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TMI Blog2018 (8) TMI 1943X X X X Extracts X X X X X X X X Extracts X X X X ..... e information by the assessee as directed in the above cited decision of the coordinate bench. Therefore the appeal of the revenue is allowed for statistical purposes. Disallowance on account of provision for warranties - HELD THAT:- We have noticed that the Co-ordinate Bench of the ITAT [ 2018 (4) TMI 1122 - ITAT AHMEDABAD ] for assessment year 2000-01 to 2001-02 has decided the identical issue in favour of the assessee. Deduction on which TDS deducted on which provision reversed - HELD THAT:- The amount was disallowed in assessment year 2005-06 on account of non-deduction of tax but the same was deducted during the year under consideration and claimed as deduction u/s.40(a)(ia) of the act. The second amount represents the amount credited on account of reversal of expenditure debited in the account of earlier year, the same was considered as part of profit loss in this year. After perusal of the detailed finding of ld. CIT(A) holding that the A.O. ought to have allowed deduction for the aforesaid amount u/s. 40(a)(ia)and further amount of 52,40,669/- which was credited to the Profit Loss Account for provision reversed but was not allowed deduction in the past after we do not find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of ₹ 22,90,495/- on account of upward adjustment of international transaction in respect of royalty payment. 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 31,91,000/- on account of provision for slow moving/obsolete stock without appreciating fact that expenditure claimed was on adhoc basis and not ascertainable. 3. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 1,81,10,000/- made by the AO on account of provision for warranties without appreciating facts that this amount is a provision and a contingent, unascertained and non-crystallized liability. 4. The Ld. CIT(A) has erred in law and on facts in directing to allow deduction of ₹ 7,35,640/- on which TDS was deducted in A.Y. 2007-08 and ₹ 52,40,669/- on which provision was reversed in A.Y. 2007-08 without appreciating the fact that an additional claims, can be made only by filing revised returns. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 6. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We find that an identical issue in the case of the assessee itself was decided by the Co-ordinate Bench of the ITAT vide ITA No. 182, 216 & 1137/Ahd/2011 against the revenue pertaining to assessment year 2005-06 and 2006-07. The relevant part of the decision of the ITAT is reproduced as under:- "15. We have considered rival submissions and perused the material available record. We find that the CIT(A) while deleting the addition has noted that facts of the case of the assessee in this year are identical to the earlier years, and he had followed the decision of his predecessor. We further find that in ITA No. 2363/Ahd/2008 for A.Y.2004-05, similar issue was decided by the Co-ordinate Bench of 1TAT in favour of the assesee and the addition was deleted following the order in Revenue's appeal for A.Y.2003-04 in ITA No.2281/Ahd/2007, while deciding the Revenue's appeal, the issue was decided by holding as under: "36. We have considered rived submissions and perused the material on record, and gone through the orders of the authorities below. We find that the issue regarding payment of royalty at the rate of3.75% to the AE by the assessee, as against the royalty at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any basis. The assessing officer has also observed that provision made is of contingent in nature. Consequently the provision for slow moving/absolute stock was disallowed and added back to the total income under regular provision as well as to the book profit calculated u/s 115 JB of the act. 8. Aggrieved assessee filed appeal before the ld. CIT (A). The ld. CIT (A) has deleted the addition made by the assessing officer. The ld. CIT(A) has stated that the same issue has been decided by his predecessor for assessment year 2004-05 & 2007-08 wherein the disallowance made was deleted holding that it was not a mere provision for liability but it was on account of loss determined by the assessee in value of stock. 9. We have heard the rival contentions and perused the material on record carefully. We have noticed that Co-ordinate Bench of the ITAT in the case of the assessee itself vide ITA No. 182, 216, 1137/Ahd/2011 has decided the identical issue in favour of the assessee. The relevant part of the decision of the ITAT is reproduced as under:- "20. We have considered rival submissions and perused the material available on record. We find that the CIT(A) while deleting the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of provision for warranties) 10. The assessee has debited sales and warranty commission amounting to ₹ 9,41,74,000/- in the P & L account. The assessing officer has noticed that the assessee company is a manufacturer of air conditioner and provide warranty for one year on air conditioners and 5 years warranty on compressors from the date of commissioning. He observed that the period of warranty extend well beyond the accounting period and the assessee has claimed warranty expenses which do not pertain to the relevant accounting year. Therefore, the assessing officer has worked out the warranty expenses pertaining to subsequent year by taking 3 months in respect of warranty expenses of air conditioners pertaining to subsequent year and warranty expenses of compressors divided into five equal parts. Consequently, he has re-worked the warranty expenses and disallowed an amount of ₹ 1,81,10,000/- treating the amount of provision as uncertain liability. 11. Aggrieved assessee has filed appeal before the ld. CIT (A). The ld. CIT (A) allowed the appeal of the assessee stating that warranty was not unascertained liability as computation of warranty charges were m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CIT(A) has allowed the appeal of the assessee following the decision of ITAT, Ahmedabad. The relevant part of the decision of the ld. CIT(A) is reproduced as under:- "7.2 I have considered the assessment order and the above submissions. The A.O. has not disputed the justification of claim but has not accepted it only in view of Supreme Court decision in the case of Goetze (India) Ltd. During the course of appellate proceedings the A.R. submitted that the claim can be entertained by the CIT(A), if it is going to the basic legal claim of the assessee. It is submitted that the claim for payment made of IDS and consequent deduction u/s.40(a)(ia) is the basic legal issue and is to be allowed by the CIT(A). Similarly to the provision reversed back amounting to ₹ 52,40,669/- is also an amount which is not allowed in the past and hence could not be taxed u/s. 41(1) though offered for tax in the return but claimed to be not taxable in the assessment proceedings. The CIT(A) has power to entertain such claim. This view is supported by the ITAT, Ahmedabad decision in the case of Shalby Hospital Ltd. vide order dated 20-5-2011. On consideration of the above, I find that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to say that while redecidirig the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act. With these directions, ground no. 1 in the appeal is disposed of." Following the aforesaid decision of ITAT, Ahmedabad I hold that the A.O. ought to have allowed deduction for the aforesaid amount of ₹ 7,35,640/- u/s. 40(a)(ia)and further amount of ₹ 52,40,669/- which was credited to the Profit & Loss Account for provision reversed but was not allowed deduction in the past. Accordingly this ground of appeal is allowed." 15. During the course of appellate proceedings before us, the ld. departmental representative supported the order of assessing officer. On the other hand, ld. Counsel has supported the order of CIT(A) and also placed on the decision of Hon'ble Gujarat High Court in the case of Mitesh Impex Ltd. 270 CTR (Guj). 16. We have heard both the sides and perused the material on records carefully. The amount of ₹ 7,35,640/- was disallowed in assessment year 2005-06 on account of non-deduction of tax but the same was deducted during the year under consideration and claimed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee did not press ground no. 1 of the appeal, therefore, the same is dismissed as not pressed. Ground no. 2 (Claim for deduction of the provision of bad debt written back of ₹ 1,16,04,101/- and provision for advances written back of ₹ 3,79,223/- while computing the book profit u/s. 115JB of the act) 19. During the course of assessment proceedings, the assessing officer computed the book profit u/s. 115JB of the act at the amount of ₹ 25,85,56,391/- .However, the assessing officer has not allowed deduction in respect of provision for advances for ₹ 1,16,04,101/- and provision for bad debt written back for ₹ 3,79,223/- in view of the retrospective amendment to explanation 5 of section 1115JB by the Finance At, 2009 with effective from 0104-2001. The ld. CIT(A) has also not allowed the claim of the assessee. Relevant part of the decision of the CIT(A) is reproduced as under:- "9.3 In this connection, it may be noted that the first clause of second limb of the Explanation-1 to section 115JB allows reduction of the following amount from the net profit as shown in the Profit & Loss Account: "the amount withdrawn from any reserve or provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de, shall stand increased by the amount of provision made in the respective year(s). Accordingly, the condition stated in (ii)(b) gets satisfied. 9.6 Considering the above points, during the year under consideration, the appellant company had submitted a revised working of its book profit in view of this amendment, reducing ₹ 1,16,6,04,101/- and Rs.-3,79,223/- from its book profit on account of provision for doubtful debts written back and provision for advances written back respectively. The same has not been considered by the Assessing Officer. 9.7 The above view of the appellant company is also supported by the decision of the Mumbai Tribunal in the case of Kochi Refineries Ltd. v. DCIT [2010] 4-ITR (Trib)-95 (Mumbai), wherein the tribunal held as under: "............ It is an admitted fact that the provision for bad and doubtful debts was made in the financial year relevant to the assessment year 1998-99 and the same amount was added back in the regular computation. By virtue of law, it is the duty of the Assessing Officer to compute the normal total income and also the book profit under section 115JA in that year and then compare and decide to invoke the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the past in the book profit and hence this claim cannot be entertained and is rejected. The appellant may approach A.O. if such amounts are added back in calculation of book profit u/s. 115JA/JB in respective years." 20. We have heard the rival contention and perused the materials on record carefully. After keeping in view the retrospective amendment made in the Finance Act, w.e.f. assessment year 2000-01, we consider that as elaborated in the findings of the Ld.CIT(A) the assessee has failed to demonstrate that it has made any such adjustment in the book profit in the past, therefore, we do not find any error in the decision of ld. CIT(A) directing the assessee to approach the A.O. if such amounts are added back in calculation of book profit u/s. 115JA/JB in respective years.. Accordingly, the appeal of the assessee is dismissed on this issue. Ground no. 3 (Confirming the addition of ₹ 31,91,000/- being provisions for slow moving/absolute stock) 21. The assessing officer had disallowed the claim of provisions for slow moving/absolute stock and added the same to the book profit u/s. 115JB of the act which was sustained by the ld. CIT (A). The relevant part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w change in the carrying value Of inventories, which are held by the assessee company. Whereas as per the method of valuation of inventories regularly followed by the company, inventories are to be valued at "cost or market value, whichever is less". In order to record the decline in the value of inventories, an entry is passed for the differential value in the inventory and an entry is passed for provision for the said amount. Thus, the amount represent the fall in the value of inventories held by the company. The provision is made due to the reason of constraint of accounting software, but it is for the actual reduction in the value of inventory for the non-moving or slow-moving items of * inventory, as per method of valuation being followed by company. Therefore, the same should not be added to the Book profit. 10.4 Without prejudice to the above, it is also submitted that the said amount of provision is credited to the Cost of inventories charged to the Profit and Loss Account, in the year in which the actual sale / use of the said inventories takes place. Therefore, the amount charged to the Profit and Loss Account is lower by the said amount of provision, In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds irrecoverability of the debt cannot be said to be a provision for liability. Therefore it was held that Item (c) of the Explanation is not attracted to the - the case. Item (c) in Section 115JA and 115-JB(1) are identical. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in Item (c) of the explanation. It is the amount or amounts set aside as provisions made for meeting the liability other than the ascertained liabilities. In the instant case also the bad and doubtful debt for which a provision is made which is in the nature of diminution in the value of any asset would not fall within item (c) of Explanation (i). It is in that context the appellate Commissioner as well as the Tribunal has granted relief to the assessee. Realising the fatality of the said argument, it is contended now that item (i) cannot amount to satisfaction as provision for diminishing in the value of assets is substituted, in case of the assessee falls under Item (c). In meeting the aforesaid case, the learned counsel for the assessee bought to our notice the judgment of the Apex Court in the case of Vijaya Bank ( supra) where the Apex Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal." However in the case of the assessee we noticed that the assessee has created a provision for the same without adjusting the same against the value of inventory which show that there is no actual reduction in the value of inventory for the non-moving or slow moving items of the inventory. Therefore as per the explanation also mentioned in the findings of the decision of the Hon'ble High Court of Karnatka referred by the assessee in the case of CIT V. Yokogawa India Ltd the assessee is required not only to debit the profit and loss account but simultaneously also to reduce assets side of the balance sheet to the extent of the corresponding amount so that at the end of the year the amount of stock in trade /closing stock is shown as net of provisions for the impugned bad debt . In the light of the above facts and legal findings we consider that the Ld.CIT (A) is justified in disallowing the claim of the assessee for adjustment of ₹ 31,91000/ to the book profit and similarly correct in not admitting claim of deduction of ₹ 93,11,850 on the same reasoning. In view of the above the facts of the case of the assessee are distinguishable therefore we do not find merit i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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