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Income Tax Appellate Tribunal, PUNE BENCHES “SMC”, PUNE
Before: DR.MANISH BORAD
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
This appeal filed by the assessee pertaining to the assessment year 2020-21 is directed against the order dated 28.02.2024 passed [in short “the Act"] by the Addl./JCIT(A)- 4, Bengaluru u/s.250 of the Income Tax Act, 1961 [in short “ld.CIT(A)] which in turn is arising out of Intimation order passed u/s.143(1) dated 26.12.2021.
Nelson Global Products India Pvt. Ltd.,
Assessee has raised following grounds of appeal :
“On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has:
I. General Ground:
Erred on facts and in circumstances of the case and in law by not accepting the returned income of the Appellant for the captioned AY. II. Disallowance of Rs.36,60,197 under section 37 of the Act:
Erred on the facts and in circumstances of the case and in law by confirming the disallowance for the provision of bad debts written back of Rs.36,60,197 without appreciating the fact that these bad debts comprise of bad debts written off/ bad debts written back.
Erred on the facts and in circumstances of the case and in law by not considering the submission of the Appellant explaining that the provision for bad debts were disallowed in the year of creation of such provisions and the deduction claimed by the Appellant is mere write back/write-off of such bad debts.
III. Disallowance of Rs.12,32,732 under section 37 of the Act:
Erred on the facts and in circumstances of the case and in law by confirming the disallowance for the warranty expenses amounting to Rs.12,32,732 without appreciating the fact that these are actual settlement of warranty expenses with the customers of the Appellant.
Erred on the facts in circumstances of the case and in law by not considering the submission of the Appellant explaining that the provision for warranty is disallowed by the Appellant and the said deduction claimed is on account of actual warranty payment/settlement with the customers of the Appellant.”
Nelson Global Products India Pvt. Ltd., 3. Brief facts of the case are that the assessee is a company incorporated under the provisions of Indian Companies Act, 1956. It is engaged in the business of manufacturing of parts and accessories of commercial automobile vehicles like Exhaust systems, Silencer etc. The assessee furnished the return of income for A.Y. 2020-21 on 11.12.2020 but subsequently revised the return on 25.03.2021 and the same was processed by CPC u/s.143(1) of the Act on 26.12.2021 making certain adjustments to the income declared by the assessee. The adjustments made were challenged by the assessee before ld.CIT(A) who granted part relief. For the addition sustained by ld.CIT(A), the assessee is in appeal before this Tribunal on the following two issues :
(a) Disallowance for provision of bad debts written back at Rs.36,60,197/- (b) Disallowance for warranty provision of Rs.12,32,732/-.
At the outset, Ld. Counsel for the assessee submitted that the ld.CIT(A) sustained the disallowances only without considering the adjustment being made based on the observation of the Auditor in the Tax Audit Report but the ld.CIT(A) failed to consider the fact that assessee has already Nelson Global Products India Pvt. Ltd., added back the provision for doubtful debts and provision for warranty debited in the profit and loss account and has only claimed the actual amount of bad debts written back and the warranty expenses actually incurred during the year. He further referring to the relevant pages of the paper book demonstrated that only the actual expenses incurred during the year towards the bad debts written off and warranty expenses claimed has been claimed as expenditure and the remaining amount has already been offered to tax in the income-tax return.
On the other hand, the ld. Departmental Representative vehemently argued supporting the order of the ld.CIT(A) and also referred to the observations of ld.CIT(A) in para 5.10 of the impugned order wherein the ld.CIT(A) has affirmed the adjustment made by CPC observing as under :
“5.10. Disallowance Contingent liability of Rs.48,92,928/-: The appellant states that in the return of income it had disallowed Rs.23,88,412/- u/s.37 as being liability contingent in nature at Sl.No.7(i) in Part-A O.I. and this amount is seen to have been disallowed in Schedule B&P which is included to total amount of Rs.85,02,188/- at Sl.No.15. However, in the Audit Report, the auditor reported at Clause 21(g) for disallowance as under :
Nelson Global Products India Pvt. Ltd.,
Sl.No. Particulars Rs. 1 Provision for Doubtful 46,98,269 Debits 2 Warranty Provision 25,83,071 Total 72,81,340 Further, in the sheet captioned "computation of total income", the appellant first added Rs.72,81,340/- to the Net Profit and then reduced Rs.49.92.537/- as given under:
Sl.No. Particulars Rs. 1 Provision for Bad 36,60,197 Debts written backsq 2 Warranty Provision 12,32,732 Total 48,92,929 By doing so, the appellant had reduced the net amount of Rs.23,88,411/- treating it as liability contingent in nature u/s.37. In this regard, a question arises as to when the auditor reported Rs.72,81,340/- as liabilities contingent in nature for disallowance u/s.37, how the appellant had reduced the liability to Rs.23,88,411/-. If the claim of the appellant were true regarding incurring expenditure on warranties and writing off bad debts, only resulting amount of Rs.23,88,411/- ought to have been closing balance of the said two provisions, and reported by the auditor in Form No.3CD for disallowance. But he qualified Rs.72,81,340/- for disallowance u/s.37. If what the appellant claims is a fact, then suitable adjustment entries might have been made and correct balance of Provisions been arrived at. In the instant case, there is discrepancy between the amount of provisions qualified for disallowance in the return of income and Tax Audit Report. A question arises as to how in the computation of total income the appellant first added the provision amount of Rs.72,81,340/- and then claimed bad debts written off and warranty paid amounting to Rs.48,92,929/-. Also, in view of the discrepancy with regard to the amount of contingent liability between the Audit Report and Return of income, the addition made of Rs.48,92,929/- is confirmed. The appellant's ground on this issue is dismissed.”
I have heard the rival contentions and perused the record placed before us. The assessee has raised two issues Nelson Global Products India Pvt. Ltd., in the instant appeal of which first relates to disallowance of Rs.36,60,197/- u/s.37 of the Act for the alleged disallowance of provision for Bad debts written back and second relates to disallowance of warranty provision amounting to Rs.12,32,732/-. The total addition/disallowance referred to in the grounds of appeal amount to Rs.48,92,929/-. I further observe from Form No.3CD attached to Tax Audit Report that under clause 21(g) which relates to particulars of any liability of a Contingent nature, learned Auditor has mentioned two amounts namely, provision of doubtful debts at Rs.46,98,270/- and warranty provision of Rs.25,83,071/-. The total of these two amounts comes to Rs.72,81,341/-. However, while filing the details in the income-tax return, the assessee in Column 7(i) of Part A – Other Income (mandatory if liable for Audit u/s.44AB) the amount mentioned as against amount of any liability of a Contingent nature is stated at Rs.23,88,412/-. The CPC while processing the return, on one hand, took note of the observation of the Auditor mentioning the amount of Rs.72,98,341/- and, on the other hand, actual amount of liability shown in the income-tax return under the head amount debited to the profit and loss account to the extent Nelson Global Products India Pvt. Ltd., disallowable u/s.37 at only Rs.23,88,412/-. Accordingly, the difference of Rs.48,92,929/- have been disallowed for which the assessee has raised Grounds of appeal No.2 and 3 for the respective amount towards provision for bad debts and provision for warranty expenses.
Before me, Ld. Counsel for the assessee making due reference to the computation of income as well the details of actual amount of bad debts written back as well as break up of warranty expenses settled during the year under consideration, has successfully demonstrated that while computing the income, the assessee first added back the provision for doubtful debts and provision for warranty expenses debited in the profit and loss account at Rs.46,98,270/- and Rs.25,83,071/-. Thus, added back Rs.72,98,341/- to the net profit as per profit and loss account. Thereafter, the assessee being eligible to claim the actual amount of bad debts written off during the year at Rs.36,60,197/- and the actual amount of warranty expenses incurred during the year at Rs.12,32,732/- has been reduced from the net profit as per profit and loss account. So in nutshell, the assessee has added back Rs.23,88,412/- (Rs.72,81,341 - Rs.48,92,929) to the net profit as per profit Nelson Global Products India Pvt. Ltd., and loss account. I find that the assessee has rightly computed the disallowable item under the excess of provision for bad debts and excess of provision of warranty. However, due to absence of respective columns in the income-tax return to demonstrate the adding back of the provisions made in the profit and loss account and then claiming of actual expenses incurred during the year, the assessee has netted off both the amounts and has only stated the amount of Rs.23,88,412/- as the amount disallowable during the year. Even though these details were filed before the AO it seems that he has overlooked the submissions filed by the assesee. I therefore under the given facts and circumstances of the case and also considering the details of actual break up of warranty supplied during the year placed at page 286 of the paper book and the customer-wise break up of bad and doubtful debts written back during the year which are majorly the limited companies and mainly include Tata Motors Ltd. and Ashok Leyland Ltd. etc., find that the claim of the assessee was justified and CPC erred in making the alleged adjustments. I therefore set-aside the finding of the ld.CIT(A) and delete the disallowances made u/s.37 of the Act at Rs.36,60,197/- and Rs.12,32,732/- and allow the Nelson Global Products India Pvt. Ltd., effective Grounds of appeal No.2 and 3 raised by the assesee. Ground No.1 being general in nature needs no adjudication.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 19th day of December, 2024.