BHARAT BIJLEE LTD, MUMBAI v. ADDL CIT RG 6(1), MUMBAI

ITA 1831/MUM/2010 | 2006-2007
Pronouncement Date: 22-07-2011 | Result: Allowed

Appeal Details

RSA Number 183119914 RSA 2010
Assessee PAN AAACB2900K
Bench Mumbai
Appeal Number ITA 1831/MUM/2010
Duration Of Justice 1 year(s) 4 month(s) 15 day(s)
Appellant BHARAT BIJLEE LTD, MUMBAI
Respondent ADDL CIT RG 6(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 22-07-2011
Date Of Final Hearing 13-07-2011
Next Hearing Date 13-07-2011
Assessment Year 2006-2007
Appeal Filed On 08-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI R.S. SYAL A.M. AND SHRI V. DURGA RAO J.M. ITA NO. 1831/MUM/2010 ASSESSMENT YEAR: 2006-07 M/S BHARAT BIJLEE LTD. . APPELLANT 6 TH FLOOR ELECTRIC MANSION A.M. MARG PRABHADEVI MUMBAI 400 025. (PAN AAACB2900K) VS. ADDL. COMMISSIONER OF INCOME TAX RESPONDENT RANGE 6(1) MUMBAI ITA NO. 1813/MUM/2010 ASSESSMENT YEAR: 2006-07 ADDL. COMMISSIONER OF INCOME TAX APPELLANT RANGE 6(1) MUMBAI VS. M/S BHARAT BIJLEE LTD. . RESPONDENT 6 TH FLOOR ELECTRIC MANSION A.M. MARG PRABHADEVI MUMBAI 400 025. (PAN AAACB2900K) ASSESSEE BY : MR. ANKIT AGARWAL REVENUE BY : MR. R.K. GUPTA ORDER PER V. DURGA RAO J.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE O RDER OF CIT(A)- 14 MUMBAI PASSED ON 22/12/2009 FOR THE ASSESSMENT YEAR 2006-07. ITA NO. 1831/MUM/10 APPEAL BY THE ASSESSEE 2. THE ONLY GROUND RAISED BY THE ASSESSEE IN THIS A PPEAL IS IN RESPECT OF DISALLOWANCE OF EXPENSES OF RS. 7 74 000 /- U/S 14A OF ACT. ITA NOS. 1831 & 1813/M/2010 M/S BHARAT BIJLEE LTD . 2 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF TRANSFORMERS AND FILED ITS RETURN OF INCOME DECLARI NG TOTAL INCOME OF RS. 4 36 53 976/- WHICH WAS PROCESSED U/S 143(3) O F THE DETERMINING INCOME OF RS. 45 93 44 016/-. DURING THE YEAR THE ASSESSEE EARNED DIVIDEND INCOME ON INVESTMENTS IN SHARES AMOUNTING TO RS. 61.44 LAKHS AND THE INTEREST EXPENDITURE DEBITED AND CLAI MED AMOUNTED TO RS. 449.75 LACS. WHILE COMPLETING THE ASSESSMENT T HE AO HAD DISALLOWED A SUM OF RS. 7 74 000/- U/S 14A OF THE A CT RWS 8D OF THE ACT. ON APPEAL THE CIT(A) CONFIRMED THE ACTION OF THE AO. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US THE LEARNED RE PRESENTATIVES OF THE PARTIES AGREED THAT THE ISSUE UNDER CONSIDERATI ON IS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2005-06 IN ITA NO. 6410/MUM/2008 VIDE ORDER DATED 11 TH MARCH 2011 WHEREIN THE TRIBUNAL HELD AS UNDER:- 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT THE CONTENTIONS PUT-FORTH BY THE ASSESSEE ARE ACCEPTABL E. THE ASSESSEE HAS DEMONSTRATED THAT THERE WERE NO EXPENS ES INCURRED IN MAKING INVESTMENT IN SHARES WHICH YIELDED THE TA X FREE DIVIDEND INCOME. IN AY 2004-05 ON IDENTICAL FACTS T HIS TRIBUNAL HAS ALREADY HELD THAT NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR. IN THESE CIRCUMSTANCES WE ARE OF THE VI EW THAT THE DISALLOWANCE MADE BY THE AO SHOULD BE DELETED. WE A CCORDINGLY DIRECT THAT THE ADDITION MADE BY THE AO U/S 14A BE DELETED. 5. SINCE THE FACTS OF THE CASE UNDER CONSIDERATION ARE MATERIALLY IDENTICAL TO THAT OF AY 2005-06 RESPECTFULLY FOLLO WING THE DECISION OF THE TRIBUNAL IN AY 2005-06 IN ASSESSEES OWN CASE ( SUPRA) WE SET ASIDE THE ORDER OF THE AO AND HEREBY DELETE THE DI SALLOWANCE OF RS. 7 74 000/- MADE BY THE AO U/S 14A OF THE ACT. ACCOR DINGLY THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NOS. 1831 & 1813/M/2010 M/S BHARAT BIJLEE LTD . 3 ITA NO. 1813/MUM/2010 APPEAL BY THE REVENUE 6. GROUND NO. 1 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND LAW THE LD. CIT(A) ERRED IN ALLOWING THE GROUND OF APPEAL O F THE ASSESSEE EVEN WHEN THE SIMILAR ADDITION WAS UPHELD IN 1 ST APPEAL FOR THE AY 2005-06 AND THE ASSESSEE WAS IN FURTHER APPEAL B EFORE THE HONBLE ITAT. 7. THIS GROUND IS PERTAINING TO DISALLOWANCE OF PRO VISION FOR WARRANTY AMOUNTING TO RS. 60 50 000/- 8. THE ASSESSEE HAD DEBITED A SUM OF RS. 60 50 000/ - IN THE ACCOUNTS FOR ANTICIPATED LIABILITIES THAT MAY ARISE IN FUTURE FOR THE GOODS SOLD. ON BEING ASKED TO EXPLAIN BY THE AO TH E ASSESSEE HAD SUBMITTED THAT ANTICIPATED WARRANTY CLAIM HAD BEEN DEBITED TO MEET THE CLAIMS THAT MAY ARISE. THE AMOUNT HAD BEEN QUAN TIFIED ON THE BASIS OF PAST EXPERIENCE AND THE PROVISION HAD BEEN CREATED. FOLLOWING THE DECISION IN AY 2005-06 THE AO DISALL OWED THE CLAIM OF THE ASSESSEE. ON APPEAL THE CIT(A) FOLLOWING THE J UDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROL S INDIA LTD. 314 ITR 62 DIRECTED THE AO TO ALLOW THE CLAIM OF THE AS SESSEE. AGGRIEVED REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. BEFORE US THE LEARNED REPRESENTATIVES OF THE PA RTIES AGREED THAT THIS GROUND IS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2005-06 (SUPRA) WHEREIN THE TRIBUNAL H ELD AS UNDER:- 14. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNS EL FOR THE ASSESSEE AND THE LD. D.R. THE LD. COUNSEL FOR THE ASSESSEE RELIE D ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA P VT. LTD. VS. CIT 314 ITR 62(SC) WHEREIN IT WAS HELD THAT ESTIMATED PROVISIO N FOR WARRANTEE PROPERLY ASCERTAINED IS AN ALLOWABLE DEDUCTION UNDER SECTION 37 OF THE ACT. HE ALSO POINTED OUT THAT AS-29 OF ICAI CAME INTO FORCE ONLY ON 1/4/2004 AND THEREFORE THIS IS THE FIRST YEAR IN WHICH THE ASSESSEE COULD HAVE MADE A PROVISION ON ACCOUNT OF WARRANTEE COST AND CLAIMED THE SAME AS D EDUCTION. HE ALSO BROUGHT TO OUR NOTICE THAT AS-1 OF ICAI WHICH HAS ALREADY NOTIF IED UNDER SECTION 145(2) OF THE ACT AS AN ACCOUNTING STANDARD TO BE FOLLOWED BY ALL ASSESSES FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING PROVIDES THAT AN ACCOUNTING PO LICY ADOPTED BY AN ASSESSEE SHOULD BE SUCH AS TO PRESENT A TRUE AND FAIR VIEW O F THE STATE OF AFFAIRS OF THE BUSINESS AND IN DOING SO THE POLICY OF PRUDENCE SHO ULD BE ADOPTED I.E. PROVISION ITA NOS. 1831 & 1813/M/2010 M/S BHARAT BIJLEE LTD . 4 SHOULD BE MADE FOR ALL NON-LIABILITIES AND LOSSES E VEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. ACCORDING TO HIM APPLYING T HE PRINCIPLE OF PRUDENCE ALSO THE DEDUCTION CLAIMED SHOULD BE ALLOWED. THE LD. D .R SUBMITTED THAT THE AO DID NOT EXAMINE THE QUESTION AS TO WHETHER THE ESTIMATE OF LIABILITY BY THE ASSESSEE WAS PROPER AND THEREFORE THE MATTER SHOULD BE REM ANDED FOR FRESH CONSIDERATION BY THE AO TAKING INTO CONSIDERATION ALSO THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD.(SUPRA ). 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. HAD AN O CCASION TO CONSIDER A CASE WHERE A DEDUCTION ON ACCOUNT OF A PROVISION FOR WAR RANTY EXPENSES WAS MADE BY THE ASSESSEE AND BASED ON THAT PROVISION DEDUCTION WHILE COMPUTING INCOME WAS CLAIMED BY THE ASSESSEE. THE REVENUE AUTHORITIES D ISALLOWED THE CLAIM ON THE GROUND THAT THE LIABILITY WAS ONLY CONTINGENT LIABI LITY. THE HONBLE SUPREME COURT HELD THAT IN A CASE WHERE THERE WAS WARRANTY OBLIGA TION SUCH OBLIGATION WAS PART OF THE SALE PRICE AND STOOD ATTACHED TO THE SALE PR ICE OF THE PRODUCT. WARRANTY OBLIGATION IS A PRESENT OBLIGATION AS A RESULT PAS T EVENTS RESULTING IN AN OUT FLOW OF RESOURCES AND A RELIABLE ESTIMATE COULD BE MADE OF THE AMOUNT OF OBLIGATION. IF IT IS SO MADE IT IS A LIABILITY ALLOWABLE AS DEDUCTION UNDER SECTION 37 OF THE ACT. THE HONBLE SUPREME COURT HAS ALSO LAID DOWN THAT THE E STIMATE OF LIABILITY HAS TO BE ON THE BASIS OF STATISTICAL DATA OF THE ASSESSEE A VAILABLE IN THE PAST. APPLYING THE ABOVE PRINCIPLE THE CLAIM OF THE ASSESSEE IN THE PR ESENT CASE HAS TO BE ALLOWED. IN THE PRESENT CASE THE ASSESSEE HAD FIELD THE NECESSA RY DATA BEFORE THE AO BUT THE AO DID NOT THINK IT FIT TO EXAMINE THE CLAIM MADE BY THE ASSESSEE ON ITS MERITS. AS WE HAVE ALREADY SEEN THE PROVISION ON ACCOUNT OF WA RRANTY COST WAS MADE BY THE ASSESSEE BASED ON THE PAST EXPERIENCE AND THE AO DI D NOT FIND ANY FAULT IN SUCH ESTIMATION MADE BY THE ASSESSEE. IN SUCH CIRCUMSTA NCES WE ARE OF THE VIEW THAT THE REQUEST OF THE LD. D.R TO REMAND THE MATTER TO T HE AO FOR FRESH CONSIDERATION CANNOT BE ACCEPTED. WE ARE OF THE VIEW THAT PRIMA FACIE THE ESTIMATE OF LIABILITY BASED ON WHICH THE PROVISION FOR WARRANT COST WAS M ADE BY THE ASSESSEE IS REASONABLE AND HAS TO BE ACCEPTED. WE THEREFORE DIRECT THAT THE DEDUCTION CLAIMED BY THE ASSESSEE BE ALLOWED. GROUND NO.2 IS ACCORDINGLY ALLOWED. 8. SINCE THE ISSUE IS IDENTICAL TO THAT OF AY 2005- 06 WE RESPECTFULLY FOLLOW THE DECISION OF THE TRIBUNAL IN THAT YEAR AND IN THE LIGHT OF THAT WE UPHOLD THE ORDER OF THE CIT(A) IN ALLOWING THE PROVISION OF WARRANTY CLAIM OF THE ASSESSEE AMOUNTI NG TO RS. 60 50 000/-. ACCORDINGLY THIS GROUND OF REVENUE IS DISMISSED. 9. GROUND NO. 2 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND LAW THE LD. CIT(A) ERRED IN HOLDING THE CAPITAL EXPENDITURE AS REVENUE EXPENSES IGNORING THE FACT THAT DEPOSIT GIVEN FOR A LAND ON A LEASE WAS CAPITAL IN NATURE. 10. THE ASSESSEE HAD TAKEN A FACTORY LAND ON LEASE FOR WHICH PREMIUM WAS PAID. THE ASSESSEE HAD AMORTIZED THE SA ID PREMIUM OVER ITA NOS. 1831 & 1813/M/2010 M/S BHARAT BIJLEE LTD . 5 THE LEASE PERIOD AND CLAIMED AN AMOUNT OF RS. 12 60 0/- ON ACCOUNT OF LEASEHOLD LAND WRITTEN OFF. THE AO TREATED THE PAYM ENT CAPITAL IN NATURE AND DISALLOWED THE SAME. ON APPEAL BEFORE T HE CIT(A) THE ASSESSEE SUBMITTED THAT THE SAID CLAIM HAD NEVER BE EN DISALLOWED IN THE PAST. THE CIT(A) FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT C ORPORATION 225 ITR 802 ON WHICH THE RELIANCE PLACED BY THE ASSESS EE ALLOWED THE CLAIM OF THE ASSESSEE BY TREATING THE SAME AS REVEN UE EXPENSES. REVENUE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 11. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. THE SUBMISSION OF THE ASSESSEE IS THAT THE CLAIM OF THE ASSESSEE HAS NEVER BEEN DISALLOWED IN THE PA ST BUT THERE IS NO MATERIAL ON RECORD TO ESTABLISH THAT THE CLAIM OF T HE ASSESSEE HAS NOT BEEN DISALLOWED IN THE PAST. THEREFORE WE SET ASID E THE ORDER OF THE CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO EXAMINE THE CLAIM OF THE ASSESSEE THAT IT HAS BEEN ALLOWED IN T HE PAST OR NOT AND DECIDE THE ISSUE ACCORDINGLY AFTER PROVIDING REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASESSSEE. 12. GROUND NO. 3 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE ADDITION MADE U/S 145A OF THE ACT. 13. THE AO MADE ADDITION OF RS. 1 59 67 649/- U/S 1 45A OF THE ACT. THE CIT(A) HELD THAT THE AO HAS CALCULATED IMPACT O F EXCISE DUTY BASED ON INCLUSIVE METHOD AND ADDED A SUM OF RS. 1 59 67 649/- WHEREAS THE ASSESSEE FOLLOWED EXCLUSIVE METHOD OF A CCOUNTING AND FOLLOWED AS-2 ON VALUATION OF INVENTORIES AND THE G UIDANCE NOTE ON ACCOUNTING TREATMENT FOR MODVAT/CENVAT ISSUED BY TH E ICAI AND ACCORDINGLY THE EXCLUSIVE METHOD FOR ACCOUNTING HAS BEEN FOLLOWED. THE ASSESSEE RELIED UPON THE DECISION OF THE ITAT MUMBAI IN THE CASE OF HAWKINS COOKERS LTD. V. ITO(ITA 505/MUM/04). THE REFORE THE ITA NOS. 1831 & 1813/M/2010 M/S BHARAT BIJLEE LTD . 6 CIT(A) DIRECTED THE AO TO DELETE THE ADDITION MADE U/S 145 OF THE ACT. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE THE TRIBU NAL. 14. BEFORE US BOTH THE PARTIES SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN C ASE IN AY 2005-06 (SUPRA) WHEREIN THE TRIBUNAL HELD AS UNDER:- 50. THE ASSESSEE HAS ALSO NOT CLAIMED DEDUCTION ON ACCOUNT OF ASSESSEE HAD DULY GIVEN EFFECT TO THE PROVISIONS OF SECTION 145A AS WELL AS THE PROVISIONS SECTION 43B OF THE ACT. IN OUR VIEW THE AO IGNORED THE SUBMI SSIONS AND HAS PROCEEDED ON THE BASIS THAT ONLY CLOSING STOCK OUGHT TO HAVE BEE N REVALUED. IN OUR VIEW THIS IS CONTRARY TO THE DECISION RELIED UPON BY THE ASSESSE E BEFORE THE CIT(A). EVEN THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHALAXMI GLASS WORKS HAS TAKEN THE VIEW AS WAS TAKEN BY THE HONBLE DELHI HIGH COURT I N THE CASE OF MAHAVIR ALLUMINIUM (SUPRA). IN VIEW OF THE ABOVE WE HOLD TH AT THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) SHOULD BE DELETED. W E ACCORDINGLY DIRECT THAT THE ADDITION MADE BE DELETED. GROUND NO.5 RAISED BY TH E ASSESSEE IS ALLOWED. 11. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICA L TO THAT OF AY 2005-06 WE RESPECTFULLY FOLLOW THE DECISION OF TRI BUNAL IN AY 2005-06 AND IN THE LIGHT OF THAT WE CONFIRM THE ORDER OF C IT(A) IN DELETING THE ADDITION MADE BY THE AO U/S 145 OF THE ACT. THUS THIS GROUND OF APPEAL IS DISMISSED. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JULY 2011. SD/- SD/- (R.S. SYAL) (V. D URGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 22 ND JULY 2011 KV ITA NOS. 1831 & 1813/M/2010 M/S BHARAT BIJLEE LTD . 7 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE B BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI.