DCIT, CIRCLE-10(1), KOLKATA, KOLKATA vs. M/S BRIDGE & ROOF CO. (INDIA) LTD., KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.2176/Kol/2016 Assessment Year :2014-15 DCIT, Circle10(1), V/s. M/s Bridge & Roof Co. Aayakar Bhawan, 3rd (India) Ltd., 2?1, Russel Street, 5th Floor, Floor, P-7, Chowringhee Square, Kolkata-69 Kolkata-71 [PAN No.AABCB 3166 E] .. अपीलाथ� /Appellant ��यथ�/Respondent Md. Usman, CIT-DR अपीलाथ� क� ओर से/By Appellant Shri P.K. Agarwallaa, FCA ��यथ� क� ओर से/By Respondent 12-02-2018 सुनवाई क� तार�ख/Date of Hearing 20-04-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-4, Kolkata dated 16.08.2016. Assessment was framed by DCIT, Circle-10(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 28.03.2016 for assessment year 2014-15. The grounds raised by Revenue, which reads as under:- “1. Whether the Ld. CIT(A) was correct in holding that the customers of the assessee have settled the accounts permanently after deducting the liquidated damages and they have refused to pay the amount forever? Was not he wrong in holding that the assessee company has extinguished its right to receive money from its clients? 2. Whether the Ld. CIT(A) was correct in deleting the addition on account of Entertainment expenses despite the fact that the assessee could not produce any documentary evidence in support of its claim? Has not the AO the right to enquire into purpose of expenditure and does the doctrine that the businessman is the best judge of business expediency affect the rights and

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 2 duties of the AO to ascertain whether it was for business purposes or any other extraneous consideration? 3. Whether the Ld. CIT(A) was correct in deleting the addition on account of PF without appreciating the fact that employees’ contribution has to be deposited within the due date by which the assessee was required as employer to credit the employees contribution to the employees’ account in the relevant fund under the relevant Act or Rule? Has he not incorrectly stated that the contribution was to be deposited by the due date of filing of return whereas the legal provision requires the contribution to be paid within the due date as provided under the PF Act? 4. Whether the Ld. CIT(A) was correct in deleting the addition on account of Leave Travel Concession despite the fact that the amount was a mere provision which was not disbursed to the employees and therefore was not incurred during the relevant Financial Year? Was not the Ld. CIT(A) incorrect in not appreciating the fact that the employees did not obtain advances for availing of Leave Travel concession and therefore, the assessee was not expected to incur any liability the ascertainment of which was not known to it and therefore, the provision not being an ascertained liability for the relevant year was not an allowable business deduction? 5. Whether the Ld. CIT(A) was correct in deleting the addition on account of excess depreciation on “Tools & Tackles” claimed by the assessee amounting to Rs.1,12,28,000? Was not he incorrect in not appreciating the fact that the assessee has claimed depreciation of Tools & Tackles @ 20% instead of 15% and in doing so it has understated the value of closing stock by Rs.112.28 lakhs? 6. That the appellant craves to add, delete or modify any of the grounds of appeal before or at the time of hearing.” Md. Usman, Ld. Departmental Representative appeared on behalf of Revenue and Shri P.K. Agarwalla, Ld. Authorized Representative appeared on behalf of assessee. 2. First issue raised by Revenue in ground No.1 is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹394.85 lacs on account of liquidated damages. 3. Briefly stated facts are that assessee in the present case is a Public Sector Undertaking under Central Government and engaged in business of construction contracts mainly in civil, mechanical, turnkey jobs and equipment erection works and manufacturing of railway wagons, freight containers bunk houses, bailey bridge etc. in India and abroad. The assessee for taking up any contract from its clients use to enter into the agreements with its clients specifying nature of work, delivery of the work, payment pattern etc., There used to be a clause in all the agreement for the damages to be borne by the

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 3 assessee in case of any fault on the part of assessee. The assessee in respect of certain contracts failed to complete the work assigned to it within the specified time. Therefore total 19 parties deducted a sum of ₹394.85 lacs from the payment due to the assessee. Accordingly, assessee claimed such deduction in its profit and loss account. The assessee in support of its claim also furnished the copies of works order / contracts with the concerned parties highlighting the clause of liquidated damages. However, the AO during the course of assessment proceedings has observed certain facts as detailed under:- a) The assessee is pursuing the parties to recover the amount of liquidated damages deducted by the concerned parties. As such the assessee during the year has recovered part of the amount from the parties which were written off as liquidated damages; b) The assessee has not furnished any documentary evidence suggesting that the accounts with aforesaid 19 parties have been settled for the specific projects in respect of which the parties have deducted liquidated damages. There is also no documentary evidence filed by the assessee suggesting that the parties refused to pay such liquidated damages. Thus, there is no evidence available on record suggesting that the right of recovery for the liquidated / damages has been extinguished.

In view of the above, AO opined that the amount of liquidated damages claimed in the profit and loss account is nothing but representing the provision for doubtful debts which are not allowable as deduction under the provision of Income Tax Act. In addition to above, the AO also observed that in most of the cases, assessee has written off the amount under the head “liquidated damages” which is representing the amount to be recovered from the parties for taxes and duties. The assessee is following the exclusive Method of Accounting and accordingly it has never taken any amount of taxes and duties recovered from

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 4 the parties in it profit and loss account as income. Rather, same has been classified under the head “current liabilities”. Accordingly, AO was of the view that the assessee is claiming deduction for the amount of taxes and duties on payment basis under the provision of Section 43B of the Act. Thus, assessee has claimed double deduction. The AO also observed that no evidence contrary to the fact as stated above has been furnished by the assessee during the assessment proceedings. In view of the above, AO disallowed the expenses claimed under the head “liquidated damages” and added to the total income of assessee. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the amount was deducted from the payment made by the parties to the assessee on account of delay in execution of work. The deduction was made by the parties pursuant to contracts entered between the assessee and the concerned parties. The assessee even after writing off the liquidated damages in the profit and loss account was persuading the matter with the parties for the recovery of liquidated damages. In case, assessee recovers any money from the parties then the same is offered to tax. The amount of liquidated damages is just 3.29% of the total turnover of the assessee i.e. 1380 crores. The amount of liquidated damages has actually been written off in the account of assessee. Therefore, the allegation of AO that it represents the provision for bad and doubtful debts is absolutely wrong. The assessee has been claiming such liquidated damages which have been allowed to it in all the year except in the AY 2010-11 and in the subsequent year. Ld. CIT(A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- “6.2 I have considered the submission of the AR of the appellant in the backdrop of the assessment order. I find that the identical issue has already been adjudicated by me for the AY 2012-13 in the appellant’s own case vide order dated 08.08.2016 in ITA No.1906/CIT(A)-4/Circle-10(1)/Kol/14-15. The relevant portion of the appellate order in this regard is reproduced as follows for the sake of convenience: ‘ I find that the identical matter has already been dealt with by my predecessor CIT(A)-4,Kolkata in the appellant’s own case in Appeal

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 5 No.287/CIT(A)-4/Kol/14-15 vide order dated 31.03.2015 for the AY 2011-12 wherein the disallowance of Liquidated Damages of ₹6,74,31,000/- was deleted. Following the consistency in the matter judiciously and facts and circumstances remaining unaltered, I am only constrained to follow the earlier decisions taken in this regard at this appellate stage. Further, the ITAT, Delhi ‘C’ Bench vide order dated 11.01.2013 in the case of Huber+Suhner Electronic (P) Ltd vs. DC reported in 22 ITR (Trb) 596 Delhi has held that Liquidated Damages paid for delay in delivery of goods supplied under Contract tare revenue expenditure and ware allowable expenditure. in view of the foregoing, I am only constrained to differ with the action of the AO and consequently, the addition of ₹5,06,74,000/- made on account of Liquidated Damages as claimed by the assessee is directed to be deleted. This ground is allowed.” 6.3 In view of the foregoing, since the fact of the matter for this AY 2014-15 remain the same as in the earlier AY 2012-13 as narrated supra coupled with the necessity of maintaining the principles of consistency in deciding the matter at hand on the identical issue, the AO is, hereby, directed to delete the impugned addition of ₹394.85 lacs made on account of disallowance made with respect to liquidated damages written off in respect to accounts and incurred as per contracts with clients. This ground is allowed.” The Revenue, is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us. 5. Ld. DR before us vehemently relied on the order of Assessing Officer whereas Ld. AR for the assessee filed paper book which is running pages from 1 to 201 and drew our attention on pages 29 to 155 of the paper book where the copies of the contracts of agreement, work order with the clients were placed. As per Ld. AR there was a clause for the liquidated damages in all the agreements and accordingly the parties deducted the same from the payments made to the assessee. Thus, the liquidated damages have been incurred by assessee during the course of carrying out the projects. Ld. AR for the assessee relied on the order of ITAT Delhi Bench which has decided the issue in favour of assessee and allowed the deduction for liquidated damages in the case of Huber + Suhner Electronics (P) Ltd. vs. DC reported in 22 ITR (Trib) 596 (Del) dated 11.1.2013. He relied on the order of Ld. CIT(A). 6. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 6 pronouncements cited and placed reliance upon. We find that Co-ordinate Bench of this Tribunal in assessee’s own case having identical facts and circumstances has restored the matter to the file of AO for fresh adjudication in accordance with law in ITA No.817/Kol/2015 pertaining to AY 2011-12 dated 08.11.2017. The relevant extract of the order is reproduced below:- “8.Heard both and perused material available on record. We notice that AO added the said amount for non-submission of any evidence showing that the clients of assessee deducted damages from the payments required to be paid to the assessee under agreement. The CIT(A) examined the said agreement and invoice filed by the assessee during the First Appellate proceedings and found a clause enabling the client to deduct moneys from the payment for any breach of contract specifically for not supplying the goods in time. The AO also opined that said liquidated damages also contains VAT and Service Tax for which assessee claimed deduction u/s 43B of the Act for which CIT found said taxes were accounted by assessee separately. Therefore, we are of the view that no evidence was before the AO showing the clients deducting said amount. Therefore in the light of circumstances and in the interest of justice we deem it proper to remit the issue to the file of AO for his consideration taking into consideration the new evidence as reflected at page 9 of order of CIT(A) filed by assessee in support its claim. The assessee at liberty to file evidences before the AO and AO shall consider the same and pass order in accordance with law.” At the time of hearing Ld. AR raised no objection if the matter is set aside to the file of AO for fresh adjudication in accordance with law. Accordingly, respectfully following the precedent, as above, we deem it fit and proper to restore the issue to the file of AO for fresh adjudication in terms of above direction. The assessee is at liberty to file evidence before the AO. The AO shall consider the same and pass order in accordance with law. Hence, this ground of Revenue’s appeal is allowed for statistical purpose.

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 7 incurred such expense for its clients and customers. These expenses were incurred in providing foods to clients and customers as a part of business courtesy in the interest of business. However, the AO during the course of assessment proceedings observed that assessee failed to furnish the documentary evidence justifying the actual incurrence of the expenses. The AO also observed that out of aforesaid sum, an expenses of ₹19,448/- was incurred for making the payment to clubs on account of entertaining the various guests in connection with the business of assessee. The Managing Director and Director Finance of the assessee-company were authorized to take membership in the club on behalf of assessee-company and to incur the expense for the purpose of good running of assessee’s business. However, AO was of the view that assessee being a PSU of Central Govt. does not get the work from its clients on the basis of hospitality provided to the clients. In view of above, AO disallowed the same and added to the total income of assessee. 9. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that similar expenses were incurred in earlier years and no disallowance was made except in the AY 2012-13 and same was repeated in the later years. The assessee is executing the works more than 100 sites and such expenditures have been incurred on different sites which have been consolidated at the head office subsequently. All the necessary details were duly filed before Assessing Officer in support of such expense. The assessee being Central Gov. PSU requires its account audited by the Internal Auditor / Statutory Auditor and CAG auditor. As such, there is no scope that expenses incurred by assessee without having any connection with the business. The amount of entertainment expense is of negligible value considering the sites of the company’s and turnover of assessee-company. Ld. CIT(A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- “4.1 I have considered the submission of the AR of the appellant in the backdrop of the assessment order. I find that I have already adjudicated on the identical issue for the AY 2012-13 in ITA No.1906/CIT(A)-4/Cicle-

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 8 10(1)/Kol/14-15 in the appellant’s own case. The relevant portion of the appellate order in this regard is reproduced as follows: ‘I have considered the submissions of thee AR of the appellant in the backdrop of the assessment order. I find the accounts of the appellant have been subjected to statutory audit u/s. 44AB of the Act and nowhere has the Auditor pointed out any defects or shortcomings with regard to the expenses incurred in this regard. Since there is no adverse comment made by the Auditor on the matter at hand and the AO has not brought on record any counter material evidence to justify his stand in making the impugned disallowance, I do not find any merit in the action of the AO in making the impugned disallowance. Moreover, I find that this is the first time when such disallowance was made by the AO without any tenable basis when all along for the past years, there was no addition made in this regard. The principles of Res judicata do not apply to tax proceedings but the principles of consistency ought to be maintained when facts and circumstances remain unaltered in the subsequent years as well. Under such facts and circumstances, the impugned addition made in this regard of ₹17,47,177/-- by the AO is directed to be deleted. This ground is allowed.’ 4.2 In view of the foregoing, since the facts of the matter for this AY 2014-15 remain the same as in the earlier year as mentioned supra coupled with the necessity of maintaining the principle of consistency in deciding the matter at hand on the identical issue, the AO is directed to delete the impugned addition of ₹13,45,715/- made on account of entertainment expenses incurred by the appellant. This ground is allowed accordingly.” The Revenue, is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us. 10. Before us Ld. DR supported the order of AO whereas Ld. AR for the assessee stated that similar expenses were claimed by assessee and no disallowance was made by Authorities Below. Ld. AR drew our attention on pages 181 to 184 where the details of entertainment expense incurred by assessee were placed. He relied on the order of Ld. CIT(A). 11. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the expense were disallowed by AO on account of two reasons – Firstly, the assessee failed to furnish the documentary evidence in support of entertainment expense incurred by it and Secondly, assessee being a Central Govt. PSU does not require to provide hospitability services to its clients. However, Ld. CIT(A) reversed the order of AO and deleted the addition made by the AO on account

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 9 of entertainment expenses. Now the issue before us arises so as to whether the entertainment expenses claimed by assessee are allowable expenditure under the provision of the Act. The undisputed fact is that assessee is a Central Govt. PSU and executing the works at more than 100 sites which transpires that assessee has huge number of client. It was also claimed that these expenses were incurred in providing hospitality services to the clients. On perusal of the details on pages 181 to 184 of the paper book we note that assessee has filed only list of expenses in excel format but no supporting documents were furnished. However, we note that assessee has furnished the details of jobs/sites in connection of such expenditure which were incurred on those sites/jobs as evident from the list placed on paged 181 to 184 of the paper book. We also observed that accounts of assessee are duly audited by the internal auditor / external auditor and CAG auditor and no defects of whatsoever has been reported by those auditors. Therefore genuineness of the expense cannot be doubted. Similarly considering the volume of business of assessee, in terms of its clients, number of sites we are of the view the expenses claimed by assessee have been incurred only in connection with assessee’s business. We also do not agree with the finding of AO that the assessee being a Central Govt. PSU does not require to provide hospitability services to its clients. It is because in any organization, the expenditure are incurred for attending clients meetings etc., these expenses are unavoidable in all the organization be it private organization or Government PSU. There is no allegation of the AO that the above expenses have been incurred by assessee in unauthorized manner. Therefore, we are of the view that above expense deserves to be allowed. We also find similar expense had already been allowed in earlier years and subsequent years. In view of above, we do not find any reason to interfere in the order of Ld. CIT(A). Accordingly, we uphold the same. This ground of Revenue is dismissed. 12. Next issue raised by Revenue in Ground No.3 is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹89,68,222/- on account of contribution to employees PF.

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 10 13. During the course of assessment proceedings, AO observed that assessee failed to make the payment of employees’ PF within due time as specified under the respective Act i.e. Provident Fund Act. The details of the employees’ PF, due date of its payment and actual date of payment stand as under:- Statement of deduction and deposit of Provident Fund dues with concerned authorities for the AY 2014-15:- Month Amount received Due date of payment Actual date of (employees payment contribution) October, 13 44,92,817 20.11.13 (with the grace of 5 22.11.2013 days) Nov. 13 44,75,405 20.12.13 (with the grace of 5 21.12.2013 days) As there was a delay in the payment of employees’ PF, the AO disallowed the same and added to the total income of assessee. 14. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by the AO by observing as under:- “… … I have considered the submissions of the AR of the appellant in the backdrop of the assessment order. I find that the AO had disallowed the claim of deduction made by the appellant on account of PF deposits on the ground that there were delays in making the said deposits as per the relevant statute. In this regard, I find that the action of the AO does not hold much water inasmuch as there was amendment to the provisions of section 43B wherein the second proviso to section 43B(b) was omitted by the Finance Act, 2003 w.e.f. 01.04.2004. After the said omissions, deduction is to be allowed under the first proviso of section 43B(b) if the payment is made on or before the due date of filing the return of income. I have also taken note of the judicial citation in this regard as contained in the submission of the AR. I find that this matter is well settled by various courts including the Apex Court well after the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation (GSRTC) delivered on 26.12.2013, that when the deposits on account of PF & ESI are made before the filing of return of income u/s. 139(1) of the Act, the same would qualify for deduction. In this respect, the Hon'ble Calcutta High Court in the case of CIT vs. Vijay Shree Ltd. held, after referring to the decision of the Hon'ble Supreme Court rendered in the case of CIT vs. Alom Extrusions Ltd. 319 ITR 306, that the deposit of the Employees contribution to Provident Fund and ESSI would be allowable if the same is deposited within the due date of filing return of income. In keeping with the aforesaid view, I do not find any premise to sustain the action of the AO when the said impugned amount were said to be deposited before the due date of filing of the return of income as evidenced from the assessment order itself. The AO is, therefore, directed to allow the claim of the appellant in this regard accordingly.”

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The Revenue, is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us. 15. Before us both parties relied on the order of Authorities Below as favorable to them. 16. We have heard the rival contentions of both the parties and perused the material available on record. There is no doubt the payment that the payment for the employee provident fund was made before the due date of furnishing the return of income as specified under section 139(1) of the Act. Thus the same cannot be added to the total income of the assessee in view of judgment of Hon'ble jurisdictional High Court in the case of CIT v. M/s Vijay Shree Limited vide ITAT No. 245 of 2011 in GA No.2607 of 2011 dated 7th September, 2011, wherein it has been held as under:- “After hearing Mr. Sinha, learned advocate, appearing on behalf of the appellant and after going through the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., we find that the Supreme Court in the aforesaid case has held that the amendment to the second proviso to the Sec. 43(B) of the income Tax Act, as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1st April, 1988. Such being the position, the deletion of the amount paid by the Employees’ contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act. We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal.” As the issue is squarely covered in favour of assessee and against the Revenue by the jurisdictional High Court in the case of M/s Vijay Shree Limited (supra), hence, we dismissed Revenue’s ground of appeal. 17. Next issue raised by Revenue in Ground No.4 is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹63.63 lakh on account of Leave Travel Concessions (LTC for short). 18. The assessee in the year under consideration has claimed an expense of ₹63.63 lacs as LTC in its profit and loss account which was classified as short term provision in its balance-sheet. The assessee claimed to have made

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 12 the provision for LTC on actuarial basis. Therefore the same should be allowed as expenditure. However, AO, during the course of assessment proceedings, observed that assessee in its original return claimed the same under the head “long term” provision for ₹54.74 lakh but the same was revised to ₹63.63 lacs in its revised return and it was classified under “short term” provision. The AO also observed that the LTC cannot be quantified with substantial decree of estimation. Therefore, the same cannot be allowed as deduction while computing the income of assessee. The AO in holding so, also relied in the judgment of Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. vs. CIT Chennai [2009] 314 ITR 62 (SC) and respectfully following the proposition, AO disallowed the provision of ₹63.63 lacs and added to the total income of assessee. 19. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that similar expense was claimed in AY 2012-13 and no disallowance was made. The assessee further submitted that the judgment of Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. (supra) as such in favour of assessee and no disallowance relying on such judgment can be made. The assessee further submitted that all conditions for claiming the deduction has been specified as detailed under:- i) Provision for LTC has been made on the basis of actuarial valuation report; ii) The amount of LTC shown is the present obligation of the past events as the employees have rendered the services; ii) For the settlement of the obligation of LTC will certainly entail the outflow of the fund; However, Ld. CIT(A) considering the submission of assessee deleted the addition made by the AO by observing as under:- “5.2 I have considered the submission of the AR of the appellant in the backdrop of the assessment order. I find that I have already adjudicated on the identical matter for the Assessment Year 2013-13 vide order dated 08.08.2016 in the appellant’s own case in ITA No.1435/CIT(A)-4/Circle- 10(1)/Kol/15-16. The relevant portion of the appellate order in this regard is reproduced as follows for the sake of convenience:

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 13 ‘ I have considered the submission of the AR of the appellant in the backdrop of the assessment order. It is the contention of the AR that no such disallowances was made in the earlier years when the facts and circumstances remained unchanged. I find force with the judgment put forth by the AR in the matter. The principles of Res judicata does not apply the tax proceedings but, however, the principles of consistency has to be maintained as ruled by various judicial forums when facts and circumstances of the matter remain unaltered in subsequent year. In this backdrop, I find that the AO has not brought on record Assessment Year perceivable and convincing material evidence to demonstrate that the facts and circumstances of the appellant have undergone a sea change so as to make a digress from his earlier stand on the same matter. Taking a holistic view in the matter, I find that the AO has simply used his discretion in making the impugned disallowance without any tenable basis which is strictly against the ethics of jurisprudence. In view of the foregoing, I am constrained to differ with the opinion and the findings arrived at by the AO and, therefore, the addition of ₹16,50,000/- made on account of disallowance of Short Term Provision for Leave Travel Allowance stands deleted. This ground is allowed.’ 5.3 In view of the foregoing, since the fact of the matter for this AY 2014-15 remain the same as in the previous AY 2013-14 supra coupled with the necessity of maintaining the principles of consistency in deciding the matter at hand on the identical issue, the AO is directed to delete the impugned addition of ₹63,63,000/- made on account of entertainment expenses incurred by the appellant. This ground is allowed accordingly.” The Revenue, is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us. 20. Before us Ld. DR vehemently relied on the order of AO whereas Ld. AR for the assessee drew our attention on pages 192 to 195 of the paper book and stated that necessary clarification was duly submitted to the AO at the time of assessment proceedings. Ld. AR relied on the order of Ld. CIT(A). 21. We have heard the rival contentions of both the parties and perused the material available on record. In the present case assessee has created the provision of LTC on the basis of actuarial valuation. However, AO treated the same as provision which is not allowable under the provision of Income Tax Act. However, the Ld. CIT(A) reversed the order of AO by observing that similar claim of assessee was allowed in earlier year. Now the issue before us arises whether the provision for LTC created by assessee is allowable under

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 14 the given facts and circumstances. It is undisputed fact that the provision made on scientific basis and representing the liability of the assessee can be allowed as deduction in terms of the principle laid down by the Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. (supra). The relevant extract of the order is reproduced below:- “A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c ) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. [Para 10] Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources from the enterprise embodying economic benefits. [Para 11] A past event that leads to a present obligation is called as an obligating event which is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events which exist independently of the future conduct of the business of the enterprise, that are recognized as a provision. For a liability to qualify for recognition, there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. Where there are a number of obligations (e.g., product warranties or similar contracts), the probability that an outflow will be required in settlement is determined by considering the said obligations as a whole. In this connection, it may be noted that in the case of a manufacture and sale of one single item, the provision for warranty can constitute a contingent liability not entitled to deduction under section 37. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items leads to a present obligation which results in an enterprise having no alternative but to settle that obligation. In the instant case, the assessee had been manufacturing and selling valve actuators. It was in the business from the assessment years 1983-84 onwards. Valve actuators are sophisticated goods. Over the years, the assessee had been manufacturing valve actuators in large numbers. The statistical data indicated that every year some of the manufactured actuators were found to be defective. The statistical data over the years also indicated that being sophisticated items no customer was prepared to buy valve actuators without a warranty. Therefore, warranty became an integral part of the sale price of the valve actuator(s). In other words, warranty stood attached to the sale price of the product. Therefore, warranty provision needed to be recognized because the assessee was an enterprise having a present obligation as a result of past events resulting in an outflow of resources. Lastly, a reliable estimate could be made of the amount of the obligation. In short, all the three conditions for recognition of a provision were satisfied in the instant case. [Para 12]

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 15 In the instant case, one was concerned with product warranties. To give an example of product warranties, a company dealing in computers gives warranty for a period of 36 months from the date of supply. The said company considers following options : (a) account for warranty expense in the year in which it is incurred; (b) it makes a provision for warranty only when the customer makes a claim; and (c) it provides for warranty at 2 per cent of turnover of the company based on past experience (historical trend). The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is prohibited both under the Companies Act, 1956 as well as by the Accounting Standards which require accrual concept to be followed. In the instant case, the revenue was insisting on the first option which is erroneous as it rules out the accrual concept. The second option is also inappropriate, since it does not reflect the expected warranty costs in respect of revenue already recognized (accrued). In other words, it is not based on a matching concept. Under the matching concept, if revenue is recognized, the cost incurred to earn that revenue including warranty costs has to be fully provided for. In the instant case, when valve actuators were sold and the warranty cost was an integral part of that sale price, then the assessee had to provide for such warranty cost in its account for the relevant year, otherwise the matching concept would fail. In such a case, the second option is also inappropriate. Under the circumstances, the third option is the 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 remain 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 the year-end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation made. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust, then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. Hence, on the facts and circumstances of the instant case, provision for warranty was rightly made by the assessee because it had incurred a present obligation as a result of past events. There was also an outflow of resources. A reliable estimate of the obligation was also possible. Therefore, the assessee had incurred a liability during the relevant assessment years and it was entitled to deduction under section 37. Therefore, all the three conditions for recognizing a liability for the purpose of provisioning stood satisfied in the instant case. There are four important aspects of provisioning, viz., provisioning which relates to present obligation; it

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 16 arises out of obligating events; it involves outflow of resources; and lastly, it involves reliable estimation of an obligation. Keeping in mind all the four aspects, the High Court should not to have interfered with the decision of the Tribunal in the instant case. [Para 13] 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 receipts under section 37. It would all depend on the data systematically maintained by the assessee. [Para 17] Therefore, the impugned judgment of the High Court was liable to be set aside and the appeal filed by the assessee was to be allowed in its favour.”

From the above proposition, it is clear that the provision representing the actual liability of the assessee can be allowed as deduction. Now coming to the facts of the case on hand we find that assessee claimed to have made provision for LTC on the basis of the report of actuarial valuation. However, at the time of hearing Ld. AR was requested to draw our attention to the report of actuarial valuation but he failed to do so. However, Ld. AR before us submitted that assessee has made submission before the Ld. CIT(A) for the report of actuarial valuation which has been duly considered by Ld. CIT(A). From the above, proposition, there is no doubt that assessee has made a reference during the hearing before Ld. CIT(A) to the report of actuarial valuation but same has not been placed in the paper book filed before us. Therefore, it appears that assessee has not produced the copy of the report of actuarial valuation for the LTC. Therefore, we are inclined to remit the matter back to the file of AO for fresh adjudication in accordance with law as well as after considering the principle laid down by Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. (supra) as discussed above. It is also directed to assessee at liberty to produce necessary documents including the actuarial valuation report. The AO shall pass a speaking order in terms of above. Revenue’s ground is allowed for statistical purpose.

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 17 22. Last issue raised by Revenue in Ground No.5 is that Ld. CIT(A) erred in allowing deduction of the expense incurred on tools & tackles by 1/5th instead of 15% depreciation as per the provision of Section 32 of the Act. 23. The assessee during the year has claimed an expense on account of tools & tackles inventories for ₹449.12 lakhs. The assessee written off the inventory of tools and tackles @ 1/5th this year on the basis of average weighted method. However, AO was of the view that inventories of tools and tackles are part of the plant and machinery. Therefore, the same is eligible for depreciation @ 15%. Accordingly, AO show caused the assessee for disallowing 5% excess claim made by assessee in the form of depreciation. In compliance thereto assessee submitted that the inventories are neither raw materials nor finished goods and these are not made for re-sale. The useful life of tools and tackles is estimated for 5 years on the basis of technical evaluation report of Engineering Department. Therefore these were written off for a period of five years. The assessee in support of its claim also relied on the judgment of Hon'ble Supreme Court in the case of Madras Industrial Investment (1997) reported in 225 ITR 802 (SC) and the judgment of Hon'ble jurisdictional High Court in the case of Hindustan Aluminium Corporation Ltd. (1983) 144 ITR 974 (Cal). The assessee also submitted that there is no valuation of closing stock at the end of year and there is no under assessment of tax. However, AO disregarded the contention of assessee by observing that category of tools and tackles contains numerous items and many of them have useful life more than 5 year but assessee has considered all of them unilaterally for the purpose of writing off for a period of five years. The AO also observed that there is no detail filed by the assessee suggesting that tools & tackles after the period of 5 years will become useless. In view of above, AO treated the tools & tackles inventory as plant and machinery and allowed depreciation @ 15%. Thus, AO disallowed excess of depreciation claimed by assessee for ₹112.28 lacs and added to the total income of assessee. 24. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee submitted before Ld. CIT(A) that ITAT of Kolkata Bench in

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 18 assessee’s own case has decided the issue in favour of assessee for AY 2010-11 in ITA No.1772/Kol/2014 dated 18.03.2016. The Ld. CIT(A) after considering the submission of assessee deleted the addition made by AO by observing as under:- “8.2 I have considered the submission of the AR of the appellant in the backdrop of the assessment order. I find that the matter is already decided in favor of the appellant by the ITAT, Kolkata vide order dated 18.03.2016 wherein the order passed u/s. 263 of the Act by the jurisdictional CIT, Kolkata had been set aside for which the order f the AO passed consequentially thereto had also been rendered as a nullity. In this respect, my order in the matter, vide order dated 08.08.2016 in the appellant’s own case for the AY 2010-11 in ITA No.242/CIT(A)-4/Circle-10(1)/Kol/15-16 is reproduced as follows: ‘I have considered the submissions of the AR of the appellant in the impugned matter and also perused the referred order of the ITAT, Kolkata dated 18.03.2016 as per Serial No. 9 of the submission (supra). To cut short the matter, I find that the Hon'ble ITAT Kolkata ‘B’ Bench vide order dated 18.03.2016 in ITA No.1772Kol/2014 has set aside the impugned order of the CIT passed u/s. 263 of the Act and restored the original order of the AO passed u/s. 143(3) of the Act dated 15.09.2010. Under such circumstances, I find that since the said CIT’s order has been set aside by the said ITAT, the order passed by the AO in consequence thereto does not survive as a natural corollary and for all practical purposes. Therefore, the assessment order u/s.263/143(3) passed by the AO can only be treated as a nugatory order bereft of any legal validity. In view of the foregoing discussion, the said order is hereby treated as annulled and the appeal of the appellant succeeds and therefore stands allowed.’ 8.3 In view of the foregoing, since the impugned matter has already been settled in favour of the appellant as discussed above, the addition of ₹1,12,28,000/- made by the AO on account of for alleged understatement of the value of closing stock of tools and tackles for this year as well does not hold good any longer given the facts and circumstances of the case. Therefore, the AO is directed to delete the impugned addition made in an amount of ₹1,12,28,000/- on account of alleged understatement of the valu9e of closing stock of tools and tackles by claiming depreciation at 20% instead of 15%. This ground stands allowed.” The Revenue, is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us. 25. Before us both parties relied on the order of Authorities Below as favorable to them.

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 19 26. We have heard rival contentions of both the parties and perused the material available on record. In the instant case, the AO treated the inventory of tools & tackles purchased by assessee as part of plant and machinery. Accordingly, depreciation was allowed on such items. However, assessee was writing off the amount of expense incurred on tools & tackles by treating them as deferred revenue expenditure for the period of 5 year. Thus, assessee claimed deduction @ 1/5th each year on the basis of weighted average method. The Ld. AR before us relied on assessee’s own case where the Tribunal has passed an order in favour of assessee in the identical facts & circumstances. However, the instant issue before Ld. CIT under section 263 of the Act was that assessment has been framed without carrying out necessary verification though the assessee claimed before the Tribunal that the necessary verification was carried out by AO at the time of assessment proceedings. Accordingly, Tribunal held that the order of Ld. CIT u/s. 263 is not sustainable. From the above order we find that issue on merit whether the inventory of use of tools & tackles form part of plant and machinery and accordingly, same should be eligible for depreciation @ 15% was not decided. Hence, in our considered view no support can be drawn from the order of ITAT Kolkata Bench in the facts of the case on hand. It is undisputed fact that no fixed assets are coming into existence out of money spent by assessee on the purchase of tools & tackles inventories. These are the part of machineries which are used depending upon the requirement. Therefore in our considered view the same should be eligible for deduction as expense in the year of incurrence. However, the issue before us is that whether the assessee is entitled to claim the depreciation on tools & tackles inventory or by treating them as deferred revenue expenditure for a period of 5 years. The allegation of AO is that there is no concept of claiming deduction under the Act on deferred revenue basis / useful life of inventory. In this regard, we find that Hon'ble Supreme Court in the case of Madras Industrial Investment Ltd. (supra) has recognized / valued the concept of deferred expenditure. The relevant extract of the order is reproduced below:-

ITA No.2176/Kol/2016 A.Y. 2014-15 DCIT Cir-10(1), Kol. Vs M/s Bridg & Roof Co.(I) Ltd. Page 20 “Ordinarily, the revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year”. In view of above, we hold that assessee has correctly amortized the expenditure incurred on tools and tackles inventory over a period of 5 years. The period of 5 years was decided on the basis of technical report evaluated by the Engineering Department. Ld. DR has not brought any defect in the technical evaluation report of Engineering Department. Therefore, we are inclined to upheld the order of Ld. CIT(A). Hence, this ground of Revenue is dismissed. 27. In the result, Revenue’s appeal stands partly allowed for statistical purpose as indicated above. Order pronounced in the open court 20/04/2018 Sd/- Sd/- (�या$यक सद&य) (लेखा सद&य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S (दनांकः- 20/04/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-DCIT, Cir-10(1), Ayakar Bhawan, 3rd Fl, P-7, Chowringhee Sq.Kol-69 2. ��यथ�/Respondent-M/s Bridge & Roof Co(I) Ltd, 2/1 Russel St, 5th Floor, Kolkata-71 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �$त$न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ3धकरण, कोलकाता ।