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TMI Blog2019 (12) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... ount has been actually written off in the books of account of assessee by way of crediting the debtor s accounts and debiting the bad debts accounts. Disallowance of excise duty payable - whether the demand raised by the department of Customs: Central Excise Service Tax for the earlier years can be claimed as an expenditure by the assessee for the year in which the liability to pay such demand is crystallized ? - HELD THAT:- Assessee has rightly booked expenditure of excise duty payable which crystalized during the year under appeal. Before parting of we would like to mention one more fact which is not in dispute that subsequently the assessee succeeded in the appeal before the CESTAT and total demand was deleted. The assessee got refund which was paid by it and the same has been offered for tax in the return of income for A.Y. 2018-19 and for the remaining amount the claim was reversed in the excise records. Therefore, the entire amount which was claimed as expenditure during the assessment year 2012-13 has been brought to tax F.Y. 2018-19. We, therefore, in the given facts and circumstances of the case are of considered view that the assessee has rightly claimed the excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of bad debts of ₹ 2706697/- by the Assessing Officer. 2.That the Learned Commissioner of Income Tax (Appeals) erred in confirming addition on the ground that whole of the amount of debtors was not written off as bad debts, but only part of debtors was written off. 3.That the Learned Commissioner of Income Tax (Appeals) erred in confirming addition on the ground that the position of the debtor of whose part amount is written off is good on the basis of return of income filed by the debtor company. 4.That the learned Commissioner of Income Tax (Appeals) as well as Assessing Officer failed appreciate submission of the assessee company and made addition. 05. That addition made is not based on the facts of the case and needs to be deleted. 6.That the assessee company craves leave to add, alter, and/or delete any of the grounds of appeal 4. Brief facts as culled out from the records are that the assessee is Private Limited Company engaged in manufacture of motors and job work. Loss of ₹ 99,35,724/- declared in the e-return of income filed on 30.09.2008. Case selected for scrutiny through CASS follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Ld. CIT(A). The Ld. counsel for the assessee vehemently argued supporting the written submissions filed on 13.06.2019 25.07.2019 and submitted that during the period 01.04.2005 to 31.03.2008 the appellant-assessee had entered into transactions with Parag Fans Cooling Systems Pvt. Ltd. (in short PFCSPL). On some occasions, it supplied goods to PFCSPL and on some occasions, it purchased goods from PFCSPL. However, for all types of transactions, one common account was maintained which is placed at page no.21 to 25 of our paper book. He further submitted that after various reminders and communications with PFCSPL for recovery of its outstanding balance finally on 25.02.2008, the PFCSPL confirmed that out of the total outstanding amount of ₹ 31,90,879/- it will pay only of ₹ 4,84,130/-. For this reason bad debts of ₹ 27,06,697/- is booked as expenses in the profit and loss account. 7. Ld. counsel for the assessee further referring to the following judicial pronouncements submitted that as per the provisions of section 36(1)(vii) of the Act assessee is fully eligible for claim of deduction in respect of the bad debts written off by it:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off. The Hon'ble Supreme Court had to consider whether after the amendment to section 36 (1) (vii) w.e.f. 1.4.1989, an assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable or whether writing off the debt as irrecoverable in the accounts was sufficient. Hon'ble Court HELD that:- (i) The position in law is well-settled. After 1.4.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. When a bad debt occurs, the bad debt account is debited and the customer s account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from Sundry Debtors. (ii) As the AO has not examined whether the debt has, in fact, been written off in accounts of the assessee. the matter is remitted to the AO for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off. 13. Examining the facts of the instant appeal in the light of the above judgment we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disallowance of provisions of warranty. 4.That the learned Commissioner of Income Tax (Appeals) as well as Assessing Officer failed to appreciate submission of the assessee company and made addition/disallowance. 5.That addition/disallowance made is not based on the facts of the case and needs to be deleted. 17. Brief facts as culled out from the records are that the assessee is Private Limited Company engaged in manufacture of pumps, foot valve, electric motors and job work. The return of income declaring total income of ₹ 60,41,950/-. As the case selected for scrutiny, necessary notices u/s 143(2) 142(1) of the Act served upon the assessee. Learned Assessing Officer (in short Ld. AO) completed the assessment, assessing income at ₹ 98,75,113/- after making various additions totaling to ₹ 38,33,163/-. 18. Against this addition the assessee preferred an appeal before the Ld. CIT(A) and partly succeeded. 19. Now the assessee is in appeal before the Tribunal raising two grounds, firstly relating to disallowance of excise duty payable at ₹ 19,55,702/- and secondly for disallowance of provisions of warranty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries Ltd. vs. CIT (1995) 213 ITR 523 (Guj) High Court of Gujarat iii. CIT vs. Nathmal Tolaram (1973) 88 ITR 234 Hon'ble Guwahati High Court (Gua) iv. CIT vs. Bharat Carbon and Ribbon Manufacturing Co. Ltd. (199) 239 ITR 505 (Hon'ble Supreme Court) v. CIT vs. Ganga Galss Works (P) Ltd. (2005) 276 ITR 394 (All) vi. Standard Mills Co. Ltd. vs. CIT (1998) 229 ITR 366 (Bom) vii. CIT vs. B A Plantations and Industries Ltd. (2002) 257 ITR 694 (Gua) viii. CIT vs. KR. Ganesh (2003) 259 ITR 174 (Mad.) ix. CIT vs. Kishor Chand Shricharan Lal (2004) 266 ITR 37 (All) 22. Per contra Ld. DR vehemently argued supporting the order of both lower authorities and prayed for sustaining the disallowance. 23. We have heard rival contentions and perused the record placed before us and also gone through the judgment referred and relied by the ld. counsel for the assessee. 24. Apropos ground No.1 2 relating to excise duty payable of ₹ 19,55,702/-. we observe that the alleged amount was raised as a demand by the Additional Commissioner Custom and Central Excise and Service Tax, Indore vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of we would like to mention one more fact which is not in dispute that subsequently the assessee succeeded in the appeal before the CESTAT and total demand of ₹ 19,55,7022/- was deleted. The assessee got refund of ₹ 14,11,022/- which was paid by it and the same has been offered for tax in the return of income for A.Y. 2018-19 and for the remaining amount the claim was reversed in the excise records. Therefore, the entire amount which was claimed as expenditure during the assessment year 2012-13 has been brought to tax F.Y. 2018-19. We, therefore, in the given facts and circumstances of the case are of considered view that the assessee has rightly claimed the excise duty payable at ₹ 19,55,702/- as expenditure which is raised on account of demand pertaining to earlier years. In the result ground no.1 2 of the assessee s appeal is allowed. 27. Apropos to Ground No.3 relating to disallowance of ₹ 13,59,256/- made by the Ld. AO on account of provisions of warranty, Ld. counsel for the assessee referred to the following written submission placed before us: 1.01 That, the appellant is engaged in the business of manufacturing and sales of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the working of the provision, it shall be appreciated by Your Honours that such working is quite scientific and is based upon the actual quantities of pumps sold during the relevant year and as also on the fair estimation of the liability for warranty, based upon the past experience of the technocrats. 1.06 Your Honours, it is submitted that out of the aforesaid provision of ₹ 12,60,252/-, the appellant company has actually also incurred a sum of ₹ 9,04,3091- during the subsequent financial year i.e. F.Y. 2012-13 relevant to A.Y. 2013-14 and the remaining excess provision of ₹ 3,55,943/- has been written back and recognized as income by the appellant company in such financial year 2012-13 itself. 2.00 Your Honours, on a perusal of the Schedule-B of the audited financial statements of the appellant company, at page No.30 of PB, it shall be observed that as against the provision for warranty of ₹ 12,60,252/- for the previous year under consideration, the appellant has also claimed the similar warranty expenses in the immediately preceding previous year i.e. financial year 2010-11 at ₹ 8,34,1291-. It is submitted that such provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed fully and oblige. 28. Per contra Ld. DR vehemently argued supporting the order of both lower authorities and prayed for sustaining the disallowance. 29. Apropos to ground no.3 relating to disallowance of provisions of warranty at ₹ 13,59,256/-, we observe that the assessee entered into a contract with M/s. Kirloskar Brothers Ltd. (KBL). The pumps so manufactured were supposed to be sold by the assessee company to KBL under the KBL branding and logo. On the basis of the historic data and past experience it was anticipated that 3 to 4% of the pumps manufactured during the financial year, comes back for repairing or servicing. In order to meet such expenses provisions is created under the head warranty in each year and the actual expenses incurred during the year are adjusted against the provision. Any amount left is credited back as income. During the year under appeal, Learned assessing officer on examining the records observed that during the year against the provisions of warranty of ₹ 13,59,956/-, no actual expense was incurred or paid during the year. In view of this the Ld. AO considered the nature of the warranty as contingent li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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