AVERY INDIA Ltd., Haryana V. D.C.I.T Cir - 1,kolkata., Kolkata

ITA 685/KOL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4887 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 15-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 01-04-2013
• Court: TRIBUNAL
• Assessee Lawyers: SAURABH KEDIA
• Keywords: Capital asset; Depreciation; Capital receipt; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I.T.A NOS.685 & 686/KOL/2013 ASSESSMENT YEARS: 2007-08 & 2008-09 AVERY INDIA LTD. VS. DEPUTY COMMISSIONER OF I NCOME TAX, (PAN: AACCA4694B) CIRCLE-1, KOLKATA. ( APPELLANT ) ( RESPONDENT ) & I.T.A. NO.800/KOL/2013 ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX, VS. AVERY IND IA LTD. CIRCLE-1, KOLKATA. (APPELLANT) (RESPONDENT) DATE OF HEARING: 15.03.2016 DATE OF PRONOUNCEMENT: 15.03.2016 FOR THE ASSESSEE: SHRI SAURABH KEDIA, FCA FOR THE REVENUE: SHRI SALLONG YADEN, ADDL. CIT , SR. DR ORDER PER SHRI MAHAVIR SINGH, JM: BOTH THESE APPEALS BY ASSESSEE AND THE CROSS APPEAL BY REVENUE (FOR AY 2008-09) ARE ARISING OUT OF ORDERS OF CIT(A)-XXIV, KOLKATA VIDE APPEAL NOS. 1121 & 1122/CIT(A)- XXIV/C-1/12-13 DATED 10.01.2013 AND 22.01.2013. ASS ESSMENTS WAS FRAMED BY DCIT, CIRCLE-1, KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 2007-08 AND 2009-10 VIDE HIS SEPA RATE ORDERS DATED 24.12.2010 AND 23.12.2011. 2. THE FIRST ISSUE IN ASSESSEES APPEAL ITA NO. 6 85/KOL/2013 FOR AY 2008-09 IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO IN DISALLOWING THE ADVANCES WRITTEN OFF AMOUNTING TO RS.22,437/-. 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE FAIR LY STATED THAT THE ASSESSEE IS NOT INTERESTED IN PROSECUTING THIS GROUND. HENCE, THE SAME CAN BE DISMISSED AS WITHDRAWN. LD. DR HAS NOT OBJECTED TO THE SAME. ACCORDINGLY, THIS GROUND OF APPEAL IS DISMISSED AS WITHDRAWN. 2 ITA NOS.685,686 & 800/KOL/2013 AVERY INDIA LTD., AY 2007-08 & 2008-09 4. THE NEXT COMMON ISSUE IN ITA NOS. 685 & 686/KOL/ 2013 FOR AYS 2007-08 AND 2008-09 IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF LEAVE ENCASHMENT CLAIM ON PROVISION BASIS. 5. AT THE OUTSET, IT IS NOTICED THAT THE ASSESSEE HAS CLAIMED RS.35,63,694/- AND RS.16,59,686/- FOR AYS 2007-08 AND 2008-09 RESPECTI VELY ON ACCOUNT PROVISION FOR LEAVE ENCASHMENT ON ACCRUAL BASIS. LD. COUNSEL FOR THE AS SESSEE STATED THAT THE DEDUCTION ON ACCOUNT OF PROVISION OF LEAVE ENCASHMENT WAS MADE ON THE BASIS OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UNION OF INDIA (2007) 292 ITR 470 (CAL) BUT HE FAIRLY CONCEDED THAT SUBSEQUENTLY HON'BLE SUPREM E COURT HAS STAYED THIS JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT VIDE ORDER 08-05- 2009 BY FOLLOWING OBSERVATIONS:- PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL AP PEALS, DEPARTMENT IS RESTRAINED FROM RECOVERING PENALTY AND INTEREST WHICH HAS ACCRUED TILL DATE. I T IS MADE CLEAR THAT AS FAR AS THE OUTSTANDING INTEREST DEMAND AS OF DATE IS CONCERNED, IT WOULD B E OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APPEAL OF THE DEPARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD, D URING THE PENDENCY OF THIS CIVIL APPEAL, PAY TAX AS IF SECTION 43B(F) IS ON THE STATUE BOOK BUT AT T HE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM I N ITS RETURNS. IN VIEW OF THE ABOVE, LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT LET HON'BLE SUPREME COURT DECIDE THE ISSUE AND BY THAT TIME THE MATTER CAN BE REMITTED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION IN TERM OF THE DECISION OF HON'BLE SUP REME COURT. ON THIS, LD. CIT DR HAS NOT OBJECTED TO THE SAME. ACCORDINGLY, WE SET ASIDE TH IS ISSUE TO THE FILE OF THE AO TO AWAIT THE DECISION OF HON'BLE SUPREME COURT AND DECIDE THE IS SUE ACCORDINGLY. THIS ISSUE OF ASSESSEES APPEALS IS REMITTED BACK TO THE FILE OF AO AND ALLO WED FOR STATISTICAL PURPOSES. 6. NOW, WE ARE COMING TO ITA NO. 800/KOL/2013. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLO WANCE MADE BY AO ON ACCOUNT OF ADVANCES WRITTEN OFF. FOR THIS, REVENUE HAS RAISED FOLLOWIN G GROUND NO.1: 1. THAT THE LD. CIT(A) HAS ERRED AND NOT JUSTIFIE D IN DELETING THE ENTIRE DISALLOWANCES MADE ON ACCOUNT OF ADVANCES WRITTEN OFF TO THE TUNE OF RS.1 6,97,542/-. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON GOING THROUGH SCHEDULE-L OF THE P&L ACCOUNT BEING ADMINISTRATIVE AND OTHER E XPENSES OF THE BALANCE SHEET NOTED THAT A SUM OF RS.17,40,294/- WAS INCLUDED IN THE ADMINISTR ATIVE AND OTHER EXPENSES ON ACCOUNT OF 3 ITA NOS.685,686 & 800/KOL/2013 AVERY INDIA LTD., AY 2007-08 & 2008-09 ADVANCES WRITTEN OFF. THE AO WAS NOT SATISFIED WIT H THE EXPLANATION OF THE ASSESSEE AND HE MADE ADDITION OF ADVANCES WRITTEN OFF AT RS.16,97,5 42/- AFTER ALLOWING THE CLAIM OF BAD DEBT OF RS.42,752/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE ABOVE OBSERVATION OF THE ASSESSING OFFICER & ALSO THE SUBMISSION OF THE LD. A/R. DURING THE F.Y. 2005-06, THE APPELL ANT COMPANY SUPPLIED 9 UNITS OF WEIGHING MACHINES TO THE WEST CENTRAL RAILWAYS. THE APPELLAN T PAID THE SALES TAX OF RS.2,43,711/- AND THE EXCISE DUTY OF RS.8,54,838/- ON THE SAID MACHINES A ND ALSO PAID ADVANCES OF RS.5,98,993/- FOR FOUNDATION WORKS OF SUCH WEIGHING MACHINES M THE PR EMISE OF THE RAILWAYS AS PER THE SALES CONTRACT. DUE TO SOME TECHNICAL FAULTS AND IN SPIT E OF EFFORTS TO REPAIR, THESE MACHINES DID NOT WORK PROPERLY AND THE WEST CENTRAL RAILWAYS RETURNED THE MACHINES. THE APPELLANT COMPANY COULD NOT RECOVER THE EXPENSES ON EXCISE AND SALES TAX AND TH E ADVANCES FOR FOUNDATION WORKS FROM THE WEST CENTRAL RAILWAYS AND THE SAME WERE WRITTEN OFF IN I TS BOOKS OF ACCOUNT. DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE LD. A/R HAS EXPLAINED TH AT EXPENSES ON EXCISE DUTY, SALES TAX AND ADVANCES FOR FOUNDATION WORKS WERE MADE, IN THE NOR MAL COURSE OF THE APPELLANTS BUSINESS WHICH BEING IRRECOVERABLE WERE WRITTEN OFF AND CLAIMED AS DEDUCTIBLE U/S. 28. THE LD. A/R HAS ALSO RELIED ON THE DECISIONS OF THE HON'BLE SUPREME COURT IN CA SES OF BADRIDAS DAGA (SUPRA) AND MYSORE SUGAR CO. (SUPRA) AND ALSO OTHER JUDGMENTS. CONSIDE RING THE FACTS OF THE CASE, I AM OF THE VIEW THAT THE AMOUNT OF RS.16,97,542/- ON ACCOUNT OF EXPENSES ON EXCISE DUTY & SALES TAX AND ADVANCES FOR FOUNDATION WORKS WERE INCURRED IN NORMAL COURSE OF ITS BUSINESS. ACCORDINGLY, THE A.O. IS DIRECTED TO DELETE THE ADDITION OF RS.16,97,542/- ON ACCOUNT OF ADVANCES WRITTEN OFF. THESE GROUNDS OF APPEAL ARE ALLOWED. AGGRIEVED, REVENUE IS IN SECOND APPEAL BEFORE TRIBU NAL. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ADVANCES WERE MADE IN NORMAL COURS E OF BUSINESS AND WERE NOT MADE ON ACCOUNT OF OR FOR PURCHASE OF CAPITAL ASSET. THE A SSESSEE HAS GIVEN COMPLETE DETAILS AND EXPENSES WRITTEN OFF AND FROM THE DETAILS OF ADVANC ES IT COULD BE SEEN THAT THE ADVANCES WHICH HAVE ULTIMATELY BEEN WRITTEN OFF WAS MADE IN CONNEC TION WITH THE ASSESSEES BUSINESS I.E. EXCISE DUTY, SALES TAX, CIVIL COST, ADVANCE AND DEBTS WRIT TEN OFF. WE FIND THAT THE ASSESSEE COMPANY SUPPLIED NINE UNITS OF WEIGHING MACHINES TO THE RAI LWAYS AND PAID SALES TAX TO THE TUNE OF RS.2,43,711/- AND EXCISE DUTY OF RS.8,54,838/- AND ALSO PAID ADVANCES OF RS.5,98,993/- FOR FOUNDATION WORK FOR SUCH WEIGHING MACHINES IN THE P REMISES OF THE RAILWAY AS PER THE AGREEMENT. BUT DUE TO SOME TECHNICAL FAULTS AND IN SPITE OF BEST EFFORTS TO REPAIR THE SAME, THESE MACHINES DID NOT WORK AND ACCORDINGLY, WESTERN RAIL WAYS RETURNED THESE MACHINES. THE ASSESSEE COULD NOT RECOVER THESE AMOUNTS AND ACCORD INGLY, THE CLAIMED THE WRITE OFF. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND HENCE, THE SAM E IS CONFIRMED. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 4 ITA NOS.685,686 & 800/KOL/2013 AVERY INDIA LTD., AY 2007-08 & 2008-09 9. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE MADE BY AO ON ACCOUNT OF UTILIZATION O F WARRANTY. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT THE LD. CIT(A) HAS ERRED AND NOT JUSTIFIE D IN DELETING THE ENTIRE DISALLOWANCES MADE ON ACCOUNT OF UTILIZATION OF WARRANTY TO THE TUNE OF R S.30,81,123/-. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINES S OF MANUFACTURING, TRADING AND SERVICING OF WEIGHING MACHINES, TESTING MACHINES AND FUEL DISPEN SING PUMPS WHEREIN THE WARRANTY CLAUSE IS A PART OF THE SALE DOCUMENT AND IMPOSES A LIABILITY UPON THE ASSESSEE TO DISCHARGE ITS OBLIGATION UNDER THAT CLAUSE FOR THE PERIOD OF WARRANTY. ACCO RDING TO ASSESSEE, SINCE THE ASSESSEE FOLLOWS MERCANTILE METHOD OF ACCOUNTING A PROVISION FOR WAR RANTY IS ALWAYS CREATED AND IN THIS YEAR A PROVISION FOR WARRANTY OF RS.30,30,713/- WAS CREATE D AND THE SAID PROVISION WAS MADE BY THE MANAGEMENT ON SCIENTIFIC CALCULATION WHICH IS ENCLO SED WITH ASSESSEES PAPER BOOK AS ANNEXURE- 1. IN THE INSTANT CASE, IT IS BEYOND DOUBT THAT TH E LIABILITY FOR WARRANTY AS ACCRUED DURING THE YEAR AND FURTHER THE SAID LIABILITY WAS ESTIMATED BY THE MANAGEMENT ON THE BASIS OF PAST EXPERIENCE FOLLOWING THE PRINCIPLES LAID DOWN BY HONBLE SUPRE ME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. VS. CIT (2010) 314 ITR 62 (SC). THE ASSESSEE HAS SUBMITTED COMPLETE DETAILS OF WARRANTY, WHICH IS AS UNDER: A.Y OPENING BALANCE RS. PROVISION CREATED RS. PROVISION UTILIZED RS. PROVISION BALANCE RS. 2005-06 2006-08 2007-08 2008-09 TOTAL 2,521,235 3,622,684 4,977,287 2,521,235 3,622,684 3,332.293 3,030,713 12,506,925 2,521,235 1,977,690 3,081,123 7,580,048 2,521,235 3,622,684 4,977,287 4,926,877 11. WE FIND FROM THE ABOVE FACTS THAT THE ASSESSEE HAS CREATED LIABILITY AND ALSO UTILIZED AS NOTED IN ABOVE CHART. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND HENCE, THE SAME IS CONFIRMED. THIS ISSUE OF REVENUES APPEAL IS DISMI SSED. 12. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF DEPRECIATION ON TECHNICAL KNOW-HOW. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.3: 3. THAT THE LD. CIT(A) HAS ERRED AND NOT JUSTIFIE D IN DELETING THE ENTIRE DISALLOWANCES MADE ON ACCOUNT OF DEPRECIATION OF TECHNICAL KNOW HOW TO TH E TUNE OF RS.5,24,341/-. 5 ITA NOS.685,686 & 800/KOL/2013 AVERY INDIA LTD., AY 2007-08 & 2008-09 13. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.5,24,341/- ON TECHNICAL KNOW-HOW FEES. ACCORDING TO ASSESSEE, IT HAS INCURRED EXPENDITURE ON TECHNICAL KNOW-HOW FEES AMOUNTING TO RS.1,22,03,485/- AND RS.63,20,000/- DURING PREVIOUS YEARS RELEVANT TO AYS 2000-01 AND 2003- 04 RESPECTIVELY. LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THIS WAS HELD BY HONBLE CALCUTTA HIGH COURT AS CAPITAL RECEIPT IN ASSESSEES OWN CASE VID E ITA NO.274 OF 2006 DATED 07.09.2015 WHEREIN THE QUESTION RAISED WAS AS UNDER: WHETHER, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND ON PROPER CONSTRUCTION OF THE AGREEMENT DATED 18 TH MARCH, 1999 ENTERED INTO BETWEEN THE PETITIONER CO MPANY AND GEC AVERY LIMITED THE TRIBUNAL IS JUSTIFIED IN LAW IN HOLDING THAT THE BENEFIT RESULTED FROM THE SAID AGREEMENT IS OF ENDURING NATURE AND THE PAYMENT OF RS.1,22,03 ,486/- MADE BY THE PETITIONER AS PER THE SAID AGREEMENT TO GEC AVERY LIMITED FOR OBTAINING LICENC E TO USE CERTAIN TECHNOLOGY FOR A LIMITED PERIOD OF 7 YEARS IS A CAPITAL EXPENDITURE? THE HONBLE HIGH COURT HAS HELD THE SAME AS CAPITAL EXPENDITURE BY OBSERVING AS UNDER: SUBMISSION IS THAT SINCE THE ISSUE IS COVERED BY THE JUDGMENT OF TIMKEN INDIA LTD., (SUPRA), WHICH IS NOT DISPUTED BY MR. DUDHORIA, LEARNED ADVOCATE F OR THE RESPONDENT, THE QUESTION MAY BE ANSWERED ACCORDINGLY. 14. IN VIEW OF THE ABOVE, LD. COUNSEL FOR THE ASSES SEE STATED THAT ONCE THE ABOVE EXPENDITURE IS HELD TO BE CAPITAL IN NATURE FOR ACQUIRING TANGI BLE ASSET, THE ASSESSEE IS ENTITLED FOR DEPRECIATION. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND HENCE, THE SAME IS CONFIRMED. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 15. IN THE RESULT, APPEALS OF ASSESSEE ARE PARTLY A LLOWED AND THAT OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 15TH MARCH , 2016 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1. APPELLANT AVERY INDIA LTD., PLOT NO. 50-59, SECTO R-25, BALLABGARH-121004 (HARYANA) 2. RESPONDENT DCIT, CIR-1, KOLKATA. 3. CIT(A) , KOLKATA 4. CIT , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .