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TMI Blog2012 (10) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... urts. c) The assessee could not prove the actual incurrence of liability under the warranty clause on the basis of fixed percentage of turnover. 2. In the facts and circumstances of the case, the ld. CIT(A) has erred in law and on facts in directing to delete addition of Rs. 15,85,398/- on account of low gross profit rate ignoring that the assessee failed to substantiate its claim of abnormal increase in selling and administrative expenses by non submission of documentary evidence. 3. In the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in directing to delete addition of Rs. 15,86,400/- on account of capitalization of advertisement expenses ignoring that benefit of enduring nature was drawn on this account. 4. In the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in directing to deletion addition of Rs. 7,45,000/- on account of disallowances of service charges received in advance ignoring that each assessment year is separate and, therefore, the income of one assessment year cannot be offered to the subsequent year. Moreover, the taxability depends upon the method of accounting adopted by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO in the assessment order for the AY 2005-06 ,wherein decisions in Indian Molasses Co. Pvt. Ltd. vs. CIT,37 ITR 66(SC);Standard Mills Co. Ltd. vs. CIT,229 ITR 366(Bom.); CIT vs. Motor Industries Co. Ltd.,229 ITR 137(Kar) and CIT vs. Rotork Control India Ltd.,293 ITR 311(Mad.) were referred to and ,concluded that provision for warranty, not being ascertained ,is not allowable. 3. On appeal, the ld. CIT(A) allowed the claim while relying upon the decisions of the CIT(A) and the ITAT in the AYs 2001-02,2003-04 and 2005-06, in the following terms:- "2.3 I have carefully considered the submissions of learned AR and have gone through the assessment order. Similar issue came up before me in appellant's own cases for assessment years 2001-02 and 2005-06 wherein the addition was deleted in the light of the observations of Hon'ble Delhi ITAT in assessee's own case for assessment year 2003-04 and also in view of the various decisions of Hon'ble Delhi High Court and Hon'ble Supreme Court. The appeal orders for assessment year 2001-02 and 2005-06 have been upheld by Hon'ble ITAT vide order dated 4.3.2010 in I.T.A. No.4554 and 4555/D/09. Since there is no change in facts and circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phisticated 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 to settling that obligation; v) On facts, the assessee has been manufacturing and selling Valve Actuators in large numbers since 1983-84 onwards. Statistical data indicates that every year some Actuators are found to be defective. The data over the years also indicates that being sophisticated item no customer is prepared to buy the Valve Actuator without a warranty. Therefore, warranty became integral part of the sale price of the Valve Actuator (s). In other words, warranty stood attached to the sale price of the product and a reliable estimate of the expenditure towards such warranty was allowable. " 5.1 . In the instant case, indisputably ,the assessee provided for the warranty expenses based on technical evaluation and past experience; warranty stood attached to the sale price of the product and a reliable estimate of the expenditure towards such warranty is allowable. Moreover, the ITAT have allowed a similar claim in the AYs 2001-02,2003-04 & 2005-06.Considering the aforesaid facts and circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stimated addition by applying the GP rate of 39.50% is not justified. The same is, therefore, directed to be deleted." 8. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings in the impugned order. 9. We have heard both the parties and gone through the facts of the case. As is apparent from the findings of the AO, the only reason given in the assessment order for aforesaid trading addition is that the assessee did not furnish any evidence in support of increase in expenses in the year under consideration vis-a-vis expenses in the preceding year. In nutshell ,expenses was not commensurate with turnover. The AO nowhere recorded any findings that the books of account maintained by the assessee were incorrect, rendering it impossible to deduce the profit and despite that he proceeded to estimate the profit and turnover , invoking the principles of best judgment. The ld. CIT(A), on the other hand, concluded that the action of the AO to make estimated trading addition without pointing out any defects in the books of accounts, is totally unjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Amitbhai Gunwantbhai, 129 ITR 573 held that if there was no challenge to the transactions represented in the books then it is not open to Revenue to contend that what is shown by the entries is not the real state of affairs. Secondly, even if for some reason, the books are rejected it is not open to the AO to make any addition on estimate basis or on pure guess work. Since the Revenue have not referred us to any material contrary to the aforesaid findings of the ld. CIT(A), we are opinion that the AO was not justified in rejecting the book results and add an estimated amount . Hon'ble J & K High Court in the case of International Forest Co. v. CIT [1975] 101 ITR 721 held that in the case of a forest coupe, mere low yield of out-turn compared to earlier years was not sufficient to make an addition. No specific discrepancies or defects in the books of account of the assessee have been pointed out before us nor was any material brought to our notice to establish that purchases were inflated or receipts suppressed. In these circumstances , we are opinion that that there was no justification in invoking the provisions of section 145 of the Act [Vikram Plastics,239 ITR 161(Guj)]. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A). The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings in the impugned order. 13. We have heard both the parties and gone through the facts of the case. Indisputably, the expenditure of Rs. 19,83,000/- was incurred on advertisement of the products through electronic media. Since the expenditure is incurred on advertisement, the AO allowed only 1/5th of the expenditure in the light of decision of the Hon'ble Supreme Court in Madras Industrial Investment Corporation Limited (supra). Apparently, the AO treated the expenditure as deferred revenue in nature. As pointed out by the ld. CIT(A), the ITAT vide their order dated 16th September, 2009 in I.T.A. no.2974/Del./2009 in the assessee's own case for assessment year 2003-04 allowed a similar claim in identical circumstances. In ACIT vs. Ashima Syntex Ltd. ,310 ITRSP 1(SB, Ahmedbad), it was observed that the concept of deferred revenue expenditure is essentially an accounting concept and alien to the Act. The relevant provisions of the Act recognise only capital or revenue expenditure. Deferred revenue expenditure denotes expenditure for which a payment has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of any new asset or advantage of enduring nature in the capital field, the same is required to be treated distinctly from capital expenditure. However, where any identifiable capital asset, tangible or intangible comes into existence as a result of the amount expended, the same will have to be treated as a capital expenditure and depreciation allowable thereon as per the prescribed rules and procedures under the Act. In the instant case, indisputably, expenses towards advertisement have been treated as revenue in nature in the preceding years nor any material has been placed before us by the Revenue, suggesting that any tangible or intangible asset has been created by the assessee. Hon'ble jurisdictional High Court in CIT vs. Bonanza Portfolio Ltd.,202 taxman 545(Del.) allowed expenditure on ad films as revenue expenditure. In view of the foregoing, we do not find any merit in the ground raised by the Revenue. Therefore, ground no. 3 in the appeal of the Revenue is dismissed. 14. Ground no.4 in the appeal of the Revenue relates to addition of Rs. 7,45,000/- on account of service charges, received in advance. During the course of assessment proceedings, the AO asked the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration but to be taxed in the year when such services are rendered or recognized as income by the assessee." Respectfully following the decision of Hon'ble ITAT on identical facts, the Assessing Officer is directed to delete the addition." 16. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings in the impugned order. 17. We have heard both the parties and gone through the facts of the case. Indisputably, the assessee provided annual maintenance service to its customers in respect of their products for a time span of one year or six months and the service charges were received in advance. Since the time span for such service sometimes fell in between two financial years, accordingly, the services charges received were classified between current year fees and the fees received for next year, and the latter were accordingly, shown as income for the relevant financial year. As is apparent from the findings in the impugned order, in UGS India Pvt. Ltd. (supra), ITAT concluded that amount treated as deferred revenue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase on factory premises were not allowable as revenue expenditure. I further find that in the case of Gobind Sugar Mills Ltd., supra, it has been held by the Hon'ble Supreme Court that the expenditure incurred by the assessee for the acquisition of a leasehold right for setting up a sugar factory was clearly of capital nature. Learned AR has relied on the cases which are prior to the judgment of Hon'ble Supreme Court in the case of Gobind Sugar Mills Ltd., supra. In the light of the above said decision, the addition made by the Assessing Officer is upheld." 20. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld AR on behalf of the assessee while relying upon the decision in CIT Vs. Gopal Estates, 326 ITR 413(HP) contended that the impugned expenditure was revenue in nature. On the other hand, the ld. DR supported the findings in the impugned order. 21. We have heard both the parties and gone through the facts of the case as also the decisions relied upon by the ld. AR and the ld. CIT(A). The issue before us is as to whether an amount of Rs. 1,36,000/- incurred on account of purchase of stamp papers, stamp duty and registration charg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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