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TMI Blog2019 (7) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no denial of the fact that the expenditure claimed by the assessee is otherwise revenue in nature and not relating to the set up of the plant. In view of this, this ground of appeal is hereby allowed and disallowance made by the A.O. on this issue is ordered to be deleted. Disallowance of interest on adhoc basis - HELD THAT:- Assessee already capitalized the interest expenditure as per actual utilization, there was no justification for adhoc disallowance made by the A.O., which even exceeds the actual interest expenditure incurred by the assessee. In view of this, the disallowance on this issue is restricted to the extent of suo moto capitalized by the assessee and the addition made by the A.O. is ordered to be deleted. Addition of provision for warranty - HELD THAT:- The CIT(A) has given a categorical finding that the method adopted by the assessee was a scientific method. Moreover, the provision for warranty created by the assessee has been accepted by the Department till assessment year 2007-08. Hence, based on the principle of consistency as well as considering that the provision was calculated by adopting a consistent method, we do not find any infirmity in the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That the Ld. CIT (A) is not justified in confirming the assessment made by the Ld. A. 0. u/s 143 (3) by holding that assessment is not barred by limitation, whereas the assessment made by the Ld. A. O. u/s. 143 (3) is barred by limitation and be quashed. 2.a) That the Ld. CIT (A) is not justified in confirming the addition of ₹ 10,12,24,416/- by holding that the said expenditure was treated as pre-operative expenditure by the appellant. How can the appellant claim expenditure as revenue expenditure, once it has itself named and has claimed it as pre-operative expenditure. b) That without prejudice to above, the appellant disputes the quantum of addition. 3.a) That the Ld. CIT (A) is not justified in confirming the disallowance of interest amounting to ₹ 1,80,52,000/- on adhoc basis. b) That without prejudice to above, the appellant disputes the quantum of disallowance. 4. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same." Ground No.1: 4. At the outset, the Ld.Counsel for the asssessee has submitted that as per the instructions of his client, he does not want to press ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the action the A.O. in treating the expenses incurred as capital in nature. 9. Before us, the Ld.Counsel for the asssessee has submitted that the impugned expenditure was incurred by the assessee though, during the pre-commercial operation period, however, the same was incurred for the expansion of already existing business of the assessee and further that the said expenditure was purely revenue in nature and not relating to setting up of the plant. The Ld.Counsel for the asssessee in this respect has relied upon the following decisions to stress the point that the revenue expenditure incurred for setting up of a new unit, which is a part of existing business of the assessee, is allowable as a business deduction: 1) Setabganj Sugar Mills Ltd. Vs. CIT, 41 ITR 272 2) Produce Exchange Corporation Ltd. Vs. CIT, 77 ITR 739 3) Veecumsees Vs. CIT, 220 ITR 185 (SC) 4) DCIT Vs. Core Health Care Ltd., 298 ITR 194 (SC) 5) DCIT Vs. Gujarat Alkalies & Chemicalls Pvt. Ltd., 299 ITR 85 (SC) 6) CIT Vs. Monnet Industries Ltd, 221 CTR 266 (Del.HC)- affirmed by SC-350 ITR 304 7) CIT Vs. Escorts Auto Components, 323 |ITR 11 (P&H) 8) CIT Vs. Modi Industries Ltd. (No.3), 200 ITR 341 (De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, the facts were different. However, the decision of the Hon'ble Delhi High Court in the case of 'Jay Engineering Works Ltd.' (supra) is found applicable wherein it has held that where a new unit set up is only an expansion of the business of the assessee, the pre-operative revenue expenditure incurred by the assessee on the said project will be allowable expenditure. The facts of the case are squarely covered by the aforesaid decision of the Hon'ble Delhi High Court. The Ld. DR could not bring any contrary decision to the above proposition of law laid down by the Hon'ble Delhi High Court. Even there is no denial of the fact that the expenditure claimed by the assessee is otherwise revenue in nature and not relating to the set up of the plant. In view of this, this ground of appeal is hereby allowed and disallowance made by the A.O. on this issue is ordered to be deleted. Ground No.3: 13. Vide ground No.3 the assessee has agitated the confirmation of disallowance of interest amounting to ₹ 180.52 lacs on adhoc basis. 14. The brief facts relevant to the issue are that during the year under consideration, the assessee availed long term loan of ₹ 60 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the assessee is treated as partly allowed. 21. Now coming to the appeal of the Revenue in ITA No.1193/Chd/2013. ITA No.1193/Chd/2013(Revenue's Appeal): 22. The Revenue in this appeal has taken the following grounds: "1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 1,87,66,884/- made by the A.O. under section 145A by including excise duty in closing stock of work in progress. 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 37,00,000/- made" by the AO on account of excess claim of warranty than actual utilization which is merely a provision and liability of contingent nature. 4. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 1,10,21,222/ -made by the AO on account of bad debts written off especially when the receivable were on account of dues from Government/Semi Government organ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plain the assessee explained that the assessee was engaged in the business of manufacturing and distribution of commercial vehicles. That the assessee was under the obligation to replace/rectify the defective parts or other manufacturing defects occurring during the specified period of usage of products by the customers. That the warranty period varied according to the nature of product and market practices. The assessee further explained that the provision for the year under consideration was calculated on the basis of average actual warranty cost of previous three years. The A.O., however, did not agree with the above contention of the assessee and disallowed the provision for warranty expenses to the extent of ₹ 37 lacs holding that the same was excess provision of warranty made with a view to lessen the profits of the year. The A.O. noted that the average provision for warranty for 5 years from 2004-05 to 2007-08 amounted to ₹ 270.50 lacs and average actual claims during the said period amounted to ₹ 223.25 lacs, resulting in excess claim of amount of ₹ 47.25 lacs. The A.O. further noticed that for the relevant year, the provision made exceeded the actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he action of the CIT(A) in deleting the addition of ₹ 1.10 crores made by the A.O. on account of bad debts written off. 33. The A.O. noted that the assessee had written off a sum of ₹ 165.66 lacs as bad debts out of the provision for bad and doubtful debt account. Out of the aforesaid amount, an amount of ₹ 1.10 crores pertained to the amount recoverable from Government Agencies. The A.O. held that the amount recoverable from the Government could not be held to be bad debt as it would amount to labeling the Government as bankrupt. He, therefore, disallowed the deduction of bad debts written off to the tune of ₹ 1.10 croroes. However, the Ld.CIT(A) deleted the addition so made by the A.O. observing that since the assessee had written off the claim of bad debts as irrecoverable in the books of account, hence the disallowance was not warranted. 34. We have heard the rival contentions and have gone through the orders of the authorities below. The main reason for the disallowance of the aforesaid bad debts by the A.O. was on the ground that the bad debts in question were relating to the amount recoverable from the Government, which the assessee could not recove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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