2022 (4) TMI 582 - AT - Income Tax

Disallowance of warranty expenses - HELD THAT - As decided in own case 2018 (3) TMI 525 - ITAT KOLKATA treatment given by the assessee from year to year with regard to treatment of provision for non-moving inventory in the return of income, we hold that the Ld. CIT(A) had rightly deleted the disallowance made in this regard by the ld. AO. We, therefore, taking consistent view and respectfully following the decision of this Tribunal, find no reason to interfere in the finding of the ld. CIT(A) deleting the alleged disallowance of warranty expenses made by the AO . Disallowance of additional depreciation - As during the year assessee s production has not increased as claimed by the assessee - HELD THAT - For claiming the additional depreciation, the assessee has to prove that the new machines have been purchased, put to use and the capacity of production is increased. The actual production is not at all mandatory for claiming the additional depreciation. Provisions of Section 32(1)(iia) of the Act states that, in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to 15% of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii). Further, there are provisos to this Clause ii , but they are not relevant for the instant issue. So, the fact remains as per this proviso the assessee is only required to acquire and install the machines, which in this case has been rightly done so by the assessee and is duly supported by the certificate of the Chartered Engineer as well as of Chartered Accountant which proves that the assessee has purchased the machines and installed the same and this resulted in increase in installed capacity of production of the assessee and, therefore, assessee is eligible for claiming the additional depreciation. We, therefore, under the given facts and circumstances of the case, are of the considered view that the assessee has rightly claimed the additional depreciation - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of deleting the addition made on warranty expenses.
2. Justification of allowing additional depreciation.
3. Deleting the addition made on warranty expenses and additional depreciation in the calculation of book profit.
4. General grounds for appeal.

Detailed Analysis:

1. Justification of Deleting the Addition Made on Warranty Expenses:
The Revenue challenged the order of the CIT(A) regarding the deletion of the addition made on warranty expenses amounting to ?85,81,254/-. The AO had treated this amount as a provision based on the notes in the profit and loss account, which stated that the provision was made as a percentage of sales based on past experience and technical estimates. The Tribunal noted that this issue had been previously decided in favor of the assessee in its own cases for AY 2006-07, 2007-08, 2008-09, and 2009-10. The Tribunal reiterated that the provision for warranty was made on a scientific basis, in line with the Supreme Court's decision in CIT vs. Rotork Control India Ltd. (314 ITR 62 SC), and thus, was eligible for deduction. Consequently, the Tribunal upheld the CIT(A)'s deletion of the disallowance of warranty expenses.

2. Justification of Allowing Additional Depreciation:
The Revenue also contested the CIT(A)'s decision to allow additional depreciation of ?66,81,900/-. The assessee had acquired and installed various plant and machinery, resulting in an increase in production capacity from 75,000 to 2,70,000 boxes per annum. The AO denied the additional depreciation claim, arguing that the assessee failed to prove the increase in installed capacity. However, the CIT(A) and the Tribunal found that the assessee had provided sufficient evidence, including a Chartered Engineer's certificate, showing the purchase and installation of new machinery and the resultant increase in installed capacity. The Tribunal emphasized that actual production increase was not mandatory for claiming additional depreciation, as per Section 32(1)(iia) of the Act. Therefore, the Tribunal upheld the CIT(A)'s decision to allow the additional depreciation.

3. Deleting the Addition Made on Warranty Expenses and Additional Depreciation in the Calculation of Book Profit:
Given that the Tribunal confirmed the deletion of the addition for warranty expenses and the allowance of additional depreciation, the Revenue's ground regarding the calculation of book profit became infructuous and was dismissed.

4. General Grounds for Appeal:
The fourth ground raised by the Revenue was general in nature and did not require adjudication.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions regarding the deletion of the addition made on warranty expenses and the allowance of additional depreciation. The Cross Objection filed by the assessee was dismissed as not pressed.