2019 (12) TMI 435 - AT - Income Tax

Addition on account of bad debts - bad debts u/s 36(1)(vii) - non-recoverable outstanding balance from the concern namely Parag Fans Cooling Systems Pvt. Ltd. (in short PFCSPL) - HELD THAT - Though it was not necessary for the assessee to establish that the debts, in fact, have become irrecoverable. Still the assessee has placed necessary material on record to show that the outstanding debts were not irrecoverable. However, the fact needs to be verified as to whether the alleged amount was offered as revenue in the preceding years and also whether the amount has been written off in the account of the assessee. In the ledger account placed in Assessee has shown outstanding debts and no entry seems to have been passed for crediting the amount with the bad debts claimed. We, therefore, deem it fit and proper to remit the matter to the file of the AO for carrying out necessary verification with the assistance of assessee as well as the related documents in order to satisfy that the alleged amount was shown as revenue in the preceding years and the ledger account has been actually written off in the books of account of assessee by way of crediting the debtor s accounts and debiting the bad debts accounts. Disallowance of excise duty payable - whether the demand raised by the department of Customs Central Excise Service Tax for the earlier years can be claimed as an expenditure by the assessee for the year in which the liability to pay such demand is crystallized ? - HELD THAT - Assessee has rightly booked expenditure of excise duty payable which crystalized during the year under appeal. Before parting of we would like to mention one more fact which is not in dispute that subsequently the assessee succeeded in the appeal before the CESTAT and total demand was deleted. The assessee got refund which was paid by it and the same has been offered for tax in the return of income for A.Y. 2018-19 and for the remaining amount the claim was reversed in the excise records. Therefore, the entire amount which was claimed as expenditure during the assessment year 2012-13 has been brought to tax F.Y. 2018-19. We, therefore, in the given facts and circumstances of the case are of considered view that the assessee has rightly claimed the excise duty payable as expenditure which is raised on account of demand pertaining to earlier years. Disallowance on account of provisions of warranty - HELD THAT - On the basis of the historic data and past experience it was anticipated that 3 to 4% of the pumps manufactured during the financial year, comes back for repairing or servicing. In order to meet such expenses provisions is created under the head warranty in each year and the actual expenses incurred during the year are adjusted against the provision. Any amount left is credited back as income. During the year under appeal, AO on examining the records observed that during the year against the provisions of warranty no actual expense was incurred or paid during the year. AO considered the nature of the warranty as contingent liability. The assessee was also unable to prove with documents about the basis of such provision in absence of the information for the exact no. of pumps manufactured during the year for which warranty is made. Fair to both the parties deem it fit and proper to remit the limited issue of examining the provision of warranty expenses to the file of the AO for afresh adjudication on merits in accordance with the provision of law after giving due and reasonable opportunity of hearing to the assessee.

Issues Involved:
1. Disallowance of bad debts for A.Y. 2008-09.
2. Disallowance of excise duty payable for earlier years for A.Y. 2012-13.
3. Disallowance of provisions for warranty for A.Y. 2012-13.

Detailed Analysis:

1. Disallowance of Bad Debts for A.Y. 2008-09:
The assessee, a private limited company engaged in manufacturing motors and job work, declared a loss of ?99,35,724/-. The Assessing Officer (AO) disallowed the bad debts of ?27,06,697/- claimed by the assessee, which pertained to the outstanding amount from M/s Parag Cooling & Fans Ltd. The AO argued that the assessee should have added back the provisions for bad debts in the computation of income. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this disallowance, stating that the assessee's claim was contradictory since it wrote off only part of the debt while still hoping to recover another part. The Tribunal referred to the Supreme Court judgment in TRF Ltd. vs. CIT, which held that after 1.4.1989, it is sufficient if the bad debt is written off in the accounts. The Tribunal remitted the matter to the AO to verify if the amount was offered as revenue in preceding years and if it was written off in the accounts. This issue was allowed for statistical purposes.

2. Disallowance of Excise Duty Payable for Earlier Years for A.Y. 2012-13:
The assessee claimed an excise duty payable amounting to ?19,55,702/- for earlier years, which was crystallized during the financial year 2011-12. The AO disallowed this claim, but the Tribunal noted that the liability was crystallized during the year under consideration and was paid before the due date of filing the return. The Tribunal referred to various judgments, including the Supreme Court's decision in CIT vs. Bharat Carbon and Ribbon Manufacturing Co. Ltd., which supported the assessee's claim that the liability for earlier years could be claimed in the year it crystallized. The Tribunal allowed this ground, noting that the amount was subsequently refunded and offered to tax in A.Y. 2018-19.

3. Disallowance of Provisions for Warranty for A.Y. 2012-13:
The assessee made a provision of ?13,59,256/- for warranty claims based on historical data and past experience. The AO disallowed this provision, considering it a contingent liability. The Tribunal noted that the provision was made on a scientific basis and that actual expenses were incurred in subsequent years. The Tribunal remitted the issue to the AO for fresh adjudication, directing the AO to verify the scientific basis of the provision and the actual expenses incurred. This issue was allowed for statistical purposes.

Conclusion:
The appeal for A.Y. 2008-09 was allowed for statistical purposes, and the appeal for A.Y. 2012-13 was partly allowed for statistical purposes. The Tribunal emphasized the need for verification of the claims based on the principles laid down in relevant judicial pronouncements.

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