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TMI Blog2015 (10) TMI 2300X X X X Extracts X X X X X X X X Extracts X X X X ..... ual payment of outstanding excise liability. The AO shall determine the quantum of deductions towards impugned excise duty provisions available to the Assessee for the relevant assessment year 2005-06 in accordance with law. The issue is therefore remitted to the file of AO in terms of above observations. Disallowance of warranty provision by way of rectification while computing the income under the normal provision of the Act - Held that:- AO has rejected the aforesaid amount of ₹ 1.49 cr. in order u/s 154 on the ground that it is contingent in nature based on tax audit report which is ex facie found to be based on incorrect presumption and thus wrong premise. Therefore, the entire amount would stand allowed on this score alone. Secondly, the entire argument is based on the acquisition of liability in slump sale which involves examination of the records of the transferor co. qua the issue and such exercise is not amenable to S. 154. Thirdly, the Assessee has not claimed any expenditure on this payment in the books. It has simply reduced the outstanding liability on payment. Therefore, the issue, if at to be examined, involves obvious complexity and cannot be said to be em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in substantial increased in the books profits. This aspect has not been dealt with by the Revenue. We find that the Assessing Officer could not have rectified the impugned amount debited to the Profit & Loss Account toward doubtful debts without applying the same yardstick to the credit amounts emerging from the same records. Therefore, the contention of the assessee deserves to be accepted on this count also and addition to the book profit requires to be deleted - Decided in favour of assessee as directed. - ITA No. 1426/PN/2013 - - - Dated:- 16-9-2015 - Ms. Sushma Chowla, JM And Shri Pradip Kumar Kedia, AM For the Appellant : Shri Dhanesh Bafna Ms. Sneha Pai For the Respondent : Shri Rajesh Damor ORDER Per Pradip Kumar Kedia, AM The above captioned appeal filed by the assessee is against the order of CIT(A)-V, Pune dated 16.04.2013 relating to assessment year 2005-06 passed under section 154 of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal :- Ground 1: The Ld. Commissioner of Income Tax (Appeals)- V, Pune {Ld. 'CIT(A) } has erred in upholding the rectification order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required vide its letter dated 06.03.2009. Consequently, a statutory notice dated 20.03.2012 was issued under section 154 of the Act seeking rectification of the assessment orders under section 143(3) 143(3) r.w.s. 147 of the Act passed earlier. 3.2 The relevant portion of impugned show cause notice under section 154 of the Act dated 20.03.2012 is extracted below:- Particulars of mistakes proposed to be rectified. (1) It is seen from clause 21 of Auditor s report in form 3CD that Excise duty payment of ₹ 80,82,905/- which was incurred during previous year 2004-05 is remained to be paid before submission of return of income, i.e. due date of filing of return of income. The same is proposed to be added back. (2) It is seen the Profit loss a/s for the year ending 31/3/05, provision for warranties amounting to ₹ 1,51,97,332/- and provision for doubtful debts amounting to ₹ 40,64,469/- is debited. The Auditors in form 3CD report vide clause 17K, certified that provision for warrant is a liability of contingent nature. The same is proposed to be added back. (3) Your company engaged in manufacturing of mining constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities. 5.1 The Ld. AO further made the following adjustments to the book profits / total income computed under section 115JB of the Act :- (i) Warranty provisions amounting to ₹ 1,51,97,332/-. (ii) Provisions for doubtful debts of ₹ 40,64,469/-. 5.2 As per the rectification order under section 154 of the Act, the Assessing Officer observed that as per clause 21 of the tax audit report furnished in Form No.3CD, there is neither anything on record to suggest that the excise duty provision outstanding at the end of the financial year relevant to assessment year 2005-06 in question has been actually paid before the due date of filing of the return nor the assessee has made any submission in this regard or furnished proof of payment of the same even after issue of notice under section 154 of the Act. He accordingly concluded that this mistake in allowing the deduction of statutory liability is apparent from record and not debatable. 5.3 In respect of sum of ₹ 1,49,85,639/- towards warranty provision, the Assessing Officer observed that it was noticed that the assessee during the assessment year 2004-05 acquired a division of M/s Kennametal Wid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits assessed earlier u/s 143(3) r.w.s 147 at ₹ 78,00,820/- was enhanced to ₹ 2,70,62,620/. 5.7 The assessee on its part inter alia submitted that the rectification of assessment order is void ab-initio as the changes proposed do not qualify as mistake apparent from record which is a condition precedent for invoking S. 154 of the Act. It was the case of the assessee that the rectifications proposed are either already examined by the then Assessing Officer and/or are debatable issues which cannot be rectified under section 154 of the Act. 6. Aggrieved by the aforesaid order of the Assessing Officer, matter was carried in appeal before the CIT(A). 6.1 The CIT(A), to begin with, observed that the assessee based its reply only on the issue of provision for warranty amounting to ₹ 1,49,85,639/- before the Assessing Officer. Therefore, the assessee could not challenge the notice under section 154 of the Act on other issues before the Assessing Officer. 6.2 The Ld. CIT(A) next observed that as regards the disallowance of ₹ 80,82,905/- on account of unpaid excise duty, the disallowance has been made on the basis of tax audit report submitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is in appeal before us. 8. The Ld. Authorized Representative for the assessee pointed out at the outset that there were five points involved for which clarification was asked after the assessment was framed under section 143(3) as under :- (1) Compensation received towards reduction in purchase consideration to be taxed as revenue receipt as against the claim of the assessee of capital receipt. (2) Provision for warranty to be added for the purpose of 115JB. (3) Actual payment made towards warranty not allowable as the liability (provision) pertains to another entity which is now taken over by the assessee company. (4) Excise duty not paid before due date disallowance u/s 43B. (5) Provision for doubtful debt to be added for the purpose of 115JB. 8.1 As per Ld. AR, the Assessing Officer in exercise of its statutory power initiated proceedings under section 147 of the Act in respect of point No.1 above while issued notice under section 154 in respect of balance points from 2 to 5 above. He next contended with vehemence that the order under section 154 of the Act is not maintainable in respect of any of the issues for which impugned n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent basis in the next year as per the provisions of the Act. 8.3 The Ld. Authorized Representative for the assessee next contended that disallowance of warranty provision of ₹ 1,49,85,639/- for the purposes of computation of income as per the normal provisions under section 154 of the Act is also clearly misplaced. The addition has been made on the ground that the provision for warranty pertains to acquisition of a division of another company namely KWIL on slump sale basis. The payment of ₹ 1,49,85,639/- towards warranty provision was disallowed under section 154 of the Act on the ground that the amount could be allowed on payment basis only if disallowed in the earlier years when the provision was created for which no evidence was furnished. Per contra, the Ld. Authorized Representative for the assessee advanced his plea that such kind of adjustments which emanates from earlier years cannot be taken as apparent mistake amenable to section 154 of the Act. He further submitted that from the assessment order for assessment year 2005- 06 under section 143(3), it can be seen that the Assessing Officer has disallowed the entire provision of warranty made during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 154 of the Act. It was thus pleaded that such adjustments cannot be brought in the league of mistake apparent from record . 8.5 As regards, addition of ₹ 40,64,469/- to the book profits under section 115JB of the Act provision for bad and doubtful debts, The Ld. AR submitted that as per letter dated 06.03.2009 filed before the Assessing Officer, similar provision of ₹ 2,51,53,409/- was simultaneously reversed in the assessment year 2005-06 pertaining to provision for doubtful debts created in the earlier years. This has the effect of increase in book profit owing to reversal of similar provisions which benefit would also be required to be given in the same vein. 9. The Ld. Departmental Representative for the Revenue, on the other hand, relied upon the orders of the authorities below and submitted that the Assessing Officer has correctly resorted to section 154 of the Act as the adjustment made by him to the orders framed under section 143(3) are in the nature of apparent mistake arising from the records rectifiable under section 154 of the Act. 9.1 After the closure of the hearing, the learned DR filed a letter dated 04- 09-2015 to supplement the argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of ₹ 151.97 lakhs on account of its own sales booked of ₹ 49.27 crores for A.Y. 2005-06. thus, it was apparent from records that the said warranty provision of ₹ 149.85 lakhs pertain to KWIL and not the assessee. It is pertinent to point out that the assessee follows mercantile system of accounting and provision for warranty is being booked when the corresponding sales are booked. The Ld. DR accordingly asserted that it is apparent from records that the said actual liquidation of warranty provision of ₹ 149.86 lakhs pertains to M/s KWIL, the same is not allowable as deduction . Also, this amount can not only be claimed in the hands of M.s KWIL when it had booked the corresponding sales. Accordingly, the action of the AO in passing rectification under S. 154 and of the Ld. CIT(A) of confirming the action of the AO is correct. 10. We have carefully considered the rival submissions and orders of the authorities below. 11. On a conceptual note, it would be pertinent to briefly narrate broad legal perspective to outline the scope and ambit of jurisdiction under S. 154. The scope of power available for rectification of orders under S. 154 is within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction to issue notice under S. 154. Notwithstanding aforesaid, one possible view can be that during the course of Assessment, the evidence is not possibly called for and therefore not filed. Therefore, the mistake can be attributable to either side. The facts being peculiar, the benefit of doubt need to go to the Assessee. As per S. 154, the Assessee is entitled to satisfy the act of payment by furnishing evidences when opportunity is afforded to him. The assertions made tax audit report can not necessarily be taken as gospel truth. The Assessee has attempted to avail the opportunity before the CIT(A) to which coterminous powers are extended without success. The Assessee has attempted to lend support to eligibility of deduction with reference to tax audit report and return of income of subsequent assessment for the contention that claim for deduction has not been made in the next year while the Assessee was eligible for it in terms of S. 43B. Hence, having regard to the fact situation, we consider it expedient that the issue is set-aside to the file of the Assessing Officer to afford one more opportunity to the Assessee to place on record the evidences of actual payment of ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, it is evident that the correctness of the allowability of such claim can be examined only by indulging in detailed examination of the assessment records pertaining to another assessee namely KWIL. This is apparently a complex and long drawn process which may also involve some counter from that Assessee and/or transferor Co.. It cannot be treated as a patent or manifest mistake contemplated u/s 154. Therefore, the rectification carryout out under section 154 of the Act towards warranty provision of ₹ 1,49,85,639/- and approved by the CIT(A) is ostensibly not permissible. 13.3 The elaborate plea of the Ld. DR in para no. 9.2 above has the obvious trappings of the issue being argumentative, complex and subjective. The plea of the DR can not be accepted for following reasons. Firstly, the AO has rejected the aforesaid amount of ₹ 1.49 cr. in order u/s 154 on the ground that it is contingent in nature based on tax audit report which is ex facie found to be based on incorrect presumption and thus wrong premise. Therefore, the entire amount would stand allowed on this score alone. Secondly, the entire argument is based on the acquisition of liability in slump sale which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the stand of the AO. Besides, the case was subject-matter of scrutiny twice, first under section 143(3) and thereafter again under section 143(3) r.w.s. 147 of the Act. The relevant facts and tax audit report were available to the Revenue for its verification, if considered expedient. It will be far fetched to conclude on the basis of such remarks that the warranty provisions are in the nature of contingent liability particularly when the assessee is making specific denial. The possible difference in opinion can not be branded as mistake apparent from record . As stated, the records says exactly opposite to the version of the AO which is the foundation of this addition. In the light of aforesaid observations, we do not consider it necessary to deal with the various citations made during the course of hearing. Once the report itself has been blatantly misread which triggered an ab-initio perverse conclusion, all other incidental arguments on merits are rendered extraneous. Therefore, order of the CIT(A) on the issue deserves to be vacated and as a consequence, the addition to the book profit on this score stands deleted. 15. The next issue relates to provision of doubtful de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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