Assistant Commissioner of Income-tax, V. Dana India Pvt. Ltd., Pune

ITA 755/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1012 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 15-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R D ONKAR; B; ROOPAM JAIN
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . . , , ' # BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.755/PN/2014 '% % / ASSESSMENT YEAR : 2008-09 ACIT, CIRCLE-8, PUNE . / APPELLANT V/S DANA INDIA PVT. LTD., S.NO.278, RAISONI INDUSTRIAL PARK, VILLAGE MANN-HINJEWADI, TALUKA MULSHI, PUNE 57 PAN NO.AABCD1873A . / RESPONDENT / APPELLANT BY : SHRI SUDHENDU DAS / RESPONDENT BY : SHRI R.D. ONKAR & SHRI ROOPAM JAIN & B / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE OR DER DATED 05-02-2014 OF THE CIT(A)-I, NASHIK RELATING TO AS SESSMENT YEAR 2008-09. 2. GROUND OF APPEAL NO.1 BY THE REVENUE READS AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT(A) WAS JUSTIFIED IN TREATING THE EXPENDITURE INCU RRED TOWARDS PRODUCT AND DEVELOPMENT EXPENDITURE AS REVENUE IN NATURE, WH EN IN FACT THE BENEFIT OF ENDURING NATURE IS SOUGHT TO BE OBTAINED B Y INCURRING THE SAME? / DATE OF HEARING :08.10.2015 / DATE OF PRONOUNCEMENT:09.10.2015 2 ITA NO.755/PN/2014 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF HIGHWA Y AXLES AND COMPONENTS FOR TRACTORS, EARTH MOVING EQUIPMENT ETC. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAS DEBITED AN AMOUNT OF RS.2,71,223/- UNDER THE HEAD P RODUCT DEVELOPMENT EXPENSES. SINCE THE ASSESSEE COULD NOT ELA BORATE THE NATURE OF EXPENDITURE CLAIMED, THE AO HELD THAT THE LINE TH AT DIVIDES REVENUE EXPENDITURE FROM CAPITAL EXPENDITURE IS OFTEN VERY THIN AND HAZY. THEREFORE, TO DECIDE ON WHICH SIDE OF LINE THE EXPEND ITURE FALLS, IT IS NOT NECESSARY TO LOOK AT THE NATURE OF BUSINESS, NA TURE OF EXPENDITURE AND THE NATURE OF RIGHT ACQUIRED. IF THE EXP ENDITURE IS FOR THE INITIAL OUTLAY OF ACQUIRING OR BRINGING INTO EXISTENCE AN A SSET OR ADVANTAGE OF AN ENDURING BENEFIT TO THE BUSINESS WHICH IS BEING CARRIED ON, OR FOR EXTENSION OF THE BUSINESS THAT IS GOING ON, OR FOR A SUBSTANTIAL REPLACEMENT OF AN EXISTING BUSINESS ASSET, THE SAME WOULD BE CAPITAL EXPENDITURE. FROM THE HEAD OF EXPENDITURE, I.E. PRODUCT DEVELOPMENT EXPENDITURE IT IS VERY MUCH CLEAR THAT IT WILL GIVE ENDURIN G BENEFIT TO THE ASSESSEE. RELYING ON THE DECISION OF THE D RP IN THE CASE OF BEHR INDIA LTD. FOR A.Y. 2006-07 THE AO TREATED THE EX PENDITURE AS CAPITAL IN NATURE. AFTER ALLOWING DEPRECIATION OF RS.67,806/- O UT OF THE TOTAL EXPENDITURE OF RS.2,71,223/- THE AO DISALLOWED AN AMO UNT OF RS.2,03,417/-. 4. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE SAID EX PENDITURE HAVE BEEN INCURRED ON REGULAR AND ON-GOING BASIS AND IN THE ORDINARY COURSE OF BUSINESS AND THEREFORE IT IS REVENUE IN NATURE. I T WAS FURTHER SUBMITTED THAT THE DECISION OF THE DRP IN THE CASE OF BEH R INDIA LTD. HAS BEEN SET ASIDE BY THE TRIBUNAL TO THE FILE OF THE AO FO R FRESH ADJUDICATION. 3 ITA NO.755/PN/2014 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 6.1 THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUF ACTURE & SALE OF OFF HIGHWAY AXLES FOR TRACTORS, EARTHMOVING EQUIPMENT , ETC. THE APPELLANT HAS INCURRED THE PRODUCT DEVELOPMENT EXPENSES ON TESTI NG AND PROCESSING OF TOOLS OWNED BY THE CUSTOMER AND KEPT WITH THE APPE LLANT FOR THE PURPOSE OF PROCESSING IN THE ORDINARY COURSE OF CONDUC T OF APPELLANT'S BUSINESS. THE EXPENSES HAVE BEEN INCURRED ON REGULAR AN D AN ONGOING BASIS AND IN THE ORDINARY COURSE OF CONDUCT OF COMPANY 'S BUSINESS. THE CHARGES CONSIST OF PERFORMANCE TESTS OF RE-IMBURSEMENT O F PROTO TYPE DEVELOPMENT OF COMPONENTS/SUB PARTS AND TESTING EXPENSES . SUCH EXPENSES HAVE NOT RESULTED INTO CREATION OR ACQUISITION OF ANY ASSET, RIGHT OR PROPERTY OR INTEREST IN ANY PROPERTY IN THE HANDS OF THE APPELLANT COMPANY. THE EXPENSES ARE REVENUE EXPENSES INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF APPELLANT'S BUSINESS OPER ATIONS. THE APPELLANT HAS PLACED RELIANCE IN SUPPORT OF THE CLAIM FOR DEDUCTION OF PRODUCT DEVELOPMENT EXPENSES ON THE DECISION OF HON'BL E GUJARAT HIGH COURT WHEREIN IT IS HELD THAT THE PRODUCT & DEVELOPM ENT EXPENDITURE INCURRED IN CONNECTION WITH THE TESTING OF THE PRODU CT AND NOT IN CONNECTION WITH THE TESTING OF OWNED MACHINERY OR P LANT INSTALLED IN ORDER TO MANUFACTURE THE PRODUCT DOES NOT BRING INTO EXISTE NCE ANY CAPITAL ASSET OR ADVANTAGE OF ENDURING NATURE. THIS VIEW IS FORTIFI ED BY THE JUDICIAL DECISIONS RELIED ON BY THE APPELLANT(SUPRA). IN VIEW O F THE ABOVE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE EXPENDITURE OF R S. 2,03,417/- IS TREATED AS REVENUE EXPENDITURE AND IS ALLOWED. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED ON THE ORDER OF THE AO. 8. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT BECAUS E OF THE COMPETITION IN THE MARKET THE ASSESSEE HAS TO COME OUT WITH NEW FEATURES EVERY YEAR TO REMAIN IN THE FIELD. THEREFORE, THER E IS CONSTANT UPGRADATION OF THE ORIGINAL PRODUCT ALREADY MANUFACTURED AND SOLD BY THE ASSESSEE. HE SUBMITTED THAT THE SAID RECURRING EXPENSES C ONSIST OF PERFORMANCE TESTS, REIMBURSEMENT OF PROTOTYPE DEVELOPMEN T OF COMPONENTS/SUB-PARTS AND TESTING EXPENSES. SUCH EXPE NSES HAVE NOT RESULTED INTO CREATION OR ACQUISITION OF ANY ASSET, RIGHT O R PROPERTY OR 4 ITA NO.755/PN/2014 ANY ADVANTAGE OF ENDURING NATURE IN ASSESSEES HANDS. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF THE SISTER CONCERN OF THE ASSESSEE NAMELY ACIT VS. SPICER INDIA P VT. LTD. VIDE ITA NOS. 1191, 1192/PN/2007 AND ITA NO.102/PN/2008 FOR A.Y. 2 001-02, 2003-04 AND 2002-03 RESPECTIVELY ORDER DATED 24-04-2 008 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD T HAT THE SAID EXPENSES WERE INCURRED BY THE ASSESSEE ON AN ON-GOING BASIS IN THE OPERATION OF ASSESSEES BUSINESS AND THEREFORE FULLY ALLOWA BLE IN THE YEAR OF INCURRING OF EXPENSES. REFERRING TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT SMALL SCALE IND USTRIES CORPORATION LTD. VS. CIT REPORTED IN 142 ITR 35 HE SUBM ITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT EXPE NDITURE INCURRED AFTER THE MANUFACTURING OF A PRODUCT BUT BEFORE MARKETING IT IN ORDER TO TEST ITS QUALITY AND SUITABILITY FOR MARKET IS A REVENUE EXPENDITURE. HE ALSO RELIED ON THE FOLLOWING DECISIONS : 1. REDIFFMAIL INDIA LTD. REPORTED IN (2011) 141 TTJ 67 9 2. ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT REPORTED IN ( 1989) 177 ITR 377 3. TEJAS NETWORKS INDIA PVT. LTD. REPORTED IN 229 TAXMAN N 40 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO TREATED THE P RODUCT DEVELOPMENT EXPENDITURE INCURRED BY THE ASSESSEE AS C APITAL EXPENDITURE IN NATURE AS AGAINST REVENUE IN NATURE TREA TED BY THE ASSESSEE. AFTER ALLOWING DEPRECIATION OF RS.67,806/- OUT OF THE TOTAL EXPENDITURE OF RS.2,71,223/- THE AO MADE ADDITION OF RS.2,03 ,417/- TO THE TOTAL INCOME OF THE ASSESSEE. WE FIND THE LD.CIT(A) FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CAS E OF GUJARAT 5 ITA NO.755/PN/2014 SMALL SCALE INDUSTRIES CORPORATION (SUPRA) HELD THAT THE P RODUCT DEVELOPMENT EXPENDITURE IS REVENUE IN NATURE. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE. ADMITTEDLY, THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF HIGHWA Y AXLES AND COMPONENTS FOR TRACTORS, EARTH MOVING EQUIPMENT ETC . SINCE THE MARKET IS VERY COMPETITIVE ONE, THE ASSESSEE HAS TO COM E OUT WITH NEW FEATURES IN THE PRODUCTS TO REMAIN IN THE FIELD. THEREFORE, IT IS A NECESSITY FOR THE ASSESSEE FOR CONSTANT UPGRADATION OF T HE ORIGINAL PRODUCT ALREADY MANUFACTURED AND SOLD BY IT. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT SMALL SCALE INDUSTRIES CORPORATION (SUPRA) HAS HELD THAT EXPENSES INCURRED AFTER THE MANUFAC TURE OF A PRODUCT BUT BEFORE MARKETING IT IN ORDER TO TEST ITS QUA LITY AND SUITABILITY FOR MARKETING IS REVENUE EXPENDITURE IN NATURE. SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCH OF THE TRIB UNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE, I.E. SPICER INDIA LT D. (SUPRA). THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FO R THE ASSESSEE ALSO SUPPORT ITS CONTENTION. FURTHER, THE AMOU NT INCURRED BY THE ASSESSEE ON ACCOUNT OF PRODUCT DEVELOPMENT EXP ENSES IN THE FACTS AND CIRCUMSTANCES OF THE CASE IS VERY NEGLIGIBLE FOR W HICH IT CANNOT BE CONSIDERED AS CAPITAL IN NATURE. IN VIEW OF TH E ABOVE AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE LD.CIT(A), WE FIN D NO INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGL Y, THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 10. GROUND OF APPEAL NO.2 BY THE REVENUE READS AS UNDER : 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT(A) WAS JUSTIFIED IN TREATING THE EXPENDITURE INCU RRED TOWARDS SHIFTING OF ITS MANUFACTURING OPERATIONS AS REVENUE IN NATURE, WHEN THE NATURE OF THE EXPENSE ITSELF SUGGEST THAT IT IS NOT A RECURRING EX PENDITURE AND IS INCURRED VERY FEW TIMES IN THE ENTIRE BUSINESS LIFE OF THE ASSESSEE? 6 ITA NO.755/PN/2014 11. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT HAS DEBITED AN AMOUNT OF RS.6,70,000/- ON AC COUNT OF SHIFTING EXPENSES. ON BEING QUESTIONED BY THE AO TO FURNIS H JUSTIFICATION FOR CLAIMING OF SUCH EXPENDITURE INCURRED ON SH IFTING OF PLANT AND MACHINERY FROM ONE UNIT TO ANOTHER AS REVENUE EXPENDITURE, THE ASSESSEE SUBMITTED THE DETAILS OF THE SA ID EXPENSES ALONG WITH BILLS AND VOUCHERS. ON EXAMINATION OF THE DETAILS, THE AO NOTED THAT THESE EXPENSES HAVE BEEN INCURRED FOR SHIFT ING AND INSTALLATION OF MACHINES. RELYING ON THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF SITALPUR SUGAR WORKS LTD. REPORTED IN 49 ITR 160 THE AO HELD THAT THE EXPENDITURE OF RS.6,70,000/- ON ACCO UNT OF SHIFTING EXPENSES IS CAPITAL IN NATURE. HE ACCORDINGLY DISAL LOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 12. IN APPEAL THE LD.CIT(A) DELETED THE ADDITION BY OBSERV ING AS UNDER : 6.3 GROUND NO.3 IS REGARDING DISALLOWANCE OF RS.6,70, 000/- INCURRED BY THE APPELLANT TOWARDS SHIFTING OF ITS MANUFACTURING OPERATIONS FROM FORMER RENTED LOCATION AT CHAKAN TO HINJEWADI. THE SAID SHIFTING EXPENDITURE WAS INCURRED AS THE RENTED LOCATION AT CH AKAN HAD TO BE VACATED BY THE APPELLANT IN ORDER TO ENABLE SPICER INDIA LTD TO UTILIZE AND SHIFT TO HINJEWADI. THE APPELLANT HAD TO VACATE THE PREMISE AND SHIFT THE RENTED PREMISE AT HINJEWADI WHICH WAS FAR OFF FROM IT S VENDOR SUPPLIERS AND CUSTOMERS. THE SHIFTING EXPENDITURE WAS INCURRED M ERELY FOR CARRYING ON BUSINESS OPERATIONS. THE EXPENDITURE INCUR RED IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IS A REVENUE EXPENDITURE. IN SUPPORT OF ITS CONTENTION, THE APPELLANT HAS PLACED RE LIANCE IN THE CASE OF L LTD. (SUPRA). IN VIEW OF THE ABOVE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF RS.6,70,000/- IS DELETED. 13. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK 7 ITA NO.755/PN/2014 FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SITALPUR SUGAR WOR KS LTD. (SUPRA) DISALLOWED THE EXPENDITURE OF RS.6,70,000/- INCURRED B Y THE ASESSSEE TOWARDS SHIFTING OF ITS MANUFACTURING OPERATION FRO M CHAKAN TO HINJEWADI AS CAPITAL IN NATURE. WE FIND THE LD.CIT(A) FOLL OWING THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. L LTD. DELETED THE ADDITION HOLDING THAT THE SAME IS REVENUE IN NATURE. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 6 OF TH E ORDER READS AS UNDER : 6. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES. IT IS EVIDENT THAT THE FACTS OF THE CASE ARE ENTIRELY DIFF ERENT FROM THE FACTS EXISTING IN THE CASE OF SITALPUR SUGAR WORKS LTD (1). ON WHICH THE REVENUE RELIES. IN THAT CASE THE ASSESSEE, DOING BUSINESS OF MANUFA CTURING SUGAR AT SITALPUR, FOUND THAT THE PLACE SUFFERED FROM RAVAGES OF FLOODS AND THE QUALITY OF SUGARCANE WAS NOT IN SUFFICIENT QUANTITY TH ERE. WITH A VIEW TO INCREASING ITS BUSINESS, THEREFORE, THE ASSESSEE SHIFTED THE FACTORY TO GARAUV AND IN THE PROCESS OF DISMANTLING THE BUILDING AND MACHINERY AND TRANSPORTING AND ERECTING THEM AT GARAUV INCURRED AN EXPENDITURE OF RS.. IT WAS IN THAT CONTEXT THAT THE SUPREME COURT HELD THAT THE EXPENDITURE WAS IN THE NATURE OF CAPITAL EXPENDITURE BECAUSE IT WAS INCURRED NOT FOR THE PURPOSE OF CARRYING ON BUSINESS BU T FOR SETTING UP THE SAME WITH A GREATER ADVANTAGE FOR THE TRADE THAN IT HAD IN ITS PREVIOUS SET UP. THE SUPREME COURT DID NOT LAY DOWN ASSISTANT A GE NERAL RULE THAT SHIFTING EXPENSES SHOULD IN EVERY CASE BE CONSIDERED ASSISTA NT CAPITAL EXPENDITURE. WE ARE IN FACT AWARE THAT IN ANOTHER H IGH COURT DECISION SHIFTING EXPENSES HAVE BEEN ALLOWED ASSISTANT REVENUE EXP ENDITURE, THOUGH WE CANNOT READILY LAY OUR HANDS THEREON, NOR HAS THE ASSESSEE BROUGHT THAT DECISION TO OUR NOTICE. THE FACTS ON REC ORD INDICATE THAT THE ASSESSEE WHICH WAS CARRYING ON BUSINESS IN A CONVENIENT LOC ALITY HAD NECESSARILY TO SHIFT TO A MUCH DISTANT PLACE LIKE DEONA R ONLY BECAUSE TATA OIL MILLS LTD. WANTED THE PREMISES FOR ITS OWN USE. THE FACTORY WAS SHIFTED TO A LESS CONVENIENT PLACE NOT BECAUSE OF ANY INTENDE D EXPANSION PROGRAMME NOR FOR ANY GREATER ADVANTAGE BUT ONLY BE CAUSE THE ASSESSEE COULD NOT STICK TO ITS OLD PLACE. BY SHIFTING THE FACT ORY, THEREFORE, THE ASSESSEE DID NOT SECURE ANY BENEFIT OF ANY ENDURING NATU RE, AND THE EXPENDITURE CANNOT, THEREFORE, BE REGARDED ASSISTANT C APITAL IN NATURE.S.37(1) AUTHORISES THE ASSESSEE TO CLAIM ASSISTANT AL LOWABLE ANY EXPENDITURE NOT IN THE NATURE OF CAPITAL OR PERSONAL EXPENSES, WHICH IS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF BUSINESS. THE EXPENDITURE IN QUESTION IS SURELY LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WAS NOT IN THE NATURE OF CAPITA L EXPENDITURE. WE, THEREFORE, HOLD THAT THE AUTHORITIES BELOW WERE WRON G IN NOT ALLOWING THE EXPENDITURE, AND WE DIRECT THE INCOME-TAX OFFICER T O ALLOW THE SAME. 8 ITA NO.755/PN/2014 15. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL CITED (S UPRA) WE HOLD THAT THE SHIFTING EXPENDITURE INCURRED BY THE ASS ESSEE IS FOR CARRYING ON ITS BUSINESS OPERATION AND THE SAME IS INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HAS TO B E TREATED AS REVENUE EXPENDITURE. IN THIS VIEW OF THE MATTER WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE GROUND RAISED BY THE RE VENUE IS DISMISSED. 16. GROUND OF APPEAL NO.3 BY THE REVENUE READS AS UNDER : 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE ON THE ISSUE OF PROVISION FOR WARRANTY, WITHOUT APPRECIATING THAT TH E PROVISION HAS NOT BEEN MADE ON A SCIENTIFIC BASIS? 17. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE HAS SHOWN WARRANTY PROVISION OF RS.21,49,404/- IN THE BALANCE SHEET. IN THE NOTES TO COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAS STATED THAT AS PER ITS SALES POLICY, DURING THE WARRANTY PERIOD, THE COMPA NY UNDERTAKES TO REPAIR/REPLACE THE DAMAGED PART OF THE G OODS SOLD. ON THE BASIS OF ITS PAST EXPERIENCE BASED ON STATISTICAL INFORM ATION AND TECHNICAL ASSESSMENTS AND REVIEW THEREOF, THE COMPANY HA S DURING THE YEAR, MADE A PROVISION FOR WARRANTY OF RS.21,49,404/-. SINCE THE LIABILITY UNDERTAKEN BY THE COMPANY TO CARRY OUT THE REPAIRS/REPLACEMENT OF DAMAGED PARTS OF GOODS SOLD BY IT DURING THE WARRANTY PERIOD IS AN EXISTING ACCRUED LIABILITY AT THE TIME OF SALES THE SAME IS CLAIMED AS DEDUCTION IN THE RETURN OF INCOME. TH E AO, THEREFORE, ASKED THE ASSESSEE TO JUSTIFY THE CLAIM OF EX PENSE ON ACCOUNT OF PROVISION FOR WARRANTY OF RS.21,49,404/- ALONG W ITH BASIS FOR COMPUTATION OF PROVISIONS, DETAILS OF PROVISION CLAIMED IN TH E EARLIER YEAR AND RETURNED BACK DURING THE YEAR, AMOUNT NOT BEING 9 ITA NO.755/PN/2014 UTILIZED ETC. SINCE THERE WAS NO RESPONSE FROM THE ASSE SSEE AND SINCE THE WARRANTY PROVISION MADE DURING THE YEAR WAS RS.7,96,2 00/-, THE AO FOLLOWING THE ORDERS OF HIS PREDECESSORS IN ASSESSEES OWN CASE FOR EARLIER YEARS DISALLOWED THE WARRANTY PROVISIONS OF RS.7,96,20 0/- MADE DURING THE YEAR AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSE. 18. IN APPEAL THE LD.CIT(A) FOLLOWING THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 DELETED THE ADDITION BY OBSERVING AS UNDER : 6.4 GROUND NO.4 IS REGARDING DISALLOWANCE OF WARRANT Y PROVISION OF RS.7,96,200/-. I HAVE CAREFULLY CONSIDERED THE FACTS O F THE CASE, THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. AFTE R HEARING THE APPELLANT I FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN I.T.A. NO.1805/PN /2012 DATED 22/10/2013 IN ASSESSEE'S OWN CASE FOR A.Y. 2006-07 WHERE IN THE ISSUE HAS BEEN DECIDED AS UNDER:- 'WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE LD. CIT(A) WHIL E DECIDING THE ISSUE HAS DISTINGUISHED THE FACTS VIS-A-VIS A.Y. 2004-05 AND 2 005-06 BY GIVING A FINDING THAT AN AMOUNT OF RS. 18.87 LAKHS HAS BEEN AC TUALLY SPENT IN THE SUCCEEDING YEAR AND THEREFORE THE PROVISION FOR WARRA NTY LIABILITY AT RS.12,70,996/- PROVIDED BY THE ASSESSEE IN THE BOOKS IS JU STIFIED. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ANY MATE RIAL TO DEVIATE FROM THE FINDINGS GIVEN BY THE LD. CIT(A). SINCE THE LD. CIT(A) WHILE DECIDING THE ISSUE HAS GIVEN A FINDING THAT THE AMOUNT OF RS.12, 70,996/- PROVIDED ON ACCOUNT OF WARRANTY LIABILITY DURING THE YEAR WA S REVERSED BACK IN NEXT YEAR AND ACTUAL EXPENSES WERE SHOWN AT RS. 18.87 LAKHS, THEREFORE, IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. (SUPRA) WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) DELETING THE ADDITION. ACCORDINGLY, THE SAME IS UPHEL D. THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED'. 6.5 IT IS FURTHER BROUGHT TO MY NOTICE THAT THE ENT IRE AMOUNT OF WARRANTY PROVISION RS.7,96,200/- MADE IN THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED AY. 2008-09 HAS BEEN REVERSED IN THE SUCCEEDING YEAR ENDED 31 ST MARCH, 2010 (AY. 2010-11) AFTER THE EXPIRY OF WARRANTY PERIOD OF 18 TO 24 MONTHS FROM THE YEAR OF SUPPLY. THE SAID P ROVISION AMOUNT HAS BEEN REVERSED AND CREDITED TO THE WARRANTY EXPENSES AC COUNT FOR THE SAID F.Y. 2009-10 (AY. 2010-11) REDUCING THEREBY DEBIT O F EXPENSES IN THE PROFIT & LOSS ACCOUNT AND FULLY OFFERED TO TAX IN THE SAID AY. 2010-11. THE COPY OF THE JOURNAL ENTRY PASSED IN THE BOOKS OF ACCOU NT REFLECTING THE REVERSAL AND CREDIT OF PROVISION FOR WARRANTY TO THE EXPENSES IN PROFIT & LOSS ACCOUNT FOR THE PREVIOUS YEAR ENDED 31 ST MARCH, 2010 (AY. 2010-11) IS ON RECORD. IT IS CLEAR FROM THE SAID ENTRY THAT THE AMOUNT OF 10 ITA NO.755/PN/2014 RS.7,96,201/- COMPRISED IN THE TOTAL REVERSAL OF RS.19, 85,201/- HAS BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT OF THE APPELLANT COMPANY FOR THE AY. 2010-11 AND HAS BEEN OFFERED TO TAX FOR THE SAID AY. 2010-11. 6.6 RESPECTFULLY FOLLOWING THE DECISION OF THE HON'B LE ITAT IN APPELLANT'S OWN CASE FOR AY. 2006-07 AND IN VIEW OF THE ABOVE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF RS.7 ,96,200/- IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 19. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 20. AFTER HEARING BOTH THE SIDES, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING SUCH ADDITION. ADMITTEDLY, THE AO FOLLOWIN G HIS ORDER FOR EARLIER YEARS IN ASSESSEES OWN CASE, DISALLOWED A N AMOUNT OF RS.7,96,200/- BEING WARRANTY PROVISION MADE DURING THE YEA R. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 HAS DELETED SUCH DISALLOWANCE. SINCE THE ISSUE HAS ALREADY BEEN DECID ED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE, THEREFORE, IN ABSENCE O F ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE OR DER OF THE TRIBUNAL IN ASSESSEES OWN CASE, ON THIS ISSUE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING SUCH ADDITION. ACCORDINGLY, T HE ORDER OF CIT(A) IS UPHELD AND THE GROUNDS RAISED BY THE ASSESS EE ON THIS ISSUE IS DISMISSED. 21. GROUND NO.4 BY THE REVENUE BEING GENERAL IN NATURE IS DISMISSED 22. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09-10-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) ' / JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE ; DATED : 09 TH OCTOBER, 2015. 11 ITA NO.755/PN/2014 ( )'+ , / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. & ( ) , / THE CIT(A)-I, NASHIK 4. & / THE CIT-I, NASHIK 5. 6. ) ,,-, -, / DR, ITAT, A PUNE; 1 / GUARD FILE. / BY ORDER , ) , //TRUE C ) , //TRUE COPY// 34 , - / SR. PRIVATE SECRETARY -, / ITAT, PUNE