STANLEY BLACK & DECKER INDIA LTD,PUNE vs. DCIT 3(1), MUMBAI

The assessee is engaged in the business of manufacturing and trading in electromechanical tools and parts.

We shall take up the appeal filed by the assessee for A.Y. 2009-10. First issue urged therein relates to disallowance of “Provision for outstanding expense of ` 7,85,811/- claimed by the assessee as deduction. The Assessing Officer noticed that the assessee had created a provision of ` 7,85,811/- towards certain expenses as at the year end and claimed the same as deduction. The assessee submitted that the liability in respect of those expenses has accrued during the year and hence they have been accounted for in the books of account on estimated basis. Since the assessee could not quantify the actual amount of expenditure precisely and further documentary evidences supporting the claim of expenses were not available with the assessee, the Assessing Officer took the view that this claim is not admissible and accordingly disallowed the same. The learned CIT(A) also upheld the order passed by the Assessing Officer.

Learned AR submitted that an identical issue was considered in assessee’s own case in relating to A.Y. 2007-08, wherein the Tribunal has confirmed the disallowance. Learned AR submitted that the coordinate Bench of the Tribunal did not consider the decision rendered by Hon'ble Supreme Court in the case of Bharath Earth Movers Vs. CIT (245 ITR 428), wherein Hon'ble Supreme Court held that if a business liability has definitely arisen in an accounting year, then deduction should be allowed although liability may have to be quantified and discharged at a future date. Learned AR further submitted that the CBDT has notified Accounting Standard-1 relating to disclosure of accounting policies u/s. 145(2) of the Act, wherein accrual concept of accounting has been recognized. Accordingly learned AR submitted that provision made by the assessee on known liabilities should be allowed as deduction. Learned AR submitted that details of expenses aggregating to ` 7,85,811/- is given in page No. 66 of the paper book.

Learned Departmental Representative on the contrary supported the order passed by the learned CIT(A).

We have heard the rival contentions on this issue. In view of the decision rendered by Hon'ble Supreme Court in the case of Bharat Earth Movers (supra), we agree with the contentions of the assessee that the provision made on estimated basis for known liabilities should be allowed as deduction. We noticed that decision rendered by Hon'ble Supreme Court in above said case was not brought to the notice of the Coordinate Bench in A.Y. 2007-08. Normally provision for expenses is made on estimate basis only, since the assessee shall know the existence of liability, but it quantum was uncertain. The difference between the provision and actual amount shall usually be adjusted in the subsequent years by debiting/credit the profit and loss account. The assessee submitted that the assessee is consistently following same methodology of estimation year after year. We find merit in the submissions of the assessee. We have also gone through the details of outstanding expenses given in page No. 66 of the paper book. We noticed that the same pertain to various expenses. It, inter alia, includes certain payments covered by the provisions of sec. 43B of the Act like leave encashment, excise duty etc. In respect of expenses attracted by the provisions of section 43B, the AO is required to examine them in terms of sec. 43B only. In this view of the matter, we are of the view that this issue requires fresh examination at the end of the Assessing Officer. Accordingly we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer with the direction to examine the items covered by section 43B of the Act in accordance with the said section. In respect of other time of expenses, the AO examine the same in the light of discussions made supra.

Next issue contested by the assessee relates to addition of outstanding expenses of ` 7,85,811/- while computing book profit under the provisions of section 115JB of the Act, treating the same as unascertained liability. Since we have held that the liabilities are accrued liabilities, the same would fall under 4 Stanley Black & Decker India Limited the category of ascertained liabilities. Hence the same is not required to be added u/s. 115JB of the Act. Accordingly, we set aside the order passed by the tax authorities on this issue.

Next issue relates to addition of modvat credit. The assessee has followed exclusive method of accounting for taxes. The Assessing Officer disallowed the closing balance of modvat amounting to ` 4,15,852/-. The learned CIT(A) also confirmed the same. We notice that the assessee has given workings relating to modvat in page No. 30 of the paper book, wherein it has computed the modvat amount under inclusive method. The assessee has demonstrated that there is no impact on the profit if modvat is accounted under inclusive method. Further identical issue has been considered by the Coordinate Bench in assessee’s own case in relating to A.Y. 2007-08 and the Tribunal, vide its order dated 22.2.2014, has deleted identical disallowance made in that year. Since the assessee has demonstrated that there is no impact on profit if inclusive method of accounting is followed, we do not find any substance in the addition made by the Assessing Officer. Further the Coordinate Bench of the Tribunal has already taken a view on this issue in favour of the assessee. Accordingly we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete this disallowance.

Next issue relates to denial of set off of unabsorbed depreciation against long term capital gain. The assessee had brought forward unabsorbed depreciation to the tune of ` 383.67 lakhs. It claimed set off of the same against income from business and also against income from capital gain. The Assessing Officer noticed that unabsorbed depreciation brought forward by the assessee pertained to period prior to A.Y. 2002-03 and further more that 8 years had also elapsed. Accordingly, by following Special Bench decision of the Tribunal rendered in the case of Times Guaranty Ltd. (40 SOT 14), the Assessing Officer rejected the claim of set off. The learned CIT(A) allowed the claim of set off of unabsorbed depreciation against business income but 5 Stanley Black & Decker India Limited rejected against long term capital gain. The assessee is aggrieved by the said decision in not granting set off of unabsorbed depreciation against long term capital gain.

Learned AR submitted that an identical issue has been considered by the Coordinate Bench in the case of M/s. Amforge Industries Ltd. (ITA No. 3470/Mum/2013 dated 17.10.2014), wherein it was held that treatment given to current year depreciation would equally apply to brought forward depreciation and accordingly unabsorbed depreciation can be set off against capital gain.

We have heard learned Departmental Representative and perused the record. We noticed that the Coordinate Bench has rendered following decision in the case of M/s. Amforge Industries Ltd.(supra) on an identical issue.

We noticed that the Coordinate Bench has followed the decision rendered by Third Member, Mumbai in the case of M/s. Akay Flavours and Aromatics (P) Ltd. and also decision of the Coordinate Bench in the case of 6 Stanley Black & Decker India Limited Suresh Industries (P) Ltd. Consistent with the view taken in the above said cases, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to allow set off of unabsorbed depreciation against long term capital gain.

Last issue relates to disallowance of depreciation on walls and fences. During the year under consideration the assessee sold a land and declared long term capital gain thereon. The Assessing Officer noticed that the assessee had incurred expenditure in earlier years on construction of walls and fences and surrounding lands to the tune of ` 9,90,556/-. The assessee had also claimed depreciation on expenditure incurred on construction of walls and fences under the head “Building”. Since land has been sold during the year under consideration, the Assessing Officer noticed that the asset created on account of construction of walls and fences has ceased to exist. He also noticed that the assessee did not deduct any amount from the WDV value of “building” towards the value of Walls & fences. Accordingly, the Assessing Officer disallowed the depreciation amount of ` 99,056/- (10% of ` 9,90,557/). The learned CIT(A) agreed in principle, with the view taken by the Assessing Officer. However, the learned CIT(A) noticed that the WDV value of walls and fences stood at ` 7,64,689/-. Accordingly he restricted disallowance to 10% of the WDV amount.

Learned AR submitted that the assessee did not receive any money on account of walls and fences and hence no amount is required to be deducted from the WDV value of building.

On the contrary, learned Departmental Representative submitted that sale price of land would automatically include cost pertaining to walls and fences and hence the learned CIT(A) was justified in deleting the disallowance on WDV value of asset.

We have heard the rival contentions on this issue and perused the record. In our view, there is merit in the contentions of Ld DR that the sale

Learned AR submitted that, if WDV value of ` 7,64,689/- is taken as value pertaining to walls and fences, the same is required to be excluded from the sale value of land for the purpose of computing long term capital gain. We find merit in the said contentions of the assessee. The assessee has taken entire amount of sale consideration as pertaining to land. When we allocate a portion of the same towards wall & fences, the sale consideration pertaining to land should be reduced by that amount. Accordingly, we direct the Assessing Officer to reduce the sale consideration of land by ` 7,64,689/- and compute long term capital gains accordingly.

We shall now take up the appeal filed by the Revenue. We had earlier noticed that the Assessing Officer had rejected the claim of set off of unabsorbed depreciation against business income also and the learned CIT(A) had allowed that claim. The Revenue is aggrieved by the said decision of the learned CIT(A).

Learned AR submitted that this issue has since been settled in favour of the assessee by Hon'ble Gujarat High Court in the case of General Motors India Pvt. Ltd. Vs. DCIT (2013) 354 ITR 244, wherein it was held that the unabsorbed depreciation or part thereof which was not set off till A.Y. 2002-03, will be dealt with in accordance with the provisions of section 32(2) of the Act

We shall now take up the appeal filed by the assessee for A.Y. 2010-11. The first issue relates to the disallowance of Provision for expenses. We have considered an identical issue in AY 2009-10 in the preceding paragraphs and restored the matter to the file of the assessing officer. Accordingly we restore this issue to the file of the AO with similar directions.

The second issue contested by the assessee relates to the addition of Provision of expenses while computing book profit u/s 115JB treating the same as unascertained liability. In AY 2009-10, we have considered an identical issue and held that the provision for expenses is ascertained liability and the same is not required to be added while computing book profit u/s 115JB of the Act. Consistent with the view taken therein, we set aside the orders passed by the tax authorities on this issue.

The next issue relates to the charging of interest u/s 234A of the Act. The Ld A.R submitted that the due date for filing return of income was extended during the year under consideration upto 15th October, 2010 and the assessee has filed the return of income on 11th October, 2010. Accordingly she

In the result, both the appeals of the assessee are treated as allowed for statistical purposes and the appeal of the revenue is dismissed.