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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER & 934/Ind/2016 Assessment Years: 2008-09 & 2012-13 M/s Pradhan Engineering ACIT 1(1), बनाम/ Enterprises Pvt. Ltd. Ujjain Vs. 36/37 Ujjain Road, Dewas (Appellant) (Revenue) PAN: AAACP9729J Appellant by Shri Anil Kamal Garg & Arpit Gour CA’s Revenue by Smt. Vineeta Dube Sr. DR Date of Hearing: 25.07.2019 Date of Pronouncement: 14.08.2019 आदेश / O R D E R PER MANISH BORAD, A.M: These two appeals at the instance of Assessee pertaining to A.Y. 2008-09 & 2012-13 are directed against the orders of Ld. Commissioner of Income Tax(Appeals), Ujjain, (in short ‘CIT(A)’), evenly dated 25.07.2010 which are arising out of the order u/s 143(3) of the Income Tax Act 1961(hereinafter called as the ‘Act’) framed on 22.12.2010 & 27.03.2015 by ACIT-1(1) & DCIT-1(1), Ujjain, respectively.
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 2. As both the appeals relates to the same assessee, they were heard together and are being disposed of by this common order. 3. We will take first ITANo.933/Ind/2016 pertaining for A.Y. 2008- 09. Assessee has raised following grounds of appeal: 1.That the Learned Commissioner of Income Tax (Appeals) erred in confirming addition made on account of bad debts of Rs.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
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 Rs.99,35,724/- declared in the e-return of income filed on 30.09.2008. Case selected for scrutiny through CASS followed by serving notices u/s 143(2) & 142(1) of the Act. While examining the records Learned Assessing Officer (in short Ld. AO) observed that the assessee has claimed bad debts of Rs.27,06,697/- in the profit and loss account. It was submitted by the assessee Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 that the bad debts related to the outstanding amount to be received from M/s Parag Ceiling & Fans Ltd. The assessee also submitted that as there was no hope for recovery except for an amount of Rs.4,84,183/- the remaining amount has been charged as expenditure under the head of bad debts. However, Ld. AO was not convinced with the reply of the assessee and was of the view that it was on the part of the assessee to add back the provisions of bad debts in the computation income to arrive at the actual loss/profit. Ld. AO accordingly disallowed the bad debts claimed at Rs.27,06,697/- and assessed the loss at Rs.72,29,027/-.
Aggrieved by the finding of Ld. AO assessee preferred an appeal before the Ld. CIT(A) but failed to succeed. As Ld. CIT(A) confirmed the disallowance observing as follows: Ground No.1, 2, 3, 4 & 5:- Through these grounds of appeal the appellant has challenged the addition of Rs.27,06,6971- on account of bad debts. The appellant was having total outstanding balance in the name of M/s Parag Cooling and Fans Ltd., Dewas amounting to Rs.31,90,880/-. Out of the above amount the appellant only made the provision for bad debts amounting to Rs.27,06,697/- only. Regarding the amount of RsA,84,183/- the appellant submitted that he is having the hope for recovery. This statement of appellant itself is contradictory that how he can treat part amount as bad debts and having the hope for recovery of part amount. M/s Parag Cooling & Fans Ltd., Dewas is a running concern and disclosed income of Rs.26,63,698/- before set off of losses. The company had also disclosed profit u/s 115JB at RsA8,51,995/- in the A.Y.2012-13. Therefore, the appellant's contention that there is no hope of recovery is not acceptable. Therefore, the addition made by the AO amounting to Rs.27,06,697/- is confirmed. The appeal on these grounds is dismissed.
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 6. Now the assessee is in appeal before the Tribunal raising six grounds of appeal but the sole grievance relates to disallowance of bad debts of Rs.27,06,697/- made by the Ld. AO and confirmed 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 Rs.31,90,879/- it will pay only of Rs.4,84,130/-. For this reason bad debts of Rs.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:- i) CIT vs. Mysore Sugar Co Ltd. (1962) 46 ITR 649 (Hon'ble Supreme Court) ii) Minda HUF Ltd. vs. JCIT (2006) 25 CCH 0179 (Del Trib)
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 iii) ITO vs. Bombay Film Lab. Pvt. Ltd. (1982) 01 CCH 3302 (Mum Trib) 8. Ld. counsel for the assessee also submitted that in case the amount is recovered, the same shall be offered to tax in the year when this event happens.
Per contra Ld. Departmental Representative (DR) vehemently argued supporting the order of the Ld. AO and the finding of Ld. CIT(A).
We have heard rival contentions and perused the record placed before us. The sole grievance of the assessee relates to claim of bad debts u/s 36(1)(vii) of the Act at Rs.27.06,697/- which is claimed towards the alleged non-recoverable outstanding balance from the concern namely Parag Fans & Cooling Systems Pvt. Ltd. (in short PFCSPL). From perusal of the paper book pages 21 to 25 wherein ledger account of PFCSPL is placed various transactions were entered during the F.Y. 2005-06 to F.Y. 2007-08. We find that the regular transactions have been carried out with PFCSPL since April 2005. Transactions entered into are in the nature of sales, inflow and outflow of funds, trade discount and other journal entries. As on 31.03.2008 there is an outstanding balance of Rs.31,90,879/-. Certain documents are also placed in the paper book showing communication between the assessee and PFCSPL for the payment of outstanding dues. A letter dated 25.02.2008 was issued by PFCSPL, stating that against the outstanding balance of Rs.31,90,879/- its only liable to pay Rs.4,84,130/-. Reference was Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 also given to debit notes for late delivery and letter dated 23.08.2005 issued in connection thereof.
In light of the above facts, there is no dispute to the fact that there were regular transactions between assessee and PFCSPL. The transactions of sales were also entered but along with that there were various other transactions appearing in the ledger account. The outstanding balance may be purely on account of sale or on account of other transactions, is still not discernable from the records.
Hon'ble Apex court in the case of TRF Ltd. vs. CIT (2010) 323 ITR 397 (SC) dated 09.02.2010 and held that bad debts need not be proven to be irrecoverable u/s 36(1)(vii). It is sufficient if they are written 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 Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 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.
Examining the facts of the instant appeal in the light of the above judgment we find that though it was not necessary for the assessee to establish that the debts, in fact, have become irrecoverable. Still the assessee has placed necessary material on record to show that the outstanding debts were not irrecoverable. However, the fact needs to be verified as to whether the alleged amount was offered as revenue in the preceding years and also whether the amount has been written off in the account of the assessee. In the ledger account placed in the paper book at page 25 the assessee has shown outstanding debts of Rs.31,90,879/- and no entry seems to have been passed for crediting the amount with the bad debts claimed.
We, therefore, deem it fit and proper to remit the matter to the file of the Ld. AO for carrying out necessary verification with the assistance of assessee as well as the related documents in order to satisfy that the alleged amount was shown as revenue in the preceding years and the ledger account has been actually written off in the books of account of assessee by way of crediting the debtor’s
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 accounts and debiting the bad debts accounts. Needless to mention that proper opportunity of being heard to be provided to the assessee. Therefore, ground no. 1 to 4 of appeal of the assessee are allowed for statistical purposes, other grounds are general in nature, which needs no adjudication. 15. Accordingly appeal of the assessee for A.Y. 2008-09 is allowed for statistical purposes.
Now we take up ITANo.934/Ind/2016 pertaining to A.Y.2012-13 Assessee has raised following grounds of appeal: 1.That the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance made by Assessing Officer of Rs.19,55,702/- on account of excise duty payable for earlier years. 2.That the learned Commissioner of Income Tax (Appeals) as well as Assessing Officer failed to appreciate that the excise duty of Rs.19,55,702/- became payable on account of excise duty assessement and order of the same was served upon the assessee company on 08.04.2011 i.e. during the financial year 2011-12 relevant to assessment year 2012-13 and as such the assessee company rightly claimed it during the relevant assessment year. 3.That the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance made by Assessing Officer of Rs.13,59,256/- on account 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.
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 8
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 total income of Rs.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 Rs. 98,75,113/- after making various additions totaling to Rs.38,33,163/-. 18. Against this addition the assessee preferred an appeal before the Ld. CIT(A) and partly succeeded.
Now the assessee is in appeal before the Tribunal raising two grounds, firstly relating to disallowance of excise duty payable at Rs.19,55,702/- and secondly for disallowance of provisions of warranty of Rs.13,59,256/-.
Apropos to Ground No.1 & ground no.2 relating to disallowance of excise duty payable at Rs.19,55,702/-. Ld. counsel for the assessee submitted that vide order of Addl. Commissioner of Customs, Central Excise & Service Tax dated 31.03.2011 demands towards Excise Duty and Education Cess, for F.Y. 2005-06 and F.Y. 2006-07 was raised at Rs.19,55,702/- and a penalty of the same amount was also imposed. Against this demand assessee preferred before Commissioner (Appeals) Customs: Central Excise & Service Tax but failed to succeed. The order raising demand dated 31.03.2011 was received by the appellant on 08.04.2011 i.e during the previous year relevant to assessment-assessee year under consideration. The assessee company claimed a sum of Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 Rs.19,55,702/- as Excise ‘Duty payable for earlier years’ as the liability crystalized during the year.
Against this demand the assessee has already adjusted Rs.5,44,680/- from its Excise Duty deposit account in RG-23 register during the relevant previous year and the balance amount of Rs. 14,11,022/- has been shown as payable under the ‘Short term provisions’ in the balance sheet dated 31.03.2012. This amount was paid by the appellant on 24.08.2012. In other words, entire demand of Rs.19,55,702/- was paid by the assessee before the due of filing return of income for A.Y. 2012-13. He further submitted that subsequently in the appeal before the Custom, Excise & Service Tax Appellate Tribunal, the assessee’s appeal was allowed vide order dated 03.02.2012 deleting the entire demand raised by Custom, Excise & Service Tax Appellate Tribunal, Indore. It was also submitted that since the liable to pay the amount of the excise duty demand crystalized during the year under consideration it was claimed an expenses u/s 37(1) of the Act. Even the proviso of section 43B of the Act will not apply on the instant issue for the sole reason that the expenditure towards excise duty is deemed to have been incurred by the appellant during the F.Y. 2011-12 and the payable amount was duly paid before the due date of filing the return of income. In support of this contention Ld. counsel for the assessee relied following judgments: i. Tupperware India Ltd. vs. CIT 2015 (6) TMI 180 (Del HC) Hon'ble High Court of Delhi
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 ii. Saurashtra Cement & Chemical Industries 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)
Per contra Ld. DR vehemently argued supporting the order of both lower authorities and prayed for sustaining the disallowance.
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.
Apropos ground No.1 & 2 relating to excise duty payable of Rs.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 order dated 31.03.2011 which was served on the assessee on 08.04.2011. On the basis of this order assessee booked the expenditure in the profit and loss
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 account. This demand was paid in two parts; Firstly Rs.5,44,680/- was adjusted from the excise duty deposit account during the F.Y. 2011-12 itself, and the remaining amount of Rs.14,11,022/- was also paid on 24.08.2012 i.e. before the due date of filing the return of income. So as far as the alleged demand is concerned the same was adjusted and paid before due date of filing the return of income. Now the question before us is that 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. Various judgments have been relied by the Ld. counsel for the assesse. In one of the judgment Hon'ble Apex Court in the case of CIT vs. Bharat Carbon and Ribbon Manufacturing Co. Ltd. (199) 239 ITR 505 (SC), rejected the application filed by the revenue and confirmed the view of Hon'ble High Court observing as follows: "7. In the present case, the liability accrued over the accounting period because of demand notice issued by the excise department. The said demand notice was issued after the show-cause notice and on the basis of the trade notice issued by the Collector of Customs in October, 1979, providing that coated paper would be liable to be classified under tariff item 17(2). The obligation under the law to pay the excise duty arose at that stage. Raising of the dispute by the assessee by filing writ petition for quashing or deduction of the said liability would not be a groundfor holding that liability to pay the excise duty as per the demand notice was not incurred
Similar view also adopted by the Hon'ble Allahabad High Court in the case of CIT vs. Ganga Galss Works (P) Ltd. (2005) 276 ITR
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 394 (All) holding that liability for sales tax relating to earlier years created by virtue of assessment orders in a subsequent years, would be allowable as a deduction in such subsequent year.
In the light of the above judgment we can safely conclude that the assessee has rightly booked expenditure of excise duty payable at Rs.19,55,702/- 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 of Rs.19,55,7022/- was deleted. The assessee got refund of Rs.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 Rs.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.
Apropos to Ground No.3 relating to disallowance of Rs. 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:
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 1.01 That, the appellant is engaged in the business of manufacturing and sales of pumps, foot valves, electric motors and job work thereof. 1.02 That, during the financial year 2009-10, the appellant company had started its Pumps manufacturing facility at Karad. The appellant had entered into a manufacturing contract with one company namely MIs. Kirloskar Brothers Ltd. (KBL). The pumps so manufactured were supposed to be sold by the appellant company to KBL under the 'KBL' branding and logo. 1.03 That, under the terms of the contract, it was decided between the parties that the whole process of manufacturing and further servicing shall be done by the appellant for all these pumps. It is submitted that the KBL has a policy to provide warranty of a fixed period during which any servicing would be done free of cost to the customers. The concept of granting warranty is quite popular in pump industry and accordingly, the appellant was obliged to provide free servicing under the warranty contract. Though it appeared to be a FOe service for the customer, the pricing from the KBL was finalized considering the component of warranty claim involved in it. 1.04 very year, the management used to make an assessment of the pumps that come back for repairing or servicing based on the historic data and past experience. The management normally kept it at 3-4% of the pumps manufactured g the financial year, any expenses incurred on the servicing under warranty was adjusted against the provision so created and any amount left was credited back come. If in case, the actual amount of expenses exceeded the warranty provided for such excess amount used to be charged to the Profit & Loss' Account as short provisioning on account of Warranty claims. It is submitted that during the relevant e 'previous year, following the same policy, the appellant has claimed an additional account of Rs.99,704/- on account of short provision of warranty claim for earlier ears [kindly refer PB Page No.30]. Such finding has also been given by the learned o at para 6.1 of the assessment order. 1.05 That, during the relevant previous year, the appellant has made a provision of Rs.12,60,252/- on account of warranty claims in respect of pumps manufactured and sold by it. A 14
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 detailed working in respect of the aforesaid provision of Rs.12,60,252/- has been given at page no. 67 of our Paper Book. On a perusal 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 Rs.12,60,252/-, the appellant company has actually also incurred a sum of Rs.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 Rs.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 Rs.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 Rs.8,34,1291-. It is submitted that such provision ofRs.8,34,1291- is forming part of the short term provisions for Rs.23,37,035/- shown in the previous year column of the financial statements of the appellant at page 22 of the Paper Book. It shall thus be appreciated that the finding of the learned AO to the effect that such -warranty claim was not made by the appellant company in the earlier years is patently incorrect. 3.00 Honours, as regard the warranty expenses of Rs.99,704/- on account of short visioning claimed in the Profit & Loss Account for the relevant previous year, it - submitted that the aforesaid expenses represent the actual expenses incurred by the appellant company during the relevant previous year in respect of which a provision was made in the preceding previous year and which fell short while asking the actual expenditure by the appellant. 3.01 Your Honours, it is submitted that the expenses on account of provision for , warranty claims as shown by the appellant 15
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 company in its audited Profit & Loss account have been made on the basis of a reasonable and logical estimate which, inter alia, is based upon the sales made by the appellant. Thus, the provisions so made by the appellant cannot be termed as 'contingent liabilities' but only as ascertained liabilities wholly allowable as deduction under the provisions of s.37(1) of the Act. 4.00 Your Honours, the provisions for warranty expenses claimed by an assessee on scientific basis, which have subsequently been actually incurred, are wholly allowable under the provisions of s. 37 of the Act. The Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd. Vs. CIT (2009) 314 ITR 0062 (SC) has held that if the historical trends indicate that large number of sophisticated goods were manufactured in the past and in the past if the facts established show that defects existed in some of the items manufactured and sold then the provisions made for warranty are allowable as deduction. A copy of the judgment is being submitted herewith or kind perusal and record of Your Honours as Exhibit P/9. In view of the aforesaid facts and circumstances of the case, it is submitted that the addition ofRs.13,59,956/- so made by the AO and confirmed by the ld. CIT(A) deserves to be deleted in its entirety. At last, it is prayed that the appeal of the appellant may kindly be allowed fully and oblige.
Per contra Ld. DR vehemently argued supporting the order of both lower authorities and prayed for sustaining the disallowance.
Apropos to ground no.3 relating to disallowance of provisions of warranty at Rs.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 16
Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 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 Rs.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 liability. The assessee was also unable to prove with documents about the basis of such provision in absence of the information for the exact no. of pumps manufactured during the year for which warranty is made.
During the course of hearing Ld. counsel for the assessee submitted that in subsequent years substantial amount has been incurred on account of repairing and servicing of the pumps. However, this fact needs to be verified with the necessary records. Both the parties i.e. Ld. counsel for the assessee and Ld. DR raised no objection if the issue of disallowance of provision of warranty expenses of Rs.13,59,956/- is remitted back to the file of Ld. CIT(A) for afresh adjudication.
We, therefore, to be fair to both the parties deem it fit and proper to remit the limited issue of examining the provision of Pradhan Engineering Enterprises Pvt. Ltd. ITANos.933 &934/Ind/2016 warranty expenses to the file of the Ld. AO for afresh adjudication on merits in accordance with the provision of law after giving due and reasonable opportunity of hearing to the assessee. We also direct that the Ld. AO shall examine the assessee’s claim of provision of warranty expenses as per scientific process followed by it and should also examine whether the actual expenses have been incurred year to year on the servicing and repairing of the pumps. We, accordingly, allow ground no.3 of the assessee’s appeal for statistical purposes.
Ground No.4 & 5 are general in nature, which needs no adjudication, thus, appeal of the assessee for A.Y. 2012-13 is partly allowed for statistical purposes.
In the result, the appeal of the Assessee for A.Y.2008-09 vide ITANo.933/Ind/2016 is allowed for statistical purposes and for A.Y. 2012-13 vide ITANo.934/Ind/2016 is partly allowed for statistical purposes.
Order was pronounced in the open court on 14 .08.2019.