TMI Blog2018 (4) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that:- There is no doubt the payment that the payment for the employee provident fund was made before the due date of furnishing the return of income as specified under section 139(1) of the Act. Thus the same cannot be added to the total income of the assessee in view of judgment of Hon'ble jurisdictional High Court in the case of CIT v. M/s Vijay Shree Limited [2011 (9) TMI 30 - CALCUTTA HIGH COURT] - Decided in favour of assessee Addition on account of Leave Travel Concessions (LTC) - Held that:- There is no doubt that assessee has made a reference during the hearing before Ld. CIT(A) to the report of actuarial valuation but same has not been placed in the paper book filed before us. Assessee has not produced the copy of the report of actuarial valuation for the LTC. Therefore, we are inclined to remit the matter back to the file of AO for fresh adjudication in accordance with law as well as after considering the principle laid down by Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA) as discussed above. It is also directed to assessee at liberty to produce necessary documents including the actuarial valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution has to be deposited within the due date by which the assessee was required as employer to credit the employees contribution to the employees account in the relevant fund under the relevant Act or Rule? Has he not incorrectly stated that the contribution was to be deposited by the due date of filing of return whereas the legal provision requires the contribution to be paid within the due date as provided under the PF Act? 4. Whether the Ld. CIT(A) was correct in deleting the addition on account of Leave Travel Concession despite the fact that the amount was a mere provision which was not disbursed to the employees and therefore was not incurred during the relevant Financial Year? Was not the Ld. CIT(A) incorrect in not appreciating the fact that the employees did not obtain advances for availing of Leave Travel concession and therefore, the assessee was not expected to incur any liability the ascertainment of which was not known to it and therefore, the provision not being an ascertained liability for the relevant year was not an allowable business deduction? 5. Whether the Ld. CIT(A) was correct in deleting the addition on account of excess depreciation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specific projects in respect of which the parties have deducted liquidated damages. There is also no documentary evidence filed by the assessee suggesting that the parties refused to pay such liquidated damages. Thus, there is no evidence available on record suggesting that the right of recovery for the liquidated / damages has been extinguished. In view of the above, AO opined that the amount of liquidated damages claimed in the profit and loss account is nothing but representing the provision for doubtful debts which are not allowable as deduction under the provision of Income Tax Act. In addition to above, the AO also observed that in most of the cases, assessee has written off the amount under the head liquidated damages which is representing the amount to be recovered from the parties for taxes and duties. The assessee is following the exclusive Method of Accounting and accordingly it has never taken any amount of taxes and duties recovered from the parties in it profit and loss account as income. Rather, same has been classified under the head current liabilities . Accordingly, AO was of the view that the assessee is claiming deduction for the amount of taxes and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m only constrained to follow the earlier decisions taken in this regard at this appellate stage. Further, the ITAT, Delhi C Bench vide order dated 11.01.2013 in the case of Huber+Suhner Electronic (P) Ltd vs. DC reported in 22 ITR (Trb) 596 Delhi has held that Liquidated Damages paid for delay in delivery of goods supplied under Contract tare revenue expenditure and ware allowable expenditure. in view of the foregoing, I am only constrained to differ with the action of the AO and consequently, the addition of ₹5,06,74,000/- made on account of Liquidated Damages as claimed by the assessee is directed to be deleted. This ground is allowed. 6.3 In view of the foregoing, since the fact of the matter for this AY 2014-15 remain the same as in the earlier AY 2012-13 as narrated supra coupled with the necessity of maintaining the principles of consistency in deciding the matter at hand on the identical issue, the AO is, hereby, directed to delete the impugned addition of ₹394.85 lacs made on account of disallowance made with respect to liquidated damages written off in respect to accounts and incurred as per contracts with clients. This ground is allowed. The Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justice we deem it proper to remit the issue to the file of AO for his consideration taking into consideration the new evidence as reflected at page 9 of order of CIT(A) filed by assessee in support its claim. The assessee at liberty to file evidences before the AO and AO shall consider the same and pass order in accordance with law. At the time of hearing Ld. AR raised no objection if the matter is set aside to the file of AO for fresh adjudication in accordance with law. Accordingly, respectfully following the precedent, as above, we deem it fit and proper to restore the issue to the file of AO for fresh adjudication in terms of above direction. The assessee is at liberty to file evidence before the AO. The AO shall consider the same and pass order in accordance with law. Hence, this ground of Revenue s appeal is allowed for statistical purpose. 7. Next issue raised by Revenue in ground No. 2 is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹ 13,45,715/- on account of entertainment expense. 8. The assessee during the year has claimed an expense of ₹13,45,715/- under the head entertainment expense . The assessee claimed to have incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: I have considered the submissions of thee AR of the appellant in the backdrop of the assessment order. I find the accounts of the appellant have been subjected to statutory audit u/s. 44AB of the Act and nowhere has the Auditor pointed out any defects or shortcomings with regard to the expenses incurred in this regard. Since there is no adverse comment made by the Auditor on the matter at hand and the AO has not brought on record any counter material evidence to justify his stand in making the impugned disallowance, I do not find any merit in the action of the AO in making the impugned disallowance. Moreover, I find that this is the first time when such disallowance was made by the AO without any tenable basis when all along for the past years, there was no addition made in this regard. The principles of Res judicata do not apply to tax proceedings but the principles of consistency ought to be maintained when facts and circumstances remain unaltered in the subsequent years as well. Under such facts and circumstances, the impugned addition made in this regard of ₹17,47,177/-- by the AO is directed to be deleted. This ground is allowed. 4.2 In view of the fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by those auditors. Therefore genuineness of the expense cannot be doubted. Similarly considering the volume of business of assessee, in terms of its clients, number of sites we are of the view the expenses claimed by assessee have been incurred only in connection with assessee s business. We also do not agree with the finding of AO that the assessee being a Central Govt. PSU does not require to provide hospitability services to its clients. It is because in any organization, the expenditure are incurred for attending clients meetings etc., these expenses are unavoidable in all the organization be it private organization or Government PSU. There is no allegation of the AO that the above expenses have been incurred by assessee in unauthorized manner. Therefore, we are of the view that above expense deserves to be allowed. We also find similar expense had already been allowed in earlier years and subsequent years. In view of above, we do not find any reason to interfere in the order of Ld. CIT(A). Accordingly, we uphold the same. This ground of Revenue is dismissed. 12. Next issue raised by Revenue in Ground No.3 is that Ld. CIT(A) erred in deleting the addition made by the AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction. In this respect, the Hon'ble Calcutta High Court in the case of CIT vs. Vijay Shree Ltd. held, after referring to the decision of the Hon'ble Supreme Court rendered in the case of CIT vs. Alom Extrusions Ltd. 319 ITR 306, that the deposit of the Employees contribution to Provident Fund and ESSI would be allowable if the same is deposited within the due date of filing return of income. In keeping with the aforesaid view, I do not find any premise to sustain the action of the AO when the said impugned amount were said to be deposited before the due date of filing of the return of income as evidenced from the assessment order itself. The AO is, therefore, directed to allow the claim of the appellant in this regard accordingly. The Revenue, is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us. 15. Before us both parties relied on the order of Authorities Below as favorable to them. 16. We have heard the rival contentions of both the parties and perused the material available on record. There is no doubt the payment that the payment for the employee provident fund was made before the due date of furnishing the return of income as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, also relied in the judgment of Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. vs. CIT Chennai [2009] 314 ITR 62 (SC) and respectfully following the proposition, AO disallowed the provision of ₹63.63 lacs and added to the total income of assessee. 19. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that similar expense was claimed in AY 2012-13 and no disallowance was made. The assessee further submitted that the judgment of Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. (supra) as such in favour of assessee and no disallowance relying on such judgment can be made. The assessee further submitted that all conditions for claiming the deduction has been specified as detailed under:- i) Provision for LTC has been made on the basis of actuarial valuation report; ii) The amount of LTC shown is the present obligation of the past events as the employees have rendered the services; ii) For the settlement of the obligation of LTC will certainly entail the outflow of the fund; However, Ld. CIT(A) considering the submission of assessee deleted the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Ld. AR for the assessee drew our attention on pages 192 to 195 of the paper book and stated that necessary clarification was duly submitted to the AO at the time of assessment proceedings. Ld. AR relied on the order of Ld. CIT(A). 21. We have heard the rival contentions of both the parties and perused the material available on record. In the present case assessee has created the provision of LTC on the basis of actuarial valuation. However, AO treated the same as provision which is not allowable under the provision of Income Tax Act. However, the Ld. CIT(A) reversed the order of AO by observing that similar claim of assessee was allowed in earlier year. Now the issue before us arises whether the provision for LTC created by assessee is allowable under the given facts and circumstances. It is undisputed fact that the provision made on scientific basis and representing the liability of the assessee can be allowed as deduction in terms of the principle laid down by the Hon'ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. (supra). The relevant extract of the order is reproduced below:- A provision is a liability which can be measured only by using a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sale price of the valve actuator(s). In other words, warranty stood attached to the sale price of the product. Therefore, warranty provision needed to be recognized because the assessee was an enterprise having a present obligation as a result of past events resulting in an outflow of resources. Lastly, a reliable estimate could be made of the amount of the obligation. In short, all the three conditions for recognition of a provision were satisfied in the instant case. [Para 12] In the instant case, one was concerned with product warranties. To give an example of product warranties, a company dealing in computers gives warranty for a period of 36 months from the date of supply. The said company considers following options : (a) account for warranty expense in the year in which it is incurred; (b) it makes a provision for warranty only when the customer makes a claim; and (c) it provides for warranty at 2 per cent of turnover of the company based on past experience (historical trend). The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is prohibited both under the Companies Act, 1956 as well as by the Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve example, may not arise in a significant way. Hence, on the facts and circumstances of the instant case, provision for warranty was rightly made by the assessee because it had incurred a present obligation as a result of past events. There was also an outflow of resources. A reliable estimate of the obligation was also possible. Therefore, the assessee had incurred a liability during the relevant assessment years and it was entitled to deduction under section 37. Therefore, all the three conditions for recognizing a liability for the purpose of provisioning stood satisfied in the instant case. There are four important aspects of provisioning, viz., provisioning which relates to present obligation; it arises out of obligating events; it involves outflow of resources; and lastly, it involves reliable estimation of an obligation. Keeping in mind all the four aspects, the High Court should not to have interfered with the decision of the Tribunal in the instant case. [Para 13] From analysis of the various decision of the Supreme Court, in which a similar issue was decided, the principle which emerges is that if the historical trend indicates that a large number of sophisticated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th this year on the basis of average weighted method. However, AO was of the view that inventories of tools and tackles are part of the plant and machinery. Therefore, the same is eligible for depreciation @ 15%. Accordingly, AO show caused the assessee for disallowing 5% excess claim made by assessee in the form of depreciation. In compliance thereto assessee submitted that the inventories are neither raw materials nor finished goods and these are not made for re-sale. The useful life of tools and tackles is estimated for 5 years on the basis of technical evaluation report of Engineering Department. Therefore these were written off for a period of five years. The assessee in support of its claim also relied on the judgment of Hon'ble Supreme Court in the case of Madras Industrial Investment (1997) reported in 225 ITR 802 (SC) and the judgment of Hon'ble jurisdictional High Court in the case of Hindustan Aluminium Corporation Ltd. (1983) 144 ITR 974 (Cal). The assessee also submitted that there is no valuation of closing stock at the end of year and there is no under assessment of tax. However, AO disregarded the contention of assessee by observing that category of tool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y order bereft of any legal validity. In view of the foregoing discussion, the said order is hereby treated as annulled and the appeal of the appellant succeeds and therefore stands allowed. 8.3 In view of the foregoing, since the impugned matter has already been settled in favour of the appellant as discussed above, the addition of ₹1,12,28,000/- made by the AO on account of for alleged understatement of the value of closing stock of tools and tackles for this year as well does not hold good any longer given the facts and circumstances of the case. Therefore, the AO is directed to delete the impugned addition made in an amount of ₹1,12,28,000/- on account of alleged understatement of the valu9e of closing stock of tools and tackles by claiming depreciation at 20% instead of 15%. This ground stands allowed. The Revenue, is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us. 25. Before us both parties relied on the order of Authorities Below as favorable to them. 26. We have heard rival contentions of both the parties and perused the material available on record. In the instant case, the AO treated the inventory of tools tackl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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