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TMI Blog2022 (7) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantee/warranty, the question arises whether the assessee is required make the provision for the guarantee /warranty against the sales made by it. The answer stands in positive. It is for the reason that there is correlation between the sales and the guarantee/warranty extended by the assessee. Once a revenue has been recognized in the books of accounts on account of sales, the corresponding liability which may arise to the assessee on account of guarantee/warranty against such sale should also be recognized in the books of accounts. As per M/S. ROTORK CONTROLS INDIA (P) LTD. case [ 2009 (5) TMI 16 - SUPREME COURT] , there remains no ambiguity to the fact that the assessee has to provide the provision for the guarantee and warranty as the case may be in the books of accounts corresponding to the sales made by it. Basis of calculating the provision to be provided against the sales made with warranty /guarantee - We note that the revenue has not allowed the provision made by the assessee in the year under consideration on the reasoning that the provisions made by the assessee in the earlier years was not adjusted against any expenses. Accordingly, it was doubted that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the corresponding addition made by the AO for ₹ 9,05,000.00 on account of bogus transactions is not sustainable. Accordingly, we direct the AO to delete the same. It is not out of the place to mention that learned CIT-A has deleted the addition made by the AO after elaborate discussion which has been reproduced somewhere in the preceding paragraph. The learned DR at the time of hearing has not brought anything on record contrary to the finding of the learned CIT-A. Hence, the ground of appeal of the Revenue is hereby dismissed. Disallowance of the proportionate interest expenses - HELD THAT:- Admittedly, the own fund of the assessee exceeds the amount of loan and advance given to the parties and therefore it is presumed that the interest free loans and advances were provided out of the share capital and reserve and surplus fund of the assessee. Thus, no disallowance of interest expense is warranted. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A). Hence, the ground of appeal of the Revenue is hereby dismissed. LTCG - capital gain tax on the transfer of Agricultural land - AO not satisfied with the reasons given by the assessee on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hotel Pvt. Ltd [ 2019 (8) TMI 1418 - ALLAHABAD HIGH COURT] - we hold that the order passed by the ld. CIT under section 263 of the Act is not sustainable. Appeal filled by assessee allowed. - ITA No. 139/Rjt/2015, 156/Rjt/2015, 322/Rjt/2017, 110/Rjt/2022 - - - Dated:- 8-7-2022 - Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Appellant : Shri Sanjeev Jain, CIT. D.R For the Respondent : Shri Mehul Ranpura, A.R ORDER PER BENCH: The above appeals have been filed by the Revenue and the assessee against the orders of the Ld. Commissioner of Income-Tax (Appeals), Rajkot, arising in the matter of the Assessment Order passed u/s 143(3) of the Income Tax Act 1961 (here-in-after referred to as the Act ) relevant to the Assessment Years 2011-2012 2012-2013. ITA No.110/Rjt/2022, an appeal by the assessee, is against the order of Learned Principal Commissioner of Income Tax, Rajkot, arising in the matter of Assessment Order passed u/s 263 of the Income Tax Act 1961 relevant to the Assessment Year 2017-18. Since issues involved in all these appeals are identical, we proceed to dispose of all the appeals by this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense against the provisions made by it in the earlier assessment years. Thus, it was concluded that the provision made by the assessee is not based on scientific calculation and therefore the same represents contingent liability. 6. The principles laid down in one year cannot necessarily be followed in the subsequent years as per the principles of res-judicata which does not apply in the income tax proceedings. Likewise, the provision made in the earlier year was offered to tax in the year under consideration which evidences that the provision made by the assessee represents the contingent liability. Therefore, the assessing officer disallowed the same and added to the total income of the assessee. 7. Aggrieved assessee preferred an appeal to the ld. CIT(A). The assessee before the ld. CIT(A) submitted that the performance guarantee has been given to the buyers of the product supplied by it which is 10% of the contract price. Such guarantee is given for 365 days. The amount of guarantee vis- -vis sale of the product has direct nexus and therefore the same should be identified in the year of sale of the product. 8. The contention of the assessing officer that there was no c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that a large number of sophisticated goods were being manufactured in the past and if the facts established show that defects existed in some of the items manufactured and sold, then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts under section 37. It would all depend on the data systematically maintained by the assessee. 7.4 It can be seen here that the historical trends in respect of the assessee refer to no warranty be paid in the earlier years. Thus, there is no basis of any kind for estimating the liability @ 10%. It is true that the appellant is offering this as a warranty. However, in case the warranty is paid in the subsequent year, the appellant would definitely be entitled for a deduction in that year on the amount paid. However, it cannot be said that 10% of the entire sale value is a definite liability that has occurred to the appellant. The liability is purely contingent in nature. In the case of Renowed Auto Products Mfgs. P. Ltd. vs. ITO 354 ITR 127 the Hon'ble Madras High Court while deciding an exactly identical issue has held as under:- The Tribunal point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d relied on the order of the authorities below. 14. We have heard the rival contentions of both the parties and perused the materials available on record. In the current business scenario, when a productive is sold by the company to the customers, the company provides guarantee/warranty for a certain period of time to the buyer generally. The companies provide such guarantee/warranty to maintain its reputation in the market. In the competitive market, it is absolutely necessary to give warranty for its products and meet the expenses over repair, replacement of defective parts and even in some cases replacement of the entire product. 14.1 Admittedly the guarantee/warranty is provided to the customer as per the scheme designed by the company. Accordingly, the guarantee/warranty is subject to various terms and conditions provided in the scheme. Such scheme is always made available to the buyers. If there arises any defect any product supplied to the customer, it (the customer) can always approach the company either for the replacement of the product or repair of the product, as the case may be. Indeed, the sales made by the assessee is the income in the hands of the assessee but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, otherwise the matching concept fails. In such a case the second option is also inappropriate. Under the circumstances, the third option is most appropriate because it fulfils accrual concept as well as the matching concept. For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently. Thus, the decision on the warranty provision should be based on past experience of the company. A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty. Therefore, the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears in the assessment framed under section 143(3) of the Act. However, we note that the revenue has not allowed the provision made by the assessee in the year under consideration on the reasoning that the provisions made by the assessee in the earlier years was not adjusted against any expenses. Accordingly, it was doubted that the provision for the warranty is not required. However, we are not in agreement with the view taken by the authorities below. It is for the reason that the liability arising upon the assessee against the sales made by it cannot be taken at nil value merely it has not been crystallized in the earlier years. As per the purchase agreement, the assessee was exposed to such liabilities on account of warranty/guarantee provided by it. 14.5 At this juncture, it is also important to note that the assessee before the learned CIT-A has contended that it is providing satisfactory services to its clients from time to time in the form of maintenance and repairs of the products sold by it. As such the assessee was receiving the complaints from its clients about the technical defects, breakage, under capacity which were timely handled by it. The corresponding expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer of Rs.1,35,00,000/- on account of unexplained cash credits u/s.68. 3. The Hon ble CIT(A)-3, Rajkot has erred in law and on fact of he case in deleting the addition made by the Assessing Officer of Rs.9,05,000/- made on account of estimated commission. 4. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the Assessing Officer. 16. The interconnected issue raised by the Revenue is that the Ld.CIT(A) erred in deleting the addition made by the Assessing Officer for Rs. 3,17,50,000/- and Rs. 1,35,00,000/- representing the share application money and the loans as well as commission expenses of Rs. 9,05,000/- only. 17. The assessee in the year under consideration has received loan and share application money from the company namely M/s RNG Fin Lease Pvt. Ltd., Kolkata, amounting to Rs. 1,35,00,000/- and Rs. 3,17,50,000/- respectively. The assessee in support of its impugned share capital and loan has furnished the proof of identity and credit worthiness of the parties and genuineness of the transaction by verifying the bank statement and availability of the fund in the hands of the company. Thus it was contended by the assessee that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 The assessee further submitted that it has furnished all the necessary details such as PAN card, bank statement, details of the interest paid, ledger account, confirmation, repayment of the loan, income tax return, audited financial statement in respect of the loans and share capital. 20. The Assessing Officer was very much empowered to call upon the Director of the M/s RNG Finlease Pvt . Ltd. to verify the genuineness of the transaction but the Assessing Officer unnecessary shifted the onus upon the assessee. There was enough fund available with M/s RNG Finlease Pvt. Ltd. amounting to Rs. 30,64,61,647/- and out of such amount, the only sum of Rs. 4,52,50,000/- was paid to the assessee company which constitutes only 14.65% only. As such, there was sufficient fund available with M/s RNG Finlease Pvt. Ltd. The Ld.CIT(A), after considering the submission of the assessee deleted the addition made by the Assessing Officer by observing as under: 5.3 I have carefully considered the appellant's contention, the details filed and the assessment order. It is observed that the main plank on which the A.O. has based his addition is the non-production of the promotors before him lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the depositor is established by virtue of the Roc certificates, PAN, lTR and bank account. As regards the capacity of the depositor, the appellant has filed details of paid up share capital, reserves surpluses and net worth of the depositor. It is seen from the details that the depositor has reasonably high net worth and the loan advanced is 14.65%of the net worth of the depositor. 'The financial details in respect of RNG Finlease P.Ltd. as on 31/3/2011 are as under:- Particulars as on 31.3.2011 RNG Finlease vt. Ltd. Paid up share capital 33305500 Reserves Surplus 273156147 Net worth 306461647 Loan and share capital invested in the appellant and 45250000 Loan to appellant as % of net worth 14.65% Cash Bank balance 3771408 5.6 The details of cash and bank balances have also been filed. The only issue now requires to be analysed is about the genuineness of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 133(6) of the Act. On its choosing not to exercise such powers, it was erroneous on the part of the Assessing Officer to make addition of a sum of Rs.23,00,000/-, despite such cogent evidences having been put-forth by the assessee. Both the authorities have concurrently held the issue in favour of the assessee and moreover, the entire issue is essentially in the realm of facts. 5.7 Similar view has been held by the Hon'ble Supreme Court in case of Lovely Exports P. Ltd. 216 CTR 195. In this case, the appellant hasestablished the identity, the capacity of the lender and the genuineness of the transaction. Considering the factual matrix and the discharge of the onus by the appellant, it is held that no addition u/s.68 is warranted. The addition is directed to be deleted. It is also worthwhile to mention here that the A.O. has based his order mainly on the findings in another case, i.e. M/s. Sunshine Tiles P. Ltd. The addition u/s.68 in that case has been deleted by the Ld. CIT(A)-I, Rajkot. vide order in Appeal No.CIT(A)-I/Rjt/0044/13-14 (A.Y. 2010-11), dt.28/8/2014 wherein it is held as under:- The law about cash credits has been very well discussed and estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng ignorance about the person incharge of the depositor company and lack of any security by the appellant. As regards the production of the promoters before the AO, the AO could have easily commission u/s.131(1)(d) as the promoters were stationed beyond 500 km. This has not been done by the AO. As against that, the appellant has given complete details running into 14 points which have been narrated, earlier. Also, the depositor himself has confirmed the transaction by independently filing a sworn of managing director of the of RNG Finlease P. Ltd. The onus therefore, in my opinion, has been properly discharged by the appellant. It would also be worthwhile to mention here that the Kolkata route referred to b the A.O is generally operative in respect of share application money of purchase of loss. Be that as it may , even if such loan is by the Kolkata route, it is for the A.O to conclusively prove the same. This has not been done by the A.O. Considering the factual matrix and the discussion as above, it is held that no addition u/s.68 is warranted. The addition is directed to be deleted. 5.8 Thus, the very basis for the addition made by the A.O. stands eroded. Be that as it ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently, the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, it was to be presumed that the transactions were genuine. It was not for the ITO to find out by making investigation from the bank accounts unless the assessee proved the identity of the creditors and their creditworthiness. Mere payment by account payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine. 23.1 From the precedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty namely RNG Finlease private Ltd. 23.6 Now coming to the second and third condition, i.e. genuineness of the transaction and creditworthiness of the parties, regarding this we note that all the transactions were carried out through banking channel and the assessee has also refunded part of the amount to the party namely M/s RNG Finlease private Ltd through banking channel. The repayment of the loan amount by the assessee was duly accepted by the Revenue. In this regard, we find support and guidance from the judgment of Hon ble Gujarat High Court in the case of the CIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under: The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. 23.7 Thus, there remains no doubt that the transaction of the advance received by the assessee from the party was not genuine. In our considered view, once the assessee is able to prove that the money received by it was returned in the account of the same p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntee amounting to Rs. 2,03,55,868/- only. 26. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the Assessee in its own case in ITA No. 139/Rjt/2015 for the assessment year 2011-12. Therefore, the findings given in ITA No. 139/Rjt/2015 shall also be applicable for the year under consideration i.e. AY 2012-13. The ground appeal of the Assessee for the assessment 2011-12 has been decided by us vide paragraph No. 14 to 14.7 of this order in favour of assessee and against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 27. The second issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer on account of disallowance of the proportionate interest expenses. 28. The Assessing Officer during the assessment proceedings found that the assessee has advanced money amounting to Rs. 6,00,000/- without any interest. Therefore, the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the property in the name of Director at the same price at which it was acquired in the year 2006 in the year under consideration. As per the assessee the impugned transaction cannot be regarded as transfer so as to attract the capital gain and therefore the same cannot be made subject to tax under the head Capital Gain . 34. However, the Assessing Officer was not satisfied with the reasons given by the assessee on the ground that the assessee has realized its 6 years later for correcting the registration document. As per the Assessing Officer the assessee is doing so in order to avoid the capital gain tax on the transfer of land. Thus the Assessing Officer worked out the stamp value of such land amounting to Rs.1,28,77,551/- and calculated capital gain of Rs. 1,04,17,891/- and added to the total income of the assessee. 34.1 Aggrieved assessee preferred an appeal to the Ld. CIT(A), the assessee before the Ld. CIT(A), reiterated the submission made before the Assessing Officer. 35. The assessee in addition to the submission made before the Assessing Officer further contended that the impugned land was sold in the same assessment year i.e. AY 2012-13 and Directors in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises in its hands. He also held that, the purchase deed was wrongly made in the name of company in the year 2006, then the correction should have happened immediately. There is no reason to wait for 6 year to do the correction. Therefore, this is a method adopted by the assessee to avoid payment of capital gain tax on transfer of land, which is nothing but a colorable device' However' one also needs to bear in mind that, the impugned land, at the time of change of name from assessee to its directors, was not a capital asset. Hence, the same is anyway not subject to capital gains tax. Secondly, the company is ineligible for possessing an agricultural land. Therefore, the inadvertence is proved beyond doubt. Thirdly, the directors paid more tax as capital gain than that determined by the Assessing Officer. Therefore, if it is charged as capital gains in the hands of the company, there would be double taxation. 8.4 In light of the above, it is held that the Assessing Officer is not justified in charging capital gain tax on the same land on which the directors have already offered capital gains in their individual hands. The addition is therefore directed to be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order and the written submission of the ld.AR of the appellant. It is seen that the appellant had not earned any exempt income. The Assessing Officer holds that, the appellant has made investment which is likely to yield exempt income. As per section 14A, no deduction shall be allowed in respect of expenditure incurred by the assesee in relation to income which does not form part of the total income. Here, in order to make disallowance, there should be existence of exempt income and expenditure attributable to such earning. Therefore, the very purpose of this section is to discourage diversion of expenditure to earn exempt income. Since there is no exempt income, no disallowance can be made only on the apprehension that there are likely chances of earning exempt income. Therefore, the disallowance made is directed to be deleted. 42. Being aggrieved by the order of the Ld. CIT(A) the Revenue is in appeal before us. 43. Both the Ld. DR and Ld. AR relied upon the order of the authorities below as favourable to them. 44. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, there was no exempt income received by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Rs. 14,17,95,000/- which was capable of generating tax free income. Thus, the disallowance was made under the provision of section 14A r.w.Rule 8D(ii) of Income Tax Rules for Rs. 14,37,262 being 1% of the average investment. 47. However, the Assessing Officer has made the disallowance of Rs. 2,10,000/- only without proper verification. Thus the income of the assessee has been under assessed by Rs. 12,27,262/- (14,37,262.00 2,10,000/-). Thus the Ld. PCIT held that the assessment order framed by the Assessing Officer is erroneous in so far prejudicial to the interest of the revenue. 48. Being aggrieved by the order of the ld. PCIT, the assessee preferred an appeal before us. 49. The Ld. AR before us filed a paper book running from pages 1 to 58 and contended that the assessee against the disallowance made by the Assessing Officer for Rs. 2,10,000/- under the provision of section 14A r.w. Rule 8D has preferred an appeal to the Ld. CIT(A) dated 21/12/2019. Therefore, the assessment framed u/s 143(3) of the Act cannot be subject matter of revision under the provision of section 263 of the Act. 49.1 The Ld. AR in support of his contention relied on the judgment of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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