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TMI Blog2018 (4) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... on on account of Entertainment expenses despite the fact that the assessee could not produce any documentary evidence in support of its claim? Has not the AO the right to enquire into purpose of expenditure and does the doctrine that the businessman is the best judge of business expediency affect the rights and duties of the AO to ascertain whether it was for business purposes or any other extraneous consideration? 3. Whether the Ld. CIT(A) was correct in deleting the addition on account of PF without appreciating the fact that employees' contribution has to be deposited within the due date by which the assessee was required as employer to credit the employees contribution to the employees' account in the relevant fund under the relevant Act or Rule? Has he not incorrectly stated that the contribution was to be deposited by the due date of filing of return whereas the legal provision requires the contribution to be paid within the due date as provided under the PF Act? 4. Whether the Ld. CIT(A) was correct in deleting the addition on account of Leave Travel Concession despite the fact that the amount was a mere provision which was not disbursed to the employees and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated damages. However, the AO during the course of assessment proceedings has observed certain facts as detailed under:- a) The assessee is pursuing the parties to recover the amount of liquidated damages deducted by the concerned parties. As such the assessee during the year has recovered part of the amount from the parties which were written off as liquidated damages; b) The assessee has not furnished any documentary evidence suggesting that the accounts with aforesaid 19 parties have been settled for the specific projects in respect of which the parties have deducted liquidated damages. There is also no documentary evidence filed by the assessee suggesting that the parties refused to pay such liquidated damages. Thus, there is no evidence available on record suggesting that the right of recovery for the liquidated / damages has been extinguished. In view of the above, AO opined that the amount of liquidated damages claimed in the profit and loss account is nothing but representing the provision for doubtful debts which are not allowable as deduction under the provision of Income Tax Act. In addition to above, the AO also observed that in most of the cases, assessee has wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion of the appellate order in this regard is reproduced as follows for the sake of convenience: ' I find that the identical matter has already been dealt with by my predecessor CIT(A)-4,Kolkata in the appellant's own case in Appeal No.287/CIT(A)-4/Kol/14-15 vide order dated 31.03.2015 for the AY 2011-12 wherein the disallowance of Liquidated Damages of Rs.6,74,31,000/- was deleted. Following the consistency in the matter judiciously and facts and circumstances remaining unaltered, I am only constrained to follow the earlier decisions taken in this regard at this appellate stage. Further, the ITAT, Delhi 'C' Bench vide order dated 11.01.2013 in the case of Huber+Suhner Electronic (P) Ltd vs. DC reported in 22 ITR (Trb) 596 Delhi has held that Liquidated Damages paid for delay in delivery of goods supplied under Contract tare revenue expenditure and ware allowable expenditure. in view of the foregoing, I am only constrained to differ with the action of the AO and consequently, the addition of Rs.5,06,74,000/- made on account of Liquidated Damages as claimed by the assessee is directed to be deleted. This ground is allowed." 6.3 In view of the foregoing, since the fact of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys from the payment for any breach of contract specifically for not supplying the goods in time. The AO also opined that said liquidated damages also contains VAT and Service Tax for which assessee claimed deduction u/s 43B of the Act for which CIT found said taxes were accounted by assessee separately. Therefore, we are of the view that no evidence was before the AO showing the clients deducting said amount. Therefore in the light of circumstances and in the interest of justice we deem it proper to remit the issue to the file of AO for his consideration taking into consideration the new evidence as reflected at page 9 of order of CIT(A) filed by assessee in support its claim. The assessee at liberty to file evidences before the AO and AO shall consider the same and pass order in accordance with law." At the time of hearing Ld. AR raised no objection if the matter is set aside to the file of AO for fresh adjudication in accordance with law. Accordingly, respectfully following the precedent, as above, we deem it fit and proper to restore the issue to the file of AO for fresh adjudication in terms of above direction. The assessee is at liberty to file evidence before the AO. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- "4.1 I have considered the submission of the AR of the appellant in the backdrop of the assessment order. I find that I have already adjudicated on the identical issue for the AY 2012-13 in ITA No.1906/CIT(A)-4/Cicle10(1)/Kol/14-15 in the appellant's own case. The relevant portion of the appellate order in this regard is reproduced as follows: 'I have considered the submissions of thee AR of the appellant in the backdrop of the assessment order. I find the accounts of the appellant have been subjected to statutory audit u/s. 44AB of the Act and nowhere has the Auditor pointed out any defects or shortcomings with regard to the expenses incurred in this regard. Since there is no adverse comment made by the Auditor on the matter at hand and the AO has not brought on record any counter material evidence to justify his stand in making the impugned disallowance, I do not find any merit in the action of the AO in making the impugned disallowance. Moreover, I find that this is the first time when such disallowance was made by the AO without any tenable basis when all along for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but no supporting documents were furnished. However, we note that assessee has furnished the details of jobs/sites in connection of such expenditure which were incurred on those sites/jobs as evident from the list placed on paged 181 to 184 of the paper book. We also observed that accounts of assessee are duly audited by the internal auditor / external auditor and CAG auditor and no defects of whatsoever has been reported by those auditors. Therefore genuineness of the expense cannot be doubted. Similarly considering the volume of business of assessee, in terms of its clients, number of sites we are of the view the expenses claimed by assessee have been incurred only in connection with assessee's business. We also do not agree with the finding of AO that the assessee being a Central Govt. PSU does not require to provide hospitability services to its clients. It is because in any organization, the expenditure are incurred for attending clients meetings etc., these expenses are unavoidable in all the organization be it private organization or Government PSU. There is no allegation of the AO that the above expenses have been incurred by assessee in unauthorized manner. Therefore, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Transport Corporation (GSRTC) delivered on 26.12.2013, that when the deposits on account of PF & ESI are made before the filing of return of income u/s. 139(1) of the Act, the same would qualify for deduction. In this respect, the Hon'ble Calcutta High Court in the case of CIT vs. Vijay Shree Ltd. held, after referring to the decision of the Hon'ble Supreme Court rendered in the case of CIT vs. Alom Extrusions Ltd. 319 ITR 306, that the deposit of the Employees contribution to Provident Fund and ESSI would be allowable if the same is deposited within the due date of filing return of income. In keeping with the aforesaid view, I do not find any premise to sustain the action of the AO when the said impugned amount were said to be deposited before the due date of filing of the return of income as evidenced from the assessment order itself. The AO is, therefore, directed to allow the claim of the appellant in this regard accordingly." The Revenue, is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us. 15. Before us both parties relied on the order of Authorities Below as favorable to them. 16. We have heard the rival contentions of both the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified with substantial decree of estimation. Therefore, the same cannot be allowed as deduction while computing the income of assessee. The AO in holding so, also relied in the judgment of Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. vs. CIT Chennai [2009] 314 ITR 62 (SC) and respectfully following the proposition, AO disallowed the provision of Rs.63.63 lacs and added to the total income of assessee. 19. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that similar expense was claimed in AY 2012-13 and no disallowance was made. The assessee further submitted that the judgment of Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. (supra) as such in favour of assessee and no disallowance relying on such judgment can be made. The assessee further submitted that all conditions for claiming the deduction has been specified as detailed under:- i) Provision for LTC has been made on the basis of actuarial valuation report; ii) The amount of LTC shown is the present obligation of the past events as the employees have rendered the services; ii) For the settlement of the obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Ld. CIT(A) and has now come in appeal before us. 20. Before us Ld. DR vehemently relied on the order of AO whereas Ld. AR for the assessee drew our attention on pages 192 to 195 of the paper book and stated that necessary clarification was duly submitted to the AO at the time of assessment proceedings. Ld. AR relied on the order of Ld. CIT(A). 21. We have heard the rival contentions of both the parties and perused the material available on record. In the present case assessee has created the provision of LTC on the basis of actuarial valuation. However, AO treated the same as provision which is not allowable under the provision of Income Tax Act. However, the Ld. CIT(A) reversed the order of AO by observing that similar claim of assessee was allowed in earlier year. Now the issue before us arises whether the provision for LTC created by assessee is allowable under the given facts and circumstances. It is undisputed fact that the provision made on scientific basis and representing the liability of the assessee can be allowed as deduction in terms of the principle laid down by the Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. (supra). The relevant e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer was prepared to buy valve actuators without a warranty. Therefore, warranty became an integral part of the sale price of the valve actuator(s). In other words, warranty stood attached to the sale price of the product. Therefore, warranty provision needed to be recognized because the assessee was an enterprise having a present obligation as a result of past events resulting in an outflow of resources. Lastly, a reliable estimate could be made of the amount of the obligation. In short, all the three conditions for recognition of a provision were satisfied in the instant case. [Para 12] In the instant case, one was concerned with product warranties. To give an example of product warranties, a company dealing in computers gives warranty for a period of 36 months from the date of supply. The said company considers following options : (a) account for warranty expense in the year in which it is incurred; (b) it makes a provision for warranty only when the customer makes a claim; and (c) it provides for warranty at 2 per cent of turnover of the company based on past experience (historical trend). The first option is unsustainable since it would tantamount to accounting for warranty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and if the working is robust, then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. Hence, on the facts and circumstances of the instant case, provision for warranty was rightly made by the assessee because it had incurred a present obligation as a result of past events. There was also an outflow of resources. A reliable estimate of the obligation was also possible. Therefore, the assessee had incurred a liability during the relevant assessment years and it was entitled to deduction under section 37. Therefore, all the three conditions for recognizing a liability for the purpose of provisioning stood satisfied in the instant case. There are four important aspects of provisioning, viz., provisioning which relates to present obligation; it arises out of obligating events; it involves outflow of resources; and lastly, it involves reliable estimation of an obligation. Keeping in mind all the four aspects, the High Court should not to have interfered with the decision of the Tribunal in the instant case. [Para 13] From analysis of the various decision of the Supreme Court, in which a similar issue was decided, the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.449.12 lakhs. The assessee written off the inventory of tools and tackles @ 1/5th this year on the basis of average weighted method. However, AO was of the view that inventories of tools and tackles are part of the plant and machinery. Therefore, the same is eligible for depreciation @ 15%. Accordingly, AO show caused the assessee for disallowing 5% excess claim made by assessee in the form of depreciation. In compliance thereto assessee submitted that the inventories are neither raw materials nor finished goods and these are not made for re-sale. The useful life of tools and tackles is estimated for 5 years on the basis of technical evaluation report of Engineering Department. Therefore these were written off for a period of five years. The assessee in support of its claim also relied on the judgment of Hon'ble Supreme Court in the case of Madras Industrial Investment (1997) reported in 225 ITR 802 (SC) and the judgment of Hon'ble jurisdictional High Court in the case of Hindustan Aluminium Corporation Ltd. (1983) 144 ITR 974 (Cal). The assessee also submitted that there is no valuation of closing stock at the end of year and there is no under assessment of tax. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.263/143(3) passed by the AO can only be treated as a nugatory order bereft of any legal validity. In view of the foregoing discussion, the said order is hereby treated as annulled and the appeal of the appellant succeeds and therefore stands allowed.' 8.3 In view of the foregoing, since the impugned matter has already been settled in favour of the appellant as discussed above, the addition of Rs.1,12,28,000/- made by the AO on account of for alleged understatement of the value of closing stock of tools and tackles for this year as well does not hold good any longer given the facts and circumstances of the case. Therefore, the AO is directed to delete the impugned addition made in an amount of Rs.1,12,28,000/- on account of alleged understatement of the valu9e of closing stock of tools and tackles by claiming depreciation at 20% instead of 15%. This ground stands allowed." The Revenue, is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us. 25. Before us both parties relied on the order of Authorities Below as favorable to them. 26. We have heard rival contentions of both the parties and perused the material available on record. In the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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