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Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the revenue against the order of the CIT(A)-14, LTU, Bangalore, dated 27/01/2015 for the assessment year 2009-10.
The revenue raised the following grounds of appeal:
1) The order of Ld. CIT(A) is opposed to law and facts of the case.
IT(TP)A No.583/Bang/2015 Page 2 of 6 2) The Ld. CIT(A) erred in allowing the relief in respect of deduction U/s. 801JA. The assessee does not qualify for the claim U/s. 80JJA as per explanation (i) to sub section (2) as the assessee has not employed more than 100 employees. 3) The learned CIT (A) erred in allowing the relief in respect of additional depreciation U/s. 32 on the assets which was put to use for less than 180 days in the previous year. 4) The CIT(A) has erred in not considering the prospective amendment in Finance Bill 2015 w.e.f. 01/04/2016. 5) The learned CIT (A) erred in allowing the relief in respect of provision for warranty. 6) For these and such other grounds that may be urged at the time of hearing.
The background facts of the case are that the respondent- assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacture and sale of industrial cooling units. Return of income for the assessment year 2009-10 was filed on 29/9/2009 declaring a total income of Rs.20,64,50,026/-. After issuing statutory notice u/s 143(2) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short], the assessment was completed by the Deputy Commissioner of Income-tax, LTU, Bangalore, vide order dated 22/03/2013 passed u/s 143(3) r.w.s.144C of the Act.. While doing so, the Assessing Officer (AO) denied the claim for deduction of Rs.20,44,307/- made under the provisions of sec.80JJAA of the Act, holding that new regular
IT(TP)A No.583/Bang/2015 Page 3 of 6 workmen employed during the previous year relevant to assessment year under consideration had not worked continuously for period of 3 years. The AO also disallowed the claim for additional depreciation of Rs.23,21,760/- claimed u/s 32(1)(iia) of the Act on the ground that the assessee is entitled to claim additional depreciation only in the year in which the asset is put to use. The AO also disallowed the provision for warranty of Rs.37,03,990/- on the ground that the assessee is not following scientific method and the provision is not based on the past experience. The AO held that the ratio laid down by the Hon’ble Supreme Court in the case of Rotork Controls India Pvt. Ltd. vs. CIT (314 ITR 62) is not applicable.
Being aggrieved, an appeal was preferred before the CIT(A) who, vide impugned order, allowed the appeal as regards the disallowance of Rs.20,44,3076/- u/s 80JJAA of the Act. The CIT(A), after examining additional evidence filed before him, calling for the remand report from the AO, allowed the claim holding that there was nothing in the provisions of sec.80JJAA stipulating that new employees should continue to work in the same organization continuously for 3 years. In fact, the AO himself has conceded the claim in favour of the assessee in his remand proceedings. Accordingly, the CIT(A) allowed the claim u/s 80JJAA of the Act. During the course of proceedings before the CIT(A), the respondent-assessee made additional claim by IT(TP)A No.583/Bang/2015 Page 4 of 6 filing necessary certificate from the Chartered Accountant in Form 10A where higher deduction of Rs.36,01,567/- was claimed and the claim was allowed by the CIT(A). In regard to the additional depreciation, claim was allowed by the CIT(A) following the decision of the jurisdictional Tribunal in assessee’s own case for assessment year 2008-09. As regards the claim for provision for warranty, the CIT(A) after considering the additional evidence filed before him, held that provision was made based on scientific method and past experience. Therefore, he held that the law laid down by the Hon’ble Supreme Court in the case of Rotork Controls India Pvt. Ltd (supra) is applicable and directed the AO to allow the same.
Being aggrieved by this order, the revenue is in appeal before us. Ground Nos.1 and 5 are general in nature and do not require any adjudication. Ground No.2 relates to the claim for deduction u/s 80JJA of the Act. In the grounds of appeal, the revenue challenges that the deduction u/s 880JJA cannot be allowed to the assessee as per Explanation 1 to sub-section (2) of the said provision, as the assessee-company had not employed more than 100 employees. A perusal of the assessment order reveals that the addition was made by the AO on the premise that the new employees employed during the previous year relevant to assessment year under consideration not worked continuously with the assessee- company for a period of 3 years. It is not the case of the AO that IT(TP)A No.583/Bang/2015 Page 5 of 6 the assessee-company has not employed more than 100 employees. Therefore, this ground of appeal does not emerge out of the record and is dismissed as such.
Third ground of appeal relates to challenging the direction of the CIT(A) allowing additional depreciation . It is the contention of the revenue that the CIT(A) had not considered the prospective amendment to the provisions of sec.32 w.e.f. 1/4/2006. The claim for additional depreciation was disallowed by the AO on the ground that additional depreciation was allowable only in the year in which the asset was put to use. We find that in the assessee’s own case reported in 380 ITR 423 the Hon’ble jurisdictional High Court held that the proviso to clause (ii) of sub-section (1) of sec.32 makes it clear that only 50% of 20% of additional depreciation would be allowable if the new plan machinery so acquired is put to use for less than 180 days during the previous year relevant to assessment year under consideration. However, it nowhere restricts that the balance 10% would not be allowed to be claimed by the assessee in the next assessment year. In light of this decision, we uphold the order of the CIT(A) on this issue. The ground of appeal of the revenue on this score is dismissed.
Ground No.4 challenges the direction of the CIT(A) deleting the addition made on account of provision for warranty. The addition was made by the AO holding that the provision was not made on scientific method or not based on past experience. The IT(TP)A No.583/Bang/2015 Page 6 of 6 CIT(A) though stated that the assessee-company had followed the scientific method while working out the provision for warranty but not referred to any material based on which he has come to such a conclusion. Therefore, in our considered opinion, the matter requires fresh adjudication. Therefore, We remit this issue to the file of the AO with a direction to examine whether the provision for warranty is made on a scientific method or based on historical trend, after considering the additional evidence filed before the CIT(A). Therefore, this ground of appeal is restored to the file of the AO accordingly.
In the result, the appeal filed by the revenue is partly allowed for statistical purposes.