAIM AROSE; THE SAME WAS PAID THROUGH THESE PROVISIONS. LEARNED A. R. SUBMITTED THAT THE CUSTOMERS OF THE ASSESSEE SPECIFICALLY REQUIRED ASSESSEE TO QUOTE PR ICES WITH GUARANTEE/WARRANTEE PERIOD. OUR ATTENTION WAS INVI TED TO COPY OF SUCH TENDER AGREEMENT AVAILABLE ON PAGES 119 TO 160 OF T HE PAPER BOOK AND OUR SPECIFIC ATTENTION WAS INVITED TO PAGE NO. 120 OF T HE PAPER BOOK WHEREIN ONE OF THE CONDITIONS FOR PROVISION OF UNCONDITIONA L WARRANTY AND GUARANTEE FOR FIVE YEARS FROM THE DATE OF INSTALLATION WAS ME NTIONED. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES, LEARNED A. R. SUBMITTED TH AT THIS PRACTICE IS PREVALENT IN MANY CONSUMABLE ITEMS WHEREIN THE SUPP LIER PROVIDES WARRANTY FOR A SPECIFIC PERIOD AFTER CHARGING SUCH WARRANTY AMOUNT. LEARNED A. R. PLACED RELIANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF BHARAT EARTH MOVERS VS. CIT [2000] 112 TAXMAN 61 (SC) FOR THE PROPOSITION THAT THE DEDUCTION FOR EXPENSES SHOULD BE ALLOWED IN THE YEAR OF ITS OCCURRENCE, ALTHOUGH THE LIABILITY MAY NOT HAVE BEEN QUANTIFIED . LEARNED A. R. SUBMITTED THAT IN THIS CASE THE ASSESSEE HAD MADE P ROVISION FOR MEETING LIABILITY TOWARDS LEAVE ENCASHMENT PROPORTIONATE TO ENTITLEMENT EARNED BY I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 8 THE EMPLOYEES OF COMPANY AND IT WAS HELD THAT THE A SSESSEE WOULD BE ENTITLED TO DEDUCTION OF SUCH PROVISION OUT OF GROS S RECEIPTS FOR ACCOUNTING YEAR DURING WHICH PROVISION WAS MADE. RELIANCE WAS FURTHER PLACED ON A JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT IN THE CAS E OF ZAZSONS EXPORT LIMITED VS. CIT IN INCOME TAX APPEAL NO. 128 OF 20 15 FOR THE SIMILAR PROPOSITION. RELIANCE WAS FURTHER PLACED ON THE CA SE LAW AS RELIED ON BEFORE LEARNED CIT(A) AND ASSESSING OFFICER. LEARNED A. R . FURTHER SUBMITTED THAT IN THE SUBSEQUENT YEAR THE ASSESSEE CONTINUED TO DE BIT THE WARRANTY EXPENSES OUT OF SUCH PROVISION AND HAD NOT CLAIMED ANY EXPENSES DURING THOSE YEARS. RELIANCE WAS ALSO PLACED ON THE JUDGM ENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. VISHNU INDUSTRIAL GASES P. LTD. FOR THE PROPOSITION THAT THE DEPARTMENT SHOULD NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MATTERS WHERE THE DEDUCTION IS PERMISSIBLE IRRESPECTIVE OF THE YEAR. REGARDING THE SECOND ADDITION, LEARNED A. R. SUBMIT TED THAT THE AMOUNT OUTSTANDING REPRESENTS THE TRADE CREDITOR AND ONE O F THE CREDITORS WAS OPENING BALANCE AND THEREFORE, THE ADDITION U/S 68 WAS NOT WARRANTED. 4. LEARNED D. R., ON THE OTHER HAND, HEAVILY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT LEARNED CIT(A) HAS UPHELD THE FIRST ADDITION BY OBSERVING THAT NOT MUCH EXPENSES WERE INCURRED B Y THE ASSESSEE DURING THE SUBSEQUENT YEAR AND IN THIS RESPECT HE HAS PREP ARED A CHART AND HAS FORMED THAT CHART AS PART OF HIS ORDER AND AS PER T HAT CHART THE CLOSING BALANCE OUTSTANDING DURING FINANCIAL YEAR ENDING 31 /03/2012 WAS AT RS.3,01,13,111/-. THE LEARNED CIT(A) HAS FURTHER O BSERVED THAT DURING FINANCIAL YEAR 2010-11 AND 2011-12 THE ASSESSEE HAD REVERSED THE ENTRIES OF RS.13,11,100/- AND RS.9,99,399/- IN THE CMC PAYABLE ACCOUNT. HE HAS FURTHER OBSERVED THAT MOST OF THE CMC CHARGES DEBIT ED TO SUCH PROVISION I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 9 HAVE BEEN PAID TO M/S KAMLESH EQUIPMENT REPAIR WORK S AND OUT OF EXPENSES OF RS.68,19,604/- SPENT IN FINANCIAL YEAR 2011-12, AN AMOUNT OF RS.40,00,000/- HAS BEEN SHOWN TO BE PAID TO RIRANSA INC. HEALTHCARE PVT. LTD. THROUGH A JOURNAL ENTRY WHICH ON THE FACE OF I T, DOES NOT APPEAR TO BE GENUINE. THEREFORE, LEARNED CIT(A) HELD THAT THE A SSESSEE HAD DEBITED THE CMC CHARGES IN THE PROFIT & LOSS ACCOUNT WITHOUT AN Y SCIENTIFIC STUDY OF HISTORICAL TRENDS AND THEREFORE, HE UPHELD THE ADDI TION. HOWEVER, WE FIND THAT LEARNED CIT(A) HAS STOPPED HIS FINDINGS TILL 3 1/03/2012. WE FIND FROM THE COPIES OF BALANCE SHEETS FOR THE FINANCIAL YEAR ENDING 31/03/2013 AND 31/03/2014 THAT THE OUTSTANDING CHARGES PAYABLE ARE REDUCING YEAR BY YEAR. FOR EXAMPLE, THE CMC PAYABLE AS ON THE END OF 31/03 /2013 HAS COME DOWN TO RS.2,20,31,484/- AND AS ON 31/03/2014, IT HAS CO ME DOWN TO RS.1,39,49,857/-. THE ABOVE FACTS ARE VERIFIABLE FR OM THE COPY OF THE BALANCE SHEET OF THE RESPECTIVE YEARS PLACED IN PAP ER BOOK PAGES 105, 113 RESPECTIVELY. THE ABOVE FACTS AND FIGURES SHOW THA T DURING SUBSEQUENT YEAR THE ASSESSEE HAS UTILIZED THE PROVISION FOR CMC CHA RGES WHICH HAVE NOT BEEN CONSIDERED BY LEARNED CIT(A). THEREFORE, WE D EEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO, AFTER VERIFYING THE NATURE OF EXPENSES DEBITED IN THE PROVISIONS FO R CMC CHARGES IN SUBSEQUENT YEARS, SHOULD REDECIDE THE ISSUE IN ACCO RDANCE WITH FACTS AND IN ACCORDANCE WITH LAW AFTER AFFORDING REASONABLE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. 5.1 AS REGARDS THE OTHER ADDITION ON ACCOUNT OF ADD ITION OF UNCONFIRMED SUNDRY CREDITORS, WE FIND THAT THE ASSESSEE HAS BEE N MAINTAINING THAT ONE OF THE CREDITORS WAS HAVING OPENING BALANCE AND DURING THE YEAR UNDER CONSIDERATION NO TRANSACTION WAS DONE WITH THIS PAR TY AND IN RESPECT OF OTHER CREDITOR, LEARNED A. R. SUBMITTED THAT THE AS SESSEE HAD MADE PURCHASES FROM THE ABOVE SAID PARTY AND HAD ALSO SU BMITTED THE ADDRESS TO I.T.A. NO.62/LKW/2015 ASSESSMENT YEAR:2010-11 10 THE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED TH AT THE PURCHASES WERE NOT REJECTED AND THEREFORE, THE ADDITION WAS NOT IN ACC ORDANCE WITH LAW. WE FIND THAT UNDISPUTEDLY THE OUTSTANDING AMOUNTS RELA TE TO TRADE CREDITOR AND DO NOT RELATE TO ANY UNSECURED LOAN FOR WHICH THE A SSESSING OFFICER HAD MADE ADDITION U/S 68 OF THE ACT. SINCE WE HAVE REMI TTED THE MAJOR ISSUE FOR READJUDICATION, THEREFORE, WE DEEM IT PROPER TO REM IT THIS ISSUE ALSO BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHOULD REDECI DE THE ISSUE AFTER ANALYZING THE FACTS AND AFTER HEARING THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 11/01/2018) SD/. SD/. (PARTHA SARATHI CHAUDHURY) ( T. S. KAPOOR ) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:11/01/2018 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW