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TMI Blog2018 (5) TMI 1599X X X X Extracts X X X X X X X X Extracts X X X X ..... fession - the assessee was eligible to create the provision of 16,08,926/- being 10% of purchase order. However, the assessee has created provision of 30,00,000/- - issue is restored to AO for fresh adjudication - allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of closing stock. 6. Aggrieved, assessee preferred an appeal before the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the provisions of Section 145A of the Act requires the assessee to include the amount of taxes, duty, cess and fee actually paid or incurred in connection with the purchase, sale of goods and inventory for the determination of the profit under the head business and profession. Thus, the provision of Section 145A of the Act requires the assessee to use inclusive method of accounting for reflecting the figures of purchase, sale and inventory (opening and closing). However, accounting standard for the valuation of the inventories requires to exclude the amount of duties and taxes incurred on the purchases and which are subsequently recoverable by the assessee from the taxing authorities. Accordingly, the assessee has adopted exclusive method of accounting with regard to the recording of purchase, sale and inventory of the goods. 7. The assessee further submitted that there is no impact on the profit declared in the Income Tax return for using the exclusive method of accounting. The assessee, in this regard, demonstrated the impact on the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer is deleted. Ground of appeal Nos. 2.1 to 2.3 is allowed." Being aggrieved by the order of the Ld. CIT(A) Revenue preferred second appeal before us. The Ld. DR before us vehemently supported the order of AO, whereas, the Ld. AR before us filed a Paper Book comprising of Pages from 1 to 141 and submitted that in identical facts and circumstances the Jurisdictional Tribunal in the case of DCIT vs. Transformers and Ractifiers (India) Ltd. in ITA No.505/Ahd/2015 pertaining to the assessment year 2011-12 vide order dt.11-12-2017 decided the issue in favour of the assessee, the relevant extract of the order as reproduced below: "7. We have carefully considered the orders of the authorities below. We find force in the contention of the learned counsel for the assessee. The assessee has been consistently accounting for the raw material and other inputs purchased as per exclusive method i.e. billed cost minus amount of input tax credits available/availed of. Correspondingly, the stock of unconsumed materials is also valued as per exclusive method. In our considered view, if the provisions of section 145A has to be followed, the purchases would have to be adjusted for the du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no impact on the taxable profit declared by the assessee in either case of the method of valuation of inventory adopted by the assessee. Thus, the taxable profit will remains same in both the methods of accounting for the valuation of inventories. Thus, we do not find any reason to interfere in the order of Ld. CIT(A). Hence, ground of appeal of the Revenue is dismissed. The second issue raised by the Revenue is that ld. CIT-A erred in deleting the addition made by the AO for ₹ 30 lacs on account of provision of warranty. 10. The assessee, during the year has claimed provision for warrantee of ₹ 30,00,000/- only in respect of unfinished installation charges of various boilers supplied to Garden Silk Mills Ltd. (GSML). On question by the AO, the assessee filed the copies of the ledgers for the financial year under consideration as well as financial year 2012- 13 without any documentary evidence/justification for creating such provision of guarantee in the books of accounts. Accordingly, the AO was of the view that the deduction claimed for the provisions of warranty represents un-accrued/un-ascertain/contingent liability. Therefore, same was disallowed and added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erformance bank Guarantee; and (iv) 10% against performance norms. 6.4.1 The submissions made by the appellant also show that the retention money does not accrue to the appellant till successful and satisfactory execution of the contract. Thus, while the appellant is right in contending that the said amount had not accrued to it during the year under consideration, what is also pertinent to note that is that the same must have been received by the appellant subsequently on satisfactory completion of the contract. The appellant has relied on various case-laws which have held that retention money that had not accrued to an appellant could not be taxed. Considering the case-laws on the subject, submissions made by the appellant and the discussion above, I am of the view that provision for warranty of ₹ 30,00,000/- which was actually retention money not accrued during the year under consideration could not be added to the total income of the appellant for the year under consideration and the addition made on this account is deleted. However, the AO is directed to ascertain when this amount was actually received by the appellant subsequently on completion of contract with GS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 30,00,000/- on account of the money retained by M/s. GSML. It is settled law the provisions created by the assessee on scientific basis are allowable as deduction while determining the profit under the head business and profession. It is undisputed fact that the provision was created by the assessee against the supply of goods to M/s. GSML as per the purchase order issued by GSML. Accordingly GSML was entitled to retain 10% of the invoice value raised by the assessee during the year. The amount retained by the GSML was offered by the assessee in subsequent year, when it was actually realized by it. 17. We also find support and guidance from the judgment of Jurisdictional High Court in the case of DIT (International Taxation) vs. Ballast Nedam International reported in 355 ITR 300, wherein, it was held as under: A similar question had arisen in case of CIT. v. Simplex Concrete Piles (India) Pvt. Ltd. 179 ITR 8, (Cal.). Having regard to the facts and circumstances of the case, it was held in that case that, when there is a clause with regard to retention money, the assessee gets no right to claim any part of the retention money till the verification of satisfactory execution o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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