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2018 (3) TMI 525

books of accounts and also not claiming deduction for the same in the original return of income, later on proceeded to file a revised return for assessment year 2009-10 and claimed the same as deduction and correspondingly debiting prior period expenses for the very same amount in assessment year 2010-11 in the books and fairly disallowing the same voluntarily in the memo of income filed for the assessment year 2010-11. We hold that the Ld. CIT(A) had rightly deleted the disallowance of ₹ 3,01,21,223/- for the assessment year 2009-10. Accordingly ground no. 1 raised by the Revenue is dismissed. - Disallowance on account of leave encashment - Held that:- Similarly the assessee had also made provision for leave encashment in the earlier years and had also made payments during the year on account of such pre-existing liability i.e. payments made during the year on account of earlier year provisions. We find that the ld. AO and the Ld. CIT(A) had not looked into this issue in the proper perspective by linking the same with the tax audit report filed by the assessee wherein all these details are duly mentioned. Hence, we deem it fit and appropriate to remand this issue to the .....

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out of such sum of ₹ 40 lacs, a sum of ₹ 20,02,667/- representing the provision for sales incentives is no longer required to be paid. Accordingly, the assessee credited the same in its profit and loss account by reflecting as ‘excess provision written back’ and claimed the same as deduction in the return of income for the assessment year 2009-10. If the action of the is to be sustained , then this sum of ₹ 20,02,667/- would get invited with double addition. Hence, in the interest of justice, it has to be rightly allowed as deduction in the year of write back, which has been rightly done by the Ld. CIT(A). - I.T.A No. 1401/Kol/2013, C.O. No. 96/Kol/2013 - Dated:- 9-3-2018 - Hon ble Shri M. Balaganesh, AM And Shri S. S. Viswanethra Ravi, JM For the Assessee : Shri S. Jhajharia, FCA For the Revenue : Shri S. Dasgupta, Addl. CIT ( DR ) ORDER Per M.Balaganesh, AM 1. This appeal by the Revenue and the Cross Objection by the Assessee arise out of the order of the Learned Commissioner of Income Tax(Appeals)-VIII, Kolkata [in short the ld CIT(A)] in Appeal No.341/CIT(A)-VIII/Kol/11-12 dated 28.02.2013 against the order passed by the ACIT, Range-7, Kolkata [ in short the .....

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tion, interlacing and interdependence of the old and new units of manufacture, the new unit did not constitute a new business but was an establishment of the existing business and accordingly, it was prayed that the expenditure incurred by the assessee for establishment of new unit may kindly be made as revenue expenditure. 3.2. Alternatively the assessee also stated that since it thought that the expenditure in the sum of ₹ 3,01,21,223/- in the months of February and March, 2009 pertained to the expanded unit of the assessee, the assessee had originally added the same to the cost of capital work-in-progress and did not claim any deduction towards the same in the original return of income. Later on while finalizing the accounts for the year ended 31st March, 2010 relevant to assessment year 2010-11, the assessee came to know that the said employee cost of ₹ 3,01,21,223/- does not pertain to expanded unit of the assessee warranting capitalization of the same in the earlier year in the books. Accordingly it sought to withdraw the said sum from the capital work-in-progress and charged in the books by debiting prior period expenses during the assessment year 2010-11. It was .....

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y wrongly capitalizing the employee cost for February and March, 2009 in the books of accounts and also not claiming deduction for the same in the original return of income, later on proceeded to file a revised return for assessment year 2009-10 and claimed the same as deduction and correspondingly debiting prior period expenses for the very same amount in assessment year 2010-11 in the books and fairly disallowing the same voluntarily in the memo of income filed for the assessment year 2010-11. In view of these facts and findings we hold that the Ld. CIT(A) had rightly deleted the disallowance of ₹ 3,01,21,223/- for the assessment year 2009-10. Accordingly ground no. 1 raised by the Revenue is dismissed. 4. The next issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the disallowance of ₹ 1,26,01,426/- on account of leave encashment, in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the assessee made provision for leave encashment for certain sum during the year under appeal and out of the same, had paid certain sums before the due date of filing the return of income. Similarly the assessee h .....

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n has been made during the year under appeal also on scientific basis in line with what has been made by the assessee in the earlier years. The Ld. CIT(A) by following order of his predecessor in assessee s own case for the assessment year 2007-08 and respectfully following the decision of Hon'ble Supreme Court in the case of CIT vs. Rotork Control India Ltd. reported in 314 ITR 62 (SC) held that the assessee had made provision for warranty on a scientific basis and accordingly is eligible for deduction for the same in the year of making the provision. Aggrieved the revenue is in appeal before us on the following grounds: 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the disallowance of provisions for warranty of ₹ 52,15,220/- made by the A.O. without having regard that such provisions of warranty were not made scientifically and not allowable in view of the principle laid down by the Hon'ble Supreme Court in the case of M/s Rotork Control India Limited [314 ITR 62(SC)] 4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the disallowance of provision .....

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rved that the same represents uncrystallized and unascertained liability debited to the profit and loss account and accordingly not allowable as expenses as per the provision of the Act. The assessee stated that as per its accounting policy on inventories, it has been mentioned in the notes on accounts to audited financial statements under the caption inventories as under: Inventories are valued at lower of cost or net realizable value. The cost is arrived at a weighted average basis and after considering provision for obsolences. Finished goods & works-in-progress includes all the applicable manufacturing overheads. Further in serial no. 11 of the tax audit report u/s 44AB of the Act, the tax auditor had specifically mentioned that there has been no change in or deviation from the method of accounting employed in the preceding years from the accounting standing prescribed u/s 145 of the Act. It was explained that according to the regular and consistent method applied every year since long, provision for non-moving inventory/stock is made in the books of accounts. If the closing balance of such provision for non-moving inventory as on 31st March of financial year is higher than .....

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disallowed the sum of ₹ 18,93,809/- (1222750 towards finished goods and ₹ 621059 towards store and spare parts) on account of the said provision for non-moving inventory on the ground that the same were uncrystallised and unascertained liability. It was pointed out before the Ld. CIT(A), that by this arbitrary action of the ld. AO, he had actually enhanced the income by a sum of ₹ 92,47,836/- (Rs. 7354027 + ₹ 1893809) without even caring to consider the fact that the sum of ₹ 18,93,809/- is already included in the figure of ₹ 73,54,027/-. 6.4 The Ld. CIT(A) appreciated the aforesaid contention of the assessee and deleted the disallowance and granted relief to the assessee. Aggrieved the revenue is in appeal before us on the following ground: 5. That on the facts and in the circumstances of the case and in law, the CIT(Appeals) erred in giving relief to the assessee company by deleting the disallowance made on account of provision for non-moving inventory without considering that such provisions were uncrystallised and unascertained liability and, therefore, not allowable. 6.5. We have heard the rival submissions. We find that the Ld. CIT(A) had .....

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e addition so made in such respect is hereby deleted. As regards the sum of ₹ 1,21,43,683/-, the provision for non-moving inventory as on 01.04.2008 was at ₹ 1,28,47,697/- and the closing balance was ₹ 54,93,670/- and hence the sum of ₹ 73,54,027/- was credited in the P&L a/c. and for which the claim has been correctly made by the appellant in the computation of income, in view of the discussion so made earlier. Hence, this ground of the appellant is also allowed. In view of the aforesaid facts and consistent treatment given by the assessee from year to year with regard to treatment of provision for non-moving inventory in the return of income, we hold that the Ld. CIT(A) had rightly deleted the disallowance made in this regard by the ld. AO . Accordingly, ground no. 5 raised by the revenue is dismissed. 7. The next issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the addition of ₹ 1,05,38,200/- on account of valuation of closing stock in the facts and circumstances of the case. 7.1. Brief facts of this issue is that from the details of quantitative particulars and value of trading goods as per the Tax Au .....

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ng stock of wires, cables and drives before the ld. AO. He also observed that the entire books of accounts were produced before the ld. AO by the assessee which has not been rejected by the ld. AO in terms of section 145 of the act and accordingly there cannot be any doubt that could be raised about the correctness of the books of accounts furnished thereon. Accordingly, he held that the method of valuation done by the assessee cannot be faulted with and deleted the addition made towards closing stock at ₹ 1,05,38,200/- in the assessment. Aggrieved the revenue is in appeal before us on the following ground: 6. That, on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the addition of ₹ 1,05,38,200/- on account of valuation of closing stock holding that no material was available with the AO; whereas the addition on account of valuation of closing stock was made on the basis of material on record after affording adequate opportunity to the assessee company. 7.3. We have heard the rival submissions. We find that the assessee has given detailed workings for closing stock of trading items of wires, cables and drives which are e .....

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nd had disallowed the same voluntarily in the return of income. Out of this sum of ₹ 40 lacs, a sum of ₹ 20,02,667/- was treated as no longer payable and accordingly, the assessee wrote back the same by crediting to its profit and loss account. Since, the assessee had disallowed the provision in assessment year 2007-08 i.e. in the year of making provision, the write back of the same, would have to be allowed as deduction in the computation of income, to avoid double taxation. Accordingly, the assessee claimed the sum of ₹ 20,02,667/- being the excess provision written back to its profit and loss account, as a deduction in computation. The ld. AO did not appreciate this contention of the assessee and disallowed ₹ 20,02,667/- in the assessment, which was deleted by the Ld. CIT(A) . Aggrieved the revenue is in appeal before us on the following ground: 7. That, on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in giving relief to the assessee company by holding that the amount of provision written back of ₹ 20,02,067/- was allowable without considering the nature of provision created and giving a finding as to the all .....

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