M/s. Amalgamation Valeo Clutch Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 797/CHNY/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5220 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 25-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Additional evidence
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER) .. I.T.A. NO. 797/MDS/2009 ASSESSMENT YEAR : 2004-05 M/S AMALGAMATION VALEO CLUTCH PVT. LTD., 134, GNT ROAD, CHENNAI 600 110. PAN : AAACA9038P (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI SAROJ KUMAR PARIDA RESPONDENT BY : SHRI SHAJI P. JACOB O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, IT HAS RAISE D SIX GROUNDS IN TOTAL OUT OF WHICH, GROUND NOS. 1 AND 6 ARE GENERAL NEEDING NO ADJUDICATION. I.T.A. NO. 797/MDS/09 2 2. VIDE ITS GROUND NOS. 2 AND 3, GRIEVANCE OF ASSES SEE IS THAT CIT(APPEALS) CONFIRMED THE DISALLOWANCE WITH REGARD TO DEPRECIATION ON TECHNICAL KNOW-HOW MADE BY THE A.O. 3. WHEN THIS ISSUE CAME UP, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS TRIBUNAL HAD, IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03, HELD THAT ASSESSEE WAS ENT ITLED TO DEPRECIATION ON TECHNICAL KNOW-HOW RECEIVED FROM M/ S VALEO, FRANCE, IN I.T.A. NO. 35/MDS/2008 DATED 9 TH OCTOBER, 2009. FURTHER, AS PER THE LEARNED COUNSEL FOR THE ASSESSEE, HON'BLE JURIS DICTIONAL HIGH COURT HAD DISMISSED THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THIS TRIBUNAL AND COPY OF THE ORDER OF THE JURISDICTIONAL HIGH COURT IN T.C.A. NO. 1009 OF 2010 DATED 8.11.2010 WA S ALSO PLACED ON RECORD. 4. LEARNED D.R. FAIRLY ADMITTED THAT THIS ISSUE STO OD DECIDED IN FAVOUR OF ASSESSEE. 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. THE ISSUE IS REGARDING DEPRECIATION ON TECHNICAL KN OW-HOW RECEIVED FROM M/S VALEO, FRANCE. THIS TRIBUNAL IN I.T.A. NO . 35/MDS/2008 I.T.A. NO. 797/MDS/09 3 DATED 9 TH OCTOBER, 2009 FOR ASSESSMENT YEAR 2002-03, IN ASSE SSEES OWN CASE, HAD HELD AFTER ELABORATE DISCUSSION THAT TECHNICAL KNOW- HOW RECEIVED WAS A PLANT AND THE ASSESSEE WAS ELIGI BLE FOR DEPRECIATION THEREON. WE ALSO FIND THAT HON'BLE JU RISDICTIONAL HIGH COURT IN T.C.A. NO. 1009 OF 2010 HAS DISMISSED THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THIS TRIBUNAL. TH E FACTUAL SITUATION IS THE SAME AND THE CLAIM OF DEPRECIATION FOR IMPUG NED ASSESSMENT YEAR IS ALSO ON THE SAME FOOTING. WE, THEREFORE, D O NOT FIND ANY REASON TO DEVIATE FROM THE VIEW TAKEN BY THIS TRIBU NAL FOR THE EARLIER YEAR. WE DIRECT THE ASSESSING OFFICER TO GRANT THE ASSESSEE DEPRECIATION ON TECHNICAL KNOW-HOW FOR IMPUGNED ASS ESSMENT YEAR. 6. GROUND NOS. 2 AND 3 STAND ALLOWED. 7. VIDE ITS GROUND NOS. 4 AND 5, GRIEVANCE OF THE A SSESSEE IS THAT CIT(APPEALS) CONFIRMED ADDITION MADE BY THE A.O. ON PROVISIONS MADE TOWARDS WARRANTY AND R&D CESS WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF INCOME-TAX ACT, 1961 (HEREIN AFTER CALLED THE ACT). I.T.A. NO. 797/MDS/09 4 8. SHORT FACTS APROPOS ARE THAT WHILE COMPUTING BOO K PROFIT UNDER SECTION 115JB OF THE ACT, ASSESSING OFFICER HAD CON SIDERED PROVISION MADE TOWARDS WARRANTY AND PROVISION TOWARDS R&D CES S PAYABLE ON ROYALTY, TO BE PROVISIONS FOR UNASCERTAINED LIABILI TIES. A.O. NOTED FROM THE TAX AUDIT REPORT THAT PROVISION MADE TOWARDS WA RRANTY COMING TO ` 10 LAKHS WAS MENTIONED BY THE TAX AUDITORS AS A LIA BILITY OF CONTINGENT NATURE. IN SO FAR AS PROVISION OF ` 18,29,172/- FOR R&D CESS PAYABLE ON ROYALTY WAS CONCERNED, THE A.O. NOTED THAT THE B ASIS OF THIS PROVISIONING WAS NEVER SPELT OUT BY THE ASSESSEE, E XCEPT FOR ITS ASSERTION THAT THIS WAS A ASCERTAINED LIABILITY. H E, THEREFORE, MADE ADDITIONS OF THE ABOVE PROVISIONS WHILE WORKING OUT THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 9. IN ITS APPEAL BEFORE THE CIT(APPEALS), CONTENTIO N OF THE ASSESSEE WAS THAT THESE PROVISIONS WERE FOR ASCERTA INED LIABILITIES AND THEREFORE, NO ADDITION THEREOF COULD HAVE BEEN MADE WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE AC T. HOWEVER, THE CIT(APPEALS) WAS NOT IMPRESSED, FOR, ACCORDING TO H IM, ASSESSEE DID I.T.A. NO. 797/MDS/09 5 NOT PROVIDE ANY DETAILS ON THE PROVISIONS MADE BY I T FOR WARRANTY AND R&D CESS. 10. NOW BEFORE US, THE LEARNED A.R. SUBMITTED THAT THE WARRANTY PROVISIONS WERE MADE BASED ON CREDIT NOTES ISSUED B Y ITS CUSTOMERS AND THESE WERE WORKED OUT RELYING ON PAST CLAIMS MA DE BY THE CUSTOMERS. ACCORDING TO HIM, SUCH CLAIM OF WARRANT Y WAS HELD TO BE AN ALLOWABLE EXPENSE BY HON'BLE APEX COURT IN THE C ASE OF ROTORK CONTROLS INDIA P. LTD. V. CIT (2009) 314 ITR 62 (SC ). IN SO FAR AS PROVISION FOR CESS WAS CONCERNED, LEARNED A.R. SUBM ITTED THAT THIS WAS PAYABLE ON ROYALTY AND BEING A STATUTORY LIABIL ITY, IT WAS CLEARLY AN ASCERTAINED SUM. REFERRING TO PAGES 1 AND 2 OF PAP ER-BOOK FILED BY HIM, LEARNED A.R. SUBMITTED THAT THE WORKINGS OF TH ESE PROVISIONS, THOUGH NOT FILED BEFORE THE A.O. OR CIT(APPEALS), H AD TO BE CONSIDERED AND THE ISSUE RELATING TO ALLOWANCE OF S UCH PROVISION REMITTED BACK TO A.O. FOR CONSIDERATION AFRESH. 11. PER CONTRA, THE LEARNED D.R. SUBMITTED THAT THE ASSESSING OFFICER HAD RELIED ON THE AUDIT REPORT FURNISHED BY THE ASSESSEE WHEREIN PROVISION FOR WARRANTY WAS MENTIONED AS A C ONTINGENT I.T.A. NO. 797/MDS/09 6 LIABILITY. DESPITE REQUESTS, ASSESSEE HAD NOT FURN ISHED THE DETAILS OF WORKING BEFORE THE A.O. OR BEFORE THE CIT(APPEALS), FOR SUCH PROVISIONING. ACCORDING TO HIM, NOW THE ASSESSEE H AS COME UP WITH NEW WORKINGS WHICH ARE ONLY AN AFTERTHOUGHT. IN SO FAR AS RELIANCE ON DECISION OF HON'BLE APEX COURT IN THE CASE OF ROTOR K CONTROLS INDIA P. LTD. (SUPRA) WAS CONCERNED, LEARNED D.R. SUBMITTED THAT HON'BLE APEX COURT HAD ITSELF MENTIONED THAT SUCH PROVISION ING FOR WARRANTIES WAS NOT TO BE ALLOWED AS UNIVERSAL PRACTICE BUT TO BE DECIDED BASED ON FACTS OF EACH CASE. 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. A LOOK AT THE ASSESSMENT ORDER WOULD SHOW THAT ASSESS EE HAD NOT GIVEN THE WORK-OUTS FOR THE PROVISION MADE FOR WARR ANTY AND PROVISION MADE FOR R&D CELL PAYABLE ON ROYALTY. THE ONLY REP LY GIVEN BY THE ASSESSEE WAS THAT THESE PROVISIONS WERE ASCERTAINED LIABILITIES. IN SO FAR AS PROVISION FOR WARRANTY IS CONCERNED, ADMITTE DLY, THE TAX AUDIT REPORT OF THE ASSESSEE MENTIONED IT AS LIABILITY CO NTINGENT IN NATURE. BEFORE THE CIT(APPEALS) ALSO ASSESSEE DID NOT PRODU CE WORKINGS FOR WARRANTY PROVISIONING OR FOR THE CESS PROVISIONING. NO DOUBT, IN THE CASE OF ROTORK CONTROLS INDIA P. LTD. (SUPRA), HON' BLE APEX COURT HAD I.T.A. NO. 797/MDS/09 7 HELD THAT PROVISION FOR WARRANTY BASED ON SCIENTIFI C BASIS WAS AN ALLOWABLE BUSINESS EXPENDITURE. NEVERTHELESS, AS M ENTIONED BY THE LEARNED D.R., HON'BLE APEX COURT HAS CLEARLY HELD T HAT SUCH WARRANTY EXPENSE HAD TO BE PROPERLY ASCERTAINED FOR PROVISIO NING. ASSESSEE COULD NOT PRODUCE ANY DETAILS BEFORE THE A.O. OR TH E CIT(APPEALS) REGARDING THE BASIS OF WORK-OUT OF ITS PROVISIONING EITHER FOR WARRANTY OR FOR R&D CESS PAYABLE. THOUGH THE ASSESSEE HAS F ILED A SHORT WORK-OUT FOR THE FIRST TIME BEFORE US, WE ARE OF TH E OPINION THAT A PROVISIONING MADE COULD NOT BE CONSIDERED AS SCIENT IFIC ONLY ON THE BASIS OF SUCH NON-DETAILED WORK-OUT ESPECIALLY WHEN THESE DETAILS WERE NOT AVAILABLE BEFORE THE A.O. OR THE CIT(APPEA LS). EVEN OTHERWISE, RULE 29 OF APPELLATE TRIBUNAL RULES, 196 3 ADMITS PRODUCTION OF ADDITIONAL EVIDENCE ONLY WHEN PROPER REASONS ARE SHOWN BY THE ASSESSEE SUPPORTED BY AN AFFIDAVIT, AS TO WHY SUCH EVIDENCE COULD NOT BE FURNISHED BEFORE THE LOWER AU THORITIES. THERE IS NO SUCH AFFIDAVIT ON RECORD NOR HAS THE COUNSEL FOR ASSESSEE BROUGHT ON RECORD ANY REASON AS TO WHY IT COULD NOT PRODUCE THE WORKINGS FOR THE PROVISIONS, BEFORE THE A.O. OR THE CIT(APPEALS). WE, I.T.A. NO. 797/MDS/09 8 THEREFORE, UPHOLD THE ORDER OF THE CIT(APPEALS) IN THIS REGARD. GROUND NOS. 4 AND 5 THEREFORE STAND DISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 21 ST APRIL, 2011. SD/- SD/- (U.B.S. BEDI) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 21 ST APRIL, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE