DCIT, New Delhi V. M/s. Continental Engines Ltd., New Delhi

ITA 774/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5191 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 06-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 115JB; 10B

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI , ACCOUNTANT MEMBER I TA NO . 774/DEL/2013 (ASSESSMENT YEAR: 2009 - 10 ) DCIT, CIRCLE - 3(1), NEW DELHI VS. CONTINENTAL ENGINES LTD, 22, COMMERCIAL COMPLEX, MALCHA MARG, DIPLOMATIC ENCLAVE, NEW DELHI PAN:AABCC9896N (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ANIL KUMAR SHARMA, SR DR ASSESSEE BY: SHRI. KVSR KRISHNA, CA DATE OF HEARING 25/05/ 2017 DATE OF PRONOUNCEMENT 18 / 08 / 2017 O R D E R PER PRASHANT MAHARISHI , A . M . 1. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - VI, NEW DELHI DATED 08.11.2012 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE REVENUE HAS RAISED REVISED GROUNDS OF APPEAL AS UNDER: - 1. WHETHER THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ACTION OF THE AO IN EXCLUDING THE AMOUNT OF RS.3,25,27,21 2/ - [INCLUDING RS.2,54,50,302/ - (WARRANTY CLAIM AND MISCELLANEOUS INCOME OF RS.70 76 , 910/ - FROM THE ASSESSEE'S CLAIM OF DEDUCTION U/S 10B IGNORING THE FACTS THAT THE CLAIM OF EXEMPTION U/S JOB SHALL BE LIMITED TO PROFIT AND GAINS DERIVED FROM THE INDUSTRIAL ACTIVITY ONLY? 2. WHETHER THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.5,78,90,576 / - MADE TO THE BOOK PROFIT FOR THE PURPOSE OF CALCULATING MAT U/S 115JB IGNORING THE FACTS THAT THE WARRANTY PROVISIONS IS NOT ALLOWABLE AS DEDUCTION PARTICULARLY CONSIDERING THE FACT THAT THE LOSS ON ACCOUNT OF WARRANTY HAS NOT BEEN CRYSTALLIZED DURING THE YEAR AS A DMITTED BY THE ASSESSEE? 3. THE BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF AUTO COMPONENTS HAVING THREE UNITS OUT OF WHICH TWO UNITS ARE CARRYING ON MANUFACTURING ACTIVITIES WHEREAS ONE OF THE UNITS A T BHIWADI UNIT IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING LOSS OF RS. 123018667/ - ON 29.09.2009, WHICH WAS SUBSEQUENTLY REVISED ON 22.03.2 011 ON A LOSS OF RS. 61257335/ - PAGE 2 OF 4 . DURING THE YEAR FROM BHIWANDI UN IT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B OF THE ACT OF RS. 348223880/ - AND ALSO DECLARED BOOK PROFIT OF RS. 30639086/ - . DURING THE YEAR THE ASSESSEE CLAIMED WARRANTY EXPENDITURE OF RS. 57890576/ - . THE LD AO COMPUTED THE TOTAL WARRANTED EXPENDITURE OF THE ABOVE AND COLLECTED AN AMOUNT OF RS. 25750302/ - TO THE 10B ELIGIBLE UNITS AND THEREBY REDUCED THE PROFIT ELIGIBLE FOR DEDUCTION UNDER THAT SECTION. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A) WHO DELETED THE ABOVE ADJUSTMENT TO THE PROFIT OF T HE ELIGIBLE UNIT. FURTHER THE ASSESSEE HAS ALSO EARNED THE INTEREST OF ELIGIBLE UNITS OF RS. 8915780/ - . THE LD CIT(A) BOTH THE ISSUES WERE ADJUDICATED IN FAVOUR OF THE ASSESSEE. FURTHER A SUM OF RS. 57890576/ - WERE ALSO ADDED TO THE BOOK PROFIT WHILE COMPU TING THE BOOK PROFIT U/S 115JB OF THE ACT WITH RESPECT TO WARRANTED CLAIM HOLDING THAT SUM IS CONTINGENT LIABILITY. THIS ADDITION TO THE BOOK PROFIT WAS ALSO DELETED BY THE LD CIT(A). THEREFORE, REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTE NTIONS AND ALSO PERUSED THE ORDERS OF THE LOWER AUTHORITIES. SO FAR AS THE FIRST GROUND OF APPEAL IS CONCERNED THE LD CIT(A) HAS HELD THAT ACCORDING TO THE COPIES OF THE AGREEMENT WITH CUSTOMERS THE ASSESSEE WAS TO REVISED ONE OF THE UNITS OF THE PURCHASED UNIT AGAINST THE TWO UNIT OF DEFECTIVE PRODUCTS. SUCH WARRANTED PAYMENT WERE ONE RELATION TO DEFECTIVE CASTING WHICH ROYALTY TO FOUNDRY UNIT AND NOT THE MACHINING UNIT AND NOT THE MACHINING UNITS OF THE APPELLANT COMPANY. THE PROFIT OF THE FOUNDRY UNIT O F THE ASSESSEE WAS CHARGEABLE TO TAX FULLY WHEREAS THE MACHINING UNIT WAS ENJOYING DEDUCTION U/S 10B OF THE ACT. THE LD AO HAS APPORTIONED TOTAL WARRANTY COST AGAINST THE MACHINING UNIT ALSO AND THEREBY REDUCED THE DEDUCTION U/S 10B OF THE ACT. ACCORDING T O THE PROVISIONS OF SECTION 10B OF THE ACT PROFIT AND GAINS HAS DERIVED BY 100% EXPORT ORIENTED UNITS FROM THE EXPORT OF ARTICLE OF THINGS SHALL BE ELIGIBLE FOR DEDUCTION @100% OF SUCH PROFIT FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS FROM THE YEAR O F BEGINNING OF MANUFACTURING . THEREFORE, FOR WORKING OUT A PROFIT AND GAINS DERIVED BY SUCH UNDERTAKING ONLY A RELEVANT DIRECT EXPENDITURE IS REQUIRED TO BE CONSIDERED AND PROPORTIONATE INFLOW OF EXPENDITURE MAY ALSO BE REDUCED FOR THE SAME. IN THE PRESENT CASE THE ASSESSEE HAS CLEARLY DEMONSTRATED THAT THE WARRANTY COST IS FOR THE FOUNDRY UNDERTAKING AND NOT FOR MACHINING UNDERTAKING. THEREFORE, FROM THE PROFITS OF THE MACHINING UNDERTAKING WHICH IS ELIGIBLE UNDERTAKING FOR DEDUCTION PAGE 3 OF 4 10B OF THE ACT, THE WARRANTY EXPENDITURE CANNOT BE REDUCED. THEREFORE, ON THIS GROUND WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT(A). WITH RESPECT TO THE INTEREST INCOME IT IS APPARENT THAT THE ASSESSEE HAS EARNED MISCELLANEOUS INCOME OF RS. 70 76910/ - WHICH HAS BEEN CLAIMED AS INCOME FROM ELIGIBLE UNDERTAKING. AS PER SCHEDULE 11 OF THE ANNUAL ACCOUNT OF THE ASSESSEE IT HAS EARNED MISCELLANEOUS INCOME OF RS. 7076910 AT PAGE 129 OF THE PAPER BOOK AS ASSESSEE HAS GIVEN A DETAILED BREAK UP OF MISCEL LANEOUS INCOME WHEREIN AGAINST THE MACHINING DIVISION OF BHIVANDI UNIT THE ASSESSEE HAS EARNED IN MISCELLANEOUS INCOME. IT IS ALSO EVIDENT FROM THE LETTER DATED 28.03.2011 PLACED AT PAGE NO. 123 OF THE PAPER BOOK. IN VIEW OF THIS GROUND OF APPEAL TO THE EX TENT OF MISCELLANEOUS EXPENDITURE INCOME IS MISCONCEIVED. HENCE, GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 5. GROUND NO. 2 OF THE APPEAL WITH RESPECT TO ADDITION TO THE BOOK PROFIT OF THE COMPANY ON ACCOUNT OF WARRANTY CLAIM OF THE ASSESSEE. TH E LD AO HAS DISALLOWED THE WARRANTY EXPENDITURE OF RS. 57890576/ - HOLDING TO THE BOOK PROFIT OF THE ASSESSEE OF RS. 306390861/ - . THE MAIN REASON SO THAT WARRANTY EXPENDITURE IS NOT ASCERTAINED AND CRYSTALLIZED LIABILITY. THE LD CIT(A) FOLLOWING THE DECISIO N OF THE SUPREME COURT IN THE CASE OF ROTROK CONTROLS VS. CIT 314 ITR 62 DELETED THE ABOVE EXPENDITURE WHEREIN IT HAS BEEN DELETED THAT WARRANTY ATTACHED TO THE SALE PRICE OF THE PRODUCT AND A RELIABLE ESTIMATE OF EXPENDITURE TOWARD SUCH WARRANTY IS A CONT INGENT LIABILITY. 6. THE LD DR COULD NOT CONTROVERT THE FINDING OF THE LD CIT(A) IN CASE OF THE ASSESSEE THAT HE IS A MANUFACTURE AND THEREFORE WARRANTY LIABILITIES IS PRESENT OBLIGATION AND HENCE, SAME CRYSTALISED AS SOON AS THE SALE TAKES PLACE THEREFORE WE CONFIRM THE ORDER OF THE LD CIT(A) FOR DELETING THE ADDITION OF RS. 57890576/ - TO THE BOOK PROFIT OF THE ASSESSEE U/S 115JB OF THE ACT. 7. IN THE RESULT GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 1 8 / 08 / 2017 . - S D / - - S D / - ( AMIT SHUKLA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 8 / 08 / 2017 A K KEOT PAGE 4 OF 4 COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI