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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD ds le{kA
Before: SHRI WASEEM AHMED
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeals have been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)–7, Ahmedabad [CIT(A) in short] vide appeal nos.CIT(A)- 7/27/15-16 & CIT(A)-7/147/15-16 dated 26.04.2016 & 01.06.2016 arising in the matter of assessment order passed under s.143(3) of the
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 2 - Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 25.03.2015 & 02.12.2015 relevant to Assessment Years (AYs) 2012-13 & 2013-14.
First, we take up ITA No.1735/Ahd/2016 pertaining to the AY 2012-13. Revenue has raised the following grounds of appeal: “1. The Ld CIT(A) has erred in law and on facts in deleting the addition made by AO of Rs.1,11,43,571/- u/s 145A. 2. The Ld CIT(A) has erred in law and on facts in deleting the addition of Rs.18,86,570/- made by AO towards provision for warranty. 3. The Ld CIT(A) has further erred in law and on facts in allowing claim of excess depreciation @5% on certain vehicles acquired by the assessee during the F.Y. 2009-10 instead of usual rate of 155. 4. The department craves leave to add or alter any further grounds of appeal before or during the course of hearing.” 3. The first issue raised by the Revenue is that Learned CIT(A) erred in deleting the addition made by the AO for Rs. 1,11,43,571/- u/s 145A of the Act.
Briefly stated facts are that the assessee is an individual and engaged in the business of manufacturing of paper converting machine and reselling of parts. The assessee in its balance sheet as on 31.03.2012 has shown excisable closing stock of the following items: Sr. No. Particulars Amount 1. Raw Material 5,95,39,950/- 2. Finished Goods 10,81,125/-
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 3 - The assessee while valuing the closing stock as discussed above has not included the amount of excise and VAT amounting to Rs.1,11,43,571/- only. The assessee explained during the assessment proceeding that he has been following the exclusive method of account. Therefore, the amount of excise and VAT was not included in the valuation of closing stock as on 31.03.2012.
4.1 However, the AO was of the view that the assessee is liable to include the amount of excise and VAT while valuing the closing stock as on 31.03.2012 as per the provision of Section 145A of the Act. Therefore, the AO disregarded the contention of the assessee and added the amount of Excise and VAT in the closing stock.
Aggrieved, assessee preferred an appeal to Learned CIT(A) who has deleted the addition made by the AO by observing as under: “4.2 I have considered the assessment order and the submissions made by the appellant. A perusal of the submission made by the appellant shows that the Hon’ble ITAT in the appellant’s own case for Asst. Years 2007-08 and 2008-09 has allowed the appeal in favour of the appellant. Following the decision of Hon’ble ITAT, the CIT(A) for A.Y. 2009-10 and 2010-11 has also allowed the appeal of the appellant by giving necessary directions to the AO. In view of these facts and following the decision of the learned CIT(A) taken in A.Y. 2011-12, the AO is directed to follow the direction of the Tribunal for the year under consideration as well as modify the disallowance made accordingly by carrying out the
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 4 - excise of verification of revenue statement. Thus, ground of appeal no.1 is allowed, subject to verification by the AO.” Being aggrieved by the order of Learned CIT(A) revenue is in appeal before us.
Learned DR before us relied on the order of AO whereas the ld. AR before us filed a paper book running from pages 1 to 102. The learned AR before us relied on the order of ld. CIT-A.
We have heard the rival contentions and perused the materials available on record. At the outset, we note that the ITAT in identical facts and circumstances in the own case of the assessee in ITA No. 3109/Ahd/2013 pertaining to the A.Y. 2010-11 vide order dated 29.09.2016 has decided the issue in favor of the assessee. The relevant extract of the order is reproduced as under: “6. After hearing both sides and perused the material on record, we find that Hon’ble ITAT, Ahmedabad Co-ordinate Bench for A.Y.2009-10 and also in respect of earlier year i.e. A.Y.2007-08 have decided the identical issue in favour of the assessee by keeping reliance on the decision of Hon’ble Jurisdictional High Court rendered in the case of ACIT vs. Narmada Chematur Petrochemicals Ltd. (2010) 327 ITR 369 (Guj.) In view of above facts and legal findings, we consider that ld. CIT(A) has correctly deleted the addition in favour of assessee. Revenue’s appeal on this issue is rejected.”
We also find it important to refer to the judgment of Hon’ble Jurisdictional High Court in the case of ACIT Vs. Narmada Chematur
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 5 - Petrochemicals Ltd. reported in 327 ITR 369 wherein it was held as under:
“There is one more aspect of the matter. Such duty of central excise if added to enhance the value of closing stock would result in enhanced opening stock on the first day of the next accounting period, namely, 1- 4-1997. So, next year's profits would get depressed accordingly. Over a period of time, the whole exercise results in evening out; in other words, revenue neutral. At the same time, while disturbing the value of the closing stock the assessing authority cannot change the method of accounting regularly employed.”
7.1 As the facts in the case on hand are identical to the facts as discussed in the above case, therefore respectfully following the same we do not wish to deviate from the view taken by the Ld. CIT(A). Hence, the ground of appeal of the Revenue is dismissed.
The second issue raised by the Revenue is that Ld. CIT(A) erred in deleting the addition made by the AO for Rs. 18,86,570/- on account of the provision of warranty.
The assessee during the year has claimed a deduction of Rs. 18,86,570/- on account of provision for warranty replacement. The assessee further claimed that the provision was made in the books of accounts from experience.
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 6 - 9.1 However, the AO treated the provision for warranty as an unascertained liability and accordingly held that the same could not be allowed as deduction u/s 37 of the Act. Thus, the AO disallowed the same and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal to Ld CIT(A) who has deleted the addition made by the AO by observing as under: “5.2 I have considered the assessment order and the submissions made by the appellant the AO made the impugned disallowance on account of the fact that this amount was merely a provision for warranty and therefore a contingent liability and not an ascertained liability. He accordingly disallowed the same u/s 37 of the IT Act. The appellant during the appellate proceedings, stated that the provision made on account of warranty was an ascertained liability since it was based on the experience and evidences of the past years. It was also demonstrated by the appellant that the actual expenses incurred in respect of warranty in subsequent year was actually much more than the provision made. It is seen from the details furnished by the appellant that the appellant has incurred warranty expenses of Rs.38,64,718/- against the provision made of Rs.18,86,570/-. This shows that the contention of the appellant was actually for an ascertainable liability, is correct. 5.2.1 The Hon’ble Supreme Court in the case of Rotork Controls India Pvt. Ltd. vs. CIT 314 ITR 62 has held that warranty provision is allowable as a deduction. 5.2.2 In view of these facts and the discussion above as also the judgement of the Hon’ble Supreme Court, the addition of Rs.18,86,570/- is deleted. Ground of appeal no. 2 is allowed.”
Being aggrieved by the order of ld CIT(A) revenue is in appeal before us.
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
The Learned DR before us vehemently supported the order of AO whereas the Learned AR before us submitted that the similar provisions were made in the A.Y. 2014-15 which was allowed by the Revenue.
11.1 Ld AR further submitted that the actual expenses incurred against such warranty expenses exceed the amount of the provision created in the books of accounts. The Ld AR in support of his claim filed the copy of the ledger of warranty replacing the expenses which is placed on record. The Ld AR vehemently supported the order of Ld CIT(A).
We have heard the rival contentions and perused the materials available on record. It is a settled principle of law that the provisions created by the assessee on the scientific basis are liable for deduction u/s 37(1) of the Act. In this regard, we find support and guidance from the judgments of Hon’ble Supreme Court in the case of Rotork Controls India Pvt. Ltd. vs. CIT reported in 314 ITR 62 wherein it was held as under: “From analysis of the various decision of the Supreme Court, in which a similar issue was decided, the principle which emerges is that if the historical trend indicates 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
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 8 - receipts under section 37. It would all depend on the data systematically maintained by the assessee.”
12.1 Now coming to the facts of the instant case, we note that the assessee has created the provision @ 0.4% of the total turnover amounting to Rs.18,86,570/- (0.4% of Rs.47,16,42,449/-). On perusal of the ledger of warranty replacing expenses, it was observed that the assessee had incurred actual expenses amounting to Rs. 60,21,216/- only which exceeds the provision created in the books of accounts of the assessee. The fact of actual expenses incurred by the assessee under the head warranty replacing expenses was not doubted by the authorities below. The copy of the ledger warranty replacing expenses is also available on record. Therefore, after considering the facts in totality, we are of the view that the provisions created by the assessee are not ad-hoc provision but based on the scientific basis.
We also note that the assessee has been claiming the deduction for the provision of warranty expenses and there was no disallowance made by the AO in the AY 2014-15. It means the AO accepted the provision for the AY 2014-15.
The ld. DR has also not brought anything on record contrary to the finding of ld. CIT-A.
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 9 - In view of the above, we hold that these provisions are allowable as deduction u/s 37(1) of the Act. Accordingly, we do not find any reason to interfere in the order of Learned CIT(A). Hence, the ground appeal of the revenue is dismissed.
The last issue raised by the revenue is that Learned CIT(A) erred in deleting the addition made by the AO for Rs. 3,74,917/- on account of excess depreciation.
The assessee in respect of certain vehicle purchased before 30.09.2009 claimed depreciation @ 50% on their written down value. As per the assessee, these vehicles were the commercial vehicles as per the Motor Act. However, the AO was of the view that these vehicles were not the commercial vehicles and accordingly held that the assessee is ineligible to claim the depreciation @50% on the written down value.
14.1 The AO also observed that his predecessor in the AY 2010-11 and 2011-12 also made similar disallowance. Accordingly, the AO worked out the excess depreciation claimed by the assessee amounting to Rs. 3,74,917/- and disallowed the same by adding to the total income of the assessee.
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 10 - 15. Aggrieved, assessee preferred an appeal to Learned CIT(A) who has deleted the addition made by the AO by observing as under:
“8.2 I have considered the assessment order and the submissions made by the appellant. The AO has made the disallowance on account of depreciation amounting to Rs.3,47,917/-since while the appellant had claimed vehicles as commercial vehicles and accordingly depreciation at 50%, the AO held that the vehicles were not commercial vehicles and therefore depreciation was allowable only at 15% . It is seen that the exact issue was the subject matter of appeal in Asst. Years 2010-11 & 2011-12 as well wherein after a detailed discussion on the definition of commercial vehicles and light motor vehicle, as defined under the Motor Vehicles Act, 1988, decided the issue in favour of the appellant. Since the vehicles under question are the same on which.depreciation has been allowed @ 50% and relying on the judgement of the Hon'ble ITAT in the case of ACIT Vs. Voltamp Transformers Ltd., the depreciation at 50% is allowed and the disallowance of Rs.3,74,917/- made by the Assessing Officer is deleted. Ground of appeal No. 5 is allowed.”
Being aggrieved by the order of Learned CIT(A) Revenue is in appeal before us.
We have heard the rival contentions and perused the materials available on record. At the outset, we note that the ITAT in identical facts and circumstances in the own case of the assessee in ITA No. 3109/Ahd/2013 pertaining to the A.Y. 2010-11 vide order dated 29.09.2016 has decided the issue in favor of the assessee. The relevant extract of the order is reproduced as under: “9. During course of proceedings before us, ld. D.R. relied on the order of A.O., on the other hand, ld. A.R. relied on the order of CIT(A)
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 11 - and furnished the copy of ITAT, Ahmedabad Co-ordinate Bench in assessee’s own case for A.Y.2009-10, wherein ITAT has decided the issue in favour of assessee by confirming CIT(A)’s order of that year by observing as under:
10.1. The assessee has claimed excess depreciation of Rs.3,69,604/- onthe new commercial vehicle purchased. The AO’s objection was that those vehicles were not registered by the RTO “Commercial Vehicle”, therefore the assessee was not entitled for additional depreciation claimed @ 50% on those vehicles acquired during the year. When the matter was carried before the first appellate authority, ld.CIT(A) has examined the provisions of Motor Vehicle Act and allowed theclaim as follows:-
“5.3. Decision: I have carefully perused the assessment order and the submissionsgiven by theappellant. The A.o. has disallowed the claim ofdepreciation at higher rate as it has been held by him that the vehicle was not a commercial vehicle. The A.O. has taken the meaning of commercial vehicle in common parlance and has held that commercial vehicle is distinct and different from private vehicle and the vehicle used by the appellant is a private vehicle. The appellant has submitted that as per Note No. 6 to the Rules in Appendix-I, the word commercial vehicle has been defined to include Light Motor Vehicle as defined by Motor Vehicle Act,1988. Further, section 2(21) of the Motor Vehicle Act define the word Light Motor Vehicle as –
“Light Motor Vehicle means transport vehicle or amnibus. The gross vehicle weight of either of which or a Motor Car or a Tractor or road roller, theunladen weight of any of which does not exceed 7500 Kg.”
The appellant has further submitted that as per theRC Book, the vehicle is LMV and the weight of the car is 2074 Kg. and the unladen weight is 1454 Kg. which was less than 7500Kg. Therefore, the appellant has claimed that
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 12 - the car purchased was acommercial vehicle and appellant was entitled to depreciation at higher rate.
After considering the submission of the appellant and the facts, I aminclined to accept the submission made by the appellant. The Clause VI-A of the Appendix i.e. the table of rates of which depreciation is admissible prescribes the depreciation @ 50% for new commercial vehicle which is acquired on or after 01/01/2009 but before 01/04/2009 and is put to use before 01/04/2009 for the purposeof business orprofession. Further paragraph 6 of the note belowthe table defines commercial vehicles which includes Light Motor Vehicles as per the Motor Vehicle Acts, the specifications for which are reproduced in thepreceding paragraph. Therefore, it is clear that the appellant is entitled for depreciation @ 50% which was given as an incentive for a short period between 01/01/2009 to 01/04/2009 but the period was later on extended upto 01/10/2009. The vehicle purchased bythe appellant fulfills all the conditions prescribed in the Income Tax Act and the related Motor Vehicle Act and falls within the definition of Commercial Vehicle. The Act has nowhere prescribed that a commercial vehicle should be a vehicle which is used for the purpose of hire. It only prescribes that the vehicle should be used for the purpose of business or profession. The appellant is, therefore, entitled for the depreciation @50%. The ground of appeal is accordingly allowed.”
On hearing both the sides, we are of the considered view that ld.CIT(A) has rightly interpreted the relevant provisions of Motor Vehicle Act, wherein the word “Commercial Vehicle” has been defined. Once the relevant Act has given a specification in respect of a particular type of vehicle, then there is no scope left to interpret the commercial vehicle as per common parlance or common understanding. The finding in this regard of ld.CIT(A) is hereby confirmed. This ground of the Revenue is dismissed.
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
We have heard both the sides and perused the material on record. We find that in view of above stated facts and legal findings the ld. CIT(A) has correctly decided the issue in favour of assessee by making reliance on the order of ITAT, Ahmedabad in case of ACIT vs. M/s. Voltamp Transformers Ltd.(supra). In the result, the appeal filed by Revenue is dismissed.” 11.
16.1 As the facts in the case on hand are identical to the facts as discussed in the above case, therefore respectfully following the same we do not wish to deviate from the view taken by the Ld. CIT(A). Hence, the ground of appeal of the Revenue is dismissed.
Coming to ITA No.2300/Ahd/2016 pertaining to the AY 2013-14.
The Revenue raised the following grounds:
“1.The Ld CIT(A) has erred in law and on facts in deleting the addition made by AO of Rs.1,79,53,006/- u/s 145A. 2. The Ld CIT(A) has erred in law and on facts in deleting the disallowance made by the AO of Rs.37,65,840/- being 0.5% on sales towards provisions for warranty replacement. 3. That the Ld CIT(A) has erred in law and on facts in not appreciating that the claim for warranty replacement has been made by the assessee twice i.e. on provision basis in captioned A.Y. and also in subsequent A.Y. (A.Y. 2014-15) i.e. Rs.1,22,89,760/- on actual basis, which is not permissible. 4. The department craves leave to add or alter any further grounds of appeal before or during the course of hearing.”
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 14 - 18. The first issue raised by the Revenue is that Learned CIT(A) erred in deleting the addition made by the AO for Rs. 1,79,53,006/- u/s 145A of the Act.
The issue involved in this ground of appeal of the revenue is identical to the issue raised by the Revenue in ITA No.1735/Ahd/2016 which has been decided against the revenue and in favor of the assessee by us vide paragraph no. 7 of this order. Thus respectfully following the same we do not find any reason to interfere in the order of Learned CIT(A). Hence the ground of appeal of the Revenue is dismissed.
The second issue raised by the Revenue in this appeal is that Learned CIT(A) erred in deleting the addition made by the AO for Rs. 37,65,840/- on account of provision for warranty replacing expenses.
The issue involved in this ground of appeal of the revenue is identical to the issue raised by the Revenue in ITA No.1735/Ahd/2016 which has been decided against the revenue and in favor of the assessee by us vide paragraph no. 12 of this order. Thus respectfully following the same we do not find any reason to interfere in the order of Learned CIT(A). Hence the ground of appeal of the revenue is dismissed.
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 15 - 22. The last issue raised by the Revenue is that Learned CIT(A) erred in deleting the addition made by the AO for Rs.1,22,89,760/- on account of double deduction.
The AO during the assessment proceeding observed that the assessee is claiming actual warranty expenses as well as provision for warranty expenses. Accordingly, the AO was of the view that the assessee is claiming double deduction under the head warranty replacement expenses. Accordingly, the AO held that the assessee had claimed double expenses under the heard warranty replacement charges.
Aggrieved assessee preferred an appeal to Learned CIT(A) who deleted the addition made by the AO.
Being aggrieved by the order of Learned CIT(A) Revenue is in appeal before us.
Both the Learned DR and Learned AR before us relied on the order of authorities below as favorable to them.
We have heard the rival contentions and perused the materials available on record. On perusal of the copies of the ledgers filed by the assessee which are placed on pages 38-50 of the paper book regarding the ledger of warranty expenses, we note that the assessee in one year is
ITA Nos.1735 & 2300/Ahd/2016 ACIT vs. Udaykumar C. Patel A.Y. 2012-13 & 2013-14
- 16 - creating the provision in the books of accounts which is reversed in the subsequent year by the same amount. Therefore it could not be concluded that the assessee has claiming the double deduction on account of actual expenses as well as provision for warranty expenses. Accordingly, we are of the view that there is no infirmity in the order of Learned CIT(A) hence, the ground of appeal of the revenue is dismissed.
In the result, both the appeals of the revenue are dismissed. This Order pronounced in Open Court on 06/02/2019
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