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TMI Blog2018 (3) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... yments made during the year on account of earlier year provisions. We find that the ld. AO and the Ld. CIT(A) had not looked into this issue in the proper perspective by linking the same with the tax audit report filed by the assessee wherein all these details are duly mentioned. Hence, we deem it fit and appropriate to remand this issue to the file of the ld. AO for de novo adjudication and decided the same in accordance with the law. Needless to mention that the assessee be given reasonable opportunity of being heard. Accordingly, ground no. 2 raised by the revenue is allowed for statistical purposes. Disallowance towards provision for warranty - Held that:- We find that the provision has been made during this year based on the transaction carried out in the last preceding three years on a scientific basis and this method has been consistently followed by the assessee in the past. In view of these facts and findings and respectfully following the decision of this Tribunal in the assessee’s own case for the earlier years, we hold that the Ld. CIT(A) had rightly deleted this disallowance and granted relief to the assessee. Disallowance towards provision for non-moving invento ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddl. CIT ( DR ) ORDER Per M.Balaganesh, AM 1. This appeal by the Revenue and the Cross Objection by the Assessee arise out of the order of the Learned Commissioner of Income Tax(Appeals)-VIII, Kolkata [in short the ld CIT(A)] in Appeal No.341/CIT(A)-VIII/Kol/11-12 dated 28.02.2013 against the order passed by the ACIT, Range-7, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 30.12.2011 for the Assessment Year 2009-10. Both the appeal of the revenue and cross objection of the assessee are taken together and disposed off by this common order for the sake of convenience. 2. The cross objection preferred by the assessee was stated to be not pressed by the ld. AR for which necessary endorsement was made in our file. Accordingly the cross objection of the assessee is dismissed as not pressed. 3. The first issue to be decided in this appeal of the revenue is as to whether the Ld. CIT(A) was justified in allowing the claim of pre-operative expenses of ₹ 3,01,21,223/-, in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the assessee is a domestic company engaged in the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee came to know that the said employee cost of ₹ 3,01,21,223/- does not pertain to expanded unit of the assessee warranting capitalization of the same in the earlier year in the books. Accordingly it sought to withdraw the said sum from the capital work-in-progress and charged in the books by debiting prior period expenses during the assessment year 2010-11. It was submitted that the assessee did not make any claim of deduction towards the same in assessment year 2010-11. The assessee however filed a revised return for assessment year 2009-10 and claimed the said sum of ₹ 3,01,21,223/- as revenue expenditure as admittedly the said sum of ₹ 3,01,21,223/- representing employee cost pertained to old business unit of the assessee for the months of February and March, 2009 falling in the assessment year 2009-10. The ld. AO did not agree to these contentions of the assessee and proceeded to disallow the sum of ₹ 3,01,21,223/- in the assessment. 3.3. The Ld. CIT(A) appreciated the contention of the assessee and granted relief to the assessee by deleting the disallowance. Aggrieved the revenue is in appeal before us on the following ground: 1. That on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in deleting the disallowance of ₹ 1,26,01,426/- on account of leave encashment, in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the assessee made provision for leave encashment for certain sum during the year under appeal and out of the same, had paid certain sums before the due date of filing the return of income. Similarly the assessee had also made provision for leave encashment in the earlier years and had also made payments during the year on account of such pre-existing liability i.e. payments made during the year on account of earlier year provisions. We find that the ld. AO and the Ld. CIT(A) had not looked into this issue in the proper perspective by linking the same with the tax audit report filed by the assessee wherein all these details are duly mentioned. Hence, we deem it fit and appropriate to remand this issue to the file of the ld. AO for de novo adjudication and decided the same in accordance with the law. Needless to mention that the assessee be given reasonable opportunity of being heard. Accordingly, ground no. 2 raised by the revenue is allowed for statistical purposes. 5. The next issue to be decided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Aggrieved the revenue is in appeal before us on the following grounds: 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the disallowance of provisions for warranty of ₹ 52,15,220/- made by the A.O. without having regard that such provisions of warranty were not made scientifically and not allowable in view of the principle laid down by the Hon'ble Supreme Court in the case of M/s Rotork Control India Limited [314 ITR 62(SC)] 4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the disallowance of provisions for warranty of ₹ 52,15,220/- made by the AO without having regard that such provisions of warranty were made to defer the liability of payments of taxes and the assessee company never had to incur such expenditure in the past. 5.2. We have heard the rival submissions. We find that this issue has already been held in favour of the assessee by the orders of this Tribunal for assessment years 2007-08 and 2008-09 in its own case vide orders dated 18.12.2015 and 18.03.2016 for assessment years 2007-08 and 2008-09 respectively wherein i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsolences. Finished goods works-in-progress includes all the applicable manufacturing overheads. Further in serial no. 11 of the tax audit report u/s 44AB of the Act, the tax auditor had specifically mentioned that there has been no change in or deviation from the method of accounting employed in the preceding years from the accounting standing prescribed u/s 145 of the Act. It was explained that according to the regular and consistent method applied every year since long, provision for non-moving inventory/stock is made in the books of accounts. If the closing balance of such provision for non-moving inventory as on 31st March of financial year is higher than the opening balance of such provision as on 1st April of that year, then there is a net excess of the provisions made during that year which is offered for disallowance in the return and computation of total income for that year. Conversely, if the closing balance of such provision as on 31st March of a financial year is less than the opening balance of such provision as on 1st April of that year, then there is a reduction of the provision during that year which is claimed as deduction from the total income. This proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitrary action of the ld. AO, he had actually enhanced the income by a sum of ₹ 92,47,836/- (Rs. 7354027 + ₹ 1893809) without even caring to consider the fact that the sum of ₹ 18,93,809/- is already included in the figure of ₹ 73,54,027/-. 6.4 The Ld. CIT(A) appreciated the aforesaid contention of the assessee and deleted the disallowance and granted relief to the assessee. Aggrieved the revenue is in appeal before us on the following ground: 5. That on the facts and in the circumstances of the case and in law, the CIT(Appeals) erred in giving relief to the assessee company by deleting the disallowance made on account of provision for non-moving inventory without considering that such provisions were uncrystallised and unascertained liability and, therefore, not allowable. 6.5. We have heard the rival submissions. We find that the Ld. CIT(A) had deleted the disallowance by observing as under: I have carefully considered the submission put forth on behalf of the appellant along with the supporting details/documents, perused the facts of the case including the observation of the AO and other materials brought on record in respect of the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision for non-moving inventory as on 01.04.2008 was at ₹ 1,28,47,697/- and the closing balance was ₹ 54,93,670/- and hence the sum of ₹ 73,54,027/- was credited in the P L a/c. and for which the claim has been correctly made by the appellant in the computation of income, in view of the discussion so made earlier. Hence, this ground of the appellant is also allowed. In view of the aforesaid facts and consistent 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 . Accordingly, ground no. 5 raised by the revenue is dismissed. 7. The next issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the addition of ₹ 1,05,38,200/- on account of valuation of closing stock in the facts and circumstances of the case. 7.1. Brief facts of this issue is that from the details of quantitative particulars and value of trading goods as per the Tax Audit Report, it was observed that the Opening Trading Stock of Wires, Cables. and Drivers of quantit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounts were produced before the ld. AO by the assessee which has not been rejected by the ld. AO in terms of section 145 of the act and accordingly there cannot be any doubt that could be raised about the correctness of the books of accounts furnished thereon. Accordingly, he held that the method of valuation done by the assessee cannot be faulted with and deleted the addition made towards closing stock at ₹ 1,05,38,200/- in the assessment. Aggrieved the revenue is in appeal before us on the following ground: 6. That, on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the addition of ₹ 1,05,38,200/- on account of valuation of closing stock holding that no material was available with the AO; whereas the addition on account of valuation of closing stock was made on the basis of material on record after affording adequate opportunity to the assessee company. 7.3. We have heard the rival submissions. We find that the assessee has given detailed workings for closing stock of trading items of wires, cables and drives which are enclosed from pages 174 to 211 of the paper book filed before us. We find that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 40 lacs, a sum of ₹ 20,02,667/- was treated as no longer payable and accordingly, the assessee wrote back the same by crediting to its profit and loss account. Since, the assessee had disallowed the provision in assessment year 2007-08 i.e. in the year of making provision, the write back of the same, would have to be allowed as deduction in the computation of income, to avoid double taxation. Accordingly, the assessee claimed the sum of ₹ 20,02,667/- being the excess provision written back to its profit and loss account, as a deduction in computation. The ld. AO did not appreciate this contention of the assessee and disallowed ₹ 20,02,667/- in the assessment, which was deleted by the Ld. CIT(A) . Aggrieved the revenue is in appeal before us on the following ground: 7. That, on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in giving relief to the assessee company by holding that the amount of provision written back of ₹ 20,02,067/- was allowable without considering the nature of provision created and giving a finding as to the allowability of such provision without verification facts thereof. 8.2. 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