TMI Blog2012 (12) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... um paid against the liability of tax, duty, cess, fee, etc., the year of payment is relevant and is only to be taken into account - in favour of assessee. Disallowance of provision for warranties - Held that:- As decided in M/s. Rotork Controls India (P) Ltd. Versus CIT, Chennai [2009 (5) TMI 16 - SUPREME COURT OF INDIA] a provision is recognized when an enterprise has a present obligation as a result of a past event & it is probable that an outflow of resources will be required to settle the obligation with a reliable estimate can be made of the amount of the obligation - The principle is that if the historical trend indicates that a large number of sophisticated good were being manufactured in the past and the facts show that defects existed in some of the items manufactured and sold, then provision made for warranty in respect of such sophisticated goods would be entitled to deduction from the gross receipts under Section 37 - in favour of assessee. - IT Appeal NOS. 903, 993 & 1029 of 2011 - - - Dated:- 14-12-2012 - S. RAVINDRA BHAT and R.V. EASWAR, JJ. N.P. Sahni for the Appellant. Ajay Vohra, Ms. Kavita Jha, Somnath Shukla and Vaibhav Kulkarni for the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent assessment year but no deduction would be available on such payments where the corresponding liability was not incurred by the assessee. Adverting to the legal position before introduction of Section 43-B, it was stated that if an assessee maintained the accounts on accrual basis, the deduction of the prescribed sums would be available in computing the business income if those liabilities were accrued during the previous year relevant to the assessment year, without the actual payment thereof. Even now, the rule of accrual of liabilities has not been dispensed with. The accrual of liability remains unchanged. Section 43B imposes a further condition that deductions are permissible additionally to accrual of liability, only on actual payment of the amount. 5. It was next submitted that a deduction "otherwise allowable under this Act", which qualifies to be allowed before considering the question of payment. The item must be permissible as a deduction under any provision; the expenses or liability must be incurred. The restriction brought about by Section 43B that cash must be actually paid, not mean that other conditions provided in law have been dispensed with. All such condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of goods, from the premises. It was submitted that the structure of Rule 173G and the scheme of excise duty collection left the asseesee, or any other manufacturer with no option but to pay amounts into PLA, as a precondition for their removal and further sale. Counsel highlighted that the mode chosen by the excise authorities, of requiring the manufacturer to keep certain amounts, was at once a method of collection, as well as a matter of convenience. If the manufacturer were to pay amounts, and then clear the goods, the result would be time consuming; instead, he is obliged to keep, in the PLA a certain amount to cover the clearances of goods manufactured. 9. It was highlighted that the amounts deposited were towards the obligation to pay excise duty, and nothing else. It was submitted that the assessee could not be denied the deduction, once the basic characteristic of the payment actually made was established. Pointing out that the disallowances were a fraction of the total excise duty, in each of the assessment years, learned counsel submitted that these credits were for finished goods, but which had not been cleared at the time of end of the concerned period. 10. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d carbon, and the assessee shall periodically made credit in such account-current, by cash payment into the treasury, so as to keep the balances, in such account-current sufficient to cover the duly due on the goods intended to be removed at any time, and every such assessee shall pay the duty determined by him for consignment by debit to such account-current before removal of the goods". 12. The relevant discussion in Paharpur states that: "8. After hearing the learned Counsel for the parties and after going through the aforesaid provisions including the Explanation 2 added thereto, we find that the requirement of the provision contained in Section 43B(a) of the Act is that the Assessee must have actually paid the amount as well as incurred liability in the previous year for the payment even though such sum might not have been payable within that year under the relevant law. In the case before us, the Assessee has undoubtedly paid the duty in the previous year and such payment was made consequent upon the liability incurred in that very year but in view of the fact that it follows the mercantile system of accounting, the amount is legally payable in the next year. Thus, the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be cured by induction of the provisions of sections 43B of the Income Tax Act is sub-served by the payment of the duty to the Department concerned. The procedure envisaged for payment of excise duty envisages such duty to be deposited in advance with the treasury before the goods are removed from the factory premises. The duty, thus, already stands deposited in the accounts of the assessee maintained with the treasury and the amount, thus, stands paid to the State. We are, thus, not in agreement with the submission of the learned counsel for the Department that it was only on removal of the goods that the amount credited to the personal ledger account could be claimed as deductible under Section 43B of the Income Tax Act. The question is, thus answered in favour of the assessee. " 13. The Tribunal had, in a previous year, discussed the issue in detail; its conclusion - in the assessee's case for A.Y. 1999-2000 (reported in 92 ITD 119) and A.Y. 2000-01 is as follows: "28. In view of the above discussion, it is held that advance payment in cash of taxes or duties without incurring liability to pay such taxes or duties without incurring liability to pay such taxes or duties ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each excisable product (evident from the mandate in Rule 173G that it "shall keep an account current"). The latter part of the main rule makes it clear beyond any doubt that the assessee has no choice in the obligation, and cannot remove the goods manufactured by it, unless sufficient amounts are kept in credit: "...and the assessee shall periodically made credit in such account- current, by cash payment into the treasury, so as to keep the balances, in such account-current sufficient to cover the duly due on the goods intended to be removed at any time, and every such assessee shall pay the duty determined by him for consignment by debit to such account-current before removal of the goods" The revenue's contention that the amounts in credit also relate to goods not manufactured, and therefore not relatable to any "liability incurred" is, in the opinion of this Court, without any basis. The arrangement prescribed by the rule is both a collection mechanism - dictated by convenience, as well as mandatory. It is convenient, for the reason that if the assessee were to be asked to pay the exact amount, through some other method, by deposit, as a precondition for clearance, that woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the payment of such sum as per the method of accounting regularly employed by the assessee. For the purpose of claiming benefit of deduction of the sum paid against the liability of tax, duty, cess, fee, etc., the year of payment is relevant and is only to be taken into account. The year in which the assessee incurred the liability to pay such tax, duty, etc., has no relevance and cannot be linked with the matter of giving benefit of deduction under Section 43B of the Act. In this view of the matter, the appeal deserves to be allowed. 16. This court also notices that the Supreme Court has upheld the view which allows assessee's to claim credits, such as Modvat, etc, falling within the description of liability paid, to escape the mischief of Section 43-B. (CA 6721/2012 : CIT v. Shri Ram Honda Power Equipment Corporation, decided on 19.09.2012). As a result of the above discussion, the first question is answered in favour of the assessee, and against the revenue. 17. As far as the second question is concerned, the Court notices that the issue is covered by the ruling of the Supreme Court in Rotork Controls India Ltd. v. CIT 314 ITR 62 (SC) where the provisions of warranty w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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