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TMI Blog2018 (11) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... is reversed by crediting P&L a/c after deducting amount utilized and thereafter, various expenses incurred for warranty services like travelling and salary of CSD are debited. AO has completely overlooked the fact that excess provision is reversed by crediting P&L and therefore, even if other two expenses are separately debited, the same has nullifying effect in light of reversal of provision by crediting the P&L a/c. Thus, all the objections raised by AO are on account of not considering "travelling expenses" and "salary cost of CSD" as part of "actual warranty expenses". Had AO taken pains to consider details furnished by the assessee, he would not have reached the above conclusion. "Provision for warranty" created by assessee satisfies all the criteria laid in the case of Rotork Controls [2009 (5) TMI 16 - SUPREME COURT OF INDIA] as well as AS-29. Hence, the same is allowable as deduction u/s 37 of the Act. - Decided in favour of assessee. Disallowance of unutilized MODVAT/CENVAT credit - AO upon finding that assessee follows "Exclusive method" of accounting, made addition u/s 145A in respect of "unutilized CENVAT credit" on the count that it must be added to "closing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 AY 2009-10 AY 201 0-11 At the beginning of the year 2,624,632 3,752,694 4,294,678 6,773,290 Arising during the year 3,752,694 4,294,678 6,773,290(a) 12,885,450 Utilized during the year 441769 181,971 431 ,360 372,842(b) Unused amount 2,182,863 3,570,723 3,863,318 6,400,448 Reversed At the end of the year provision 3,752,694 4,294,678 6,773,290 12,885,450 Table 1 (source : Assessee's submission dtd 21.02.13) 4. From the above table, it can be seen that assessee has continuously utilized a very small amount. During the year, it is - [(a)-(b)] which comes to 64,85,002 and this net amount is debited to profit and loss account during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished goods lying in stock as on 31st march 2010 work t to ₹ 27,06,211 and said duty is payable only when roods are cleared for dispatch and sale. If duty is added on finished goods stock, there would be corresponding excise liability for payment of the same amount of ₹ 27,06,211/- for which provision has to be made and debited to P L a/c. Hence, there will not be any ultimate impact on profitability. 10. Accounts-Valuation of closing stock-Excise duty-Excise duty is levied on goods manufactured by an assessee and it is not cost of goods purchased-lt is not a part of manufacturing cost-It can be termed as post-manufacturing cost-Unless and until it is entered on one side as an item of cost, it cannot be taken as a component of the value of the closing stock on the other side-Assessee under the Excise Act is not required to discharge the liability to pay duty levied upon the manufacture of excisable goods, till such goods are removed from the factory premises, or a bonded warehouse-Mere production or manufacture by itself would not be sufficient. Though there might be levy under s. 3 of the Excise Act, yet neither the rate nor the value would be determinable til ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warranty period, some problem arises in the parts of machines, then assessee shall have to replace the same. It a standard practice to provide warranty in this competitive word. 18. Based on the past experience, assessee has created Provision for warranty , a substantial part of which has been disallowed by AO. 19. Assessee incurs following types of expenditure in the course of fulfilling its obligation towards warranty during the warranty period: Cost of material (i.e. cost of pans to be replaced free of cost): such cost is debited as Warranty expenses ; Travelling cost (i.e. cost incurred on travelling by the staff in the course of providing services during warranty period); Such cost is debited separately in P L a/c; Salary cost of CSD Department 5, 45%; Such cost is also separately debited in P L a/c; 20. Since travelling cost and salary of CSD Dept. is separately debited, the amount of cost of material debited under the head warranty expenses is very low. However, the actual warranty cost is summation of the above three expenses. 20. A chart showing details of Provision for warranty and Actual Warranty expenses ( all three expense) inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses . 26. Hence, it can be reasonably said that provision created by the assessee on the basis of past experience is a reliable and appropriate estimate. 27. At this stage, it is clarified that assessee deals in large number of products such as AC drives, soft starters, etc. as is evident from the quantitative details forming part of Tax Audit Report (Pgs. II8-133 @ 132 of P/B). 28. As regards the first objection raised by AO, AO did not consider travelling expenses and Salary cost CSD Department while arriving at the actual cost and hence, the actual cost was found to be much less as compared to | provision for warranty . As is evident from the above tables, ratio of actual expenses as to provision is in the range of 75-105% is last four years; Hence. AO's observation is erroneous and ill-founded; 29. As regards the second objection raised by AO, assessee has estimated provision for warranty based on past experience in the range of 2.25-2.5% of sales against which, actual expenses are in the range of 1.79-2.37% of sales. In fact, assessee had made provision (a, 2.5% in AY 2007-08 but thereafter, such provision has been reduced to 2,25% AY 2008-09 onward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll made based on the past experience. Thus, AO's objection is unwarranted and uncalled for. 35. Under such circumstances, provision for warranty created by assessee satisfies all the criteria laid by Hon'ble Apex Court in the case of Rotork Controls supra, as well as AS-29. Hence, the same is allowable as deduction u/s 37 of the Act. 36. In light of the above, CIT(A) has rightly deleted the impugned addition. The same be held so now. 37. The Hon ble Apex Court in the matter of M/s. Excel Industries Ltd. (supra) it is held that in the absence of any material change justifying the Revenue to take a different view of the matter-and if there was not change it was in support of the assessee. : We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s refund by the assessee and hence, it cannot be treated as an income in the hands of the assessee. 48. In light of the above, impugned addition has been rightly deleted by CIT(A). 49. The Co-ordinate Bench in ITA No. 1122/Ahd/2015 in the matter of DCIT vs. M/s. AIA Engineering Ltd. has given relief to the assessee while dismissing the appeal of the department with following observation: 5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue in the present case is with respect to the addition of unutilised CENVAT credit to the closing stock. We find that the Id.CIT(A) while deciding the issue in favour of assessee has given a finding that assessee is following exclusive method of accounting whereby the excise duty is not included in the valuation of stock and raw-materials as the excise duty paid and collected is not made pan and parcel of the Profit Loss A/c. He has further given a finding that assessee has complied with the provisions of section 145A of the Act and the effect of including excise duty in valuation of closing stock does not affect the profit and is Revenue neutral ..... X X X X Extracts X X X X X X X X Extracts X X X X
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