TaxTMI 
TaxTMI 
2013 (8) TMI 409
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....incorporated in India. During the year under appeal, assessee consisted of 12 divisions i.e. Plastic division, Lighting division, Transportation division, Betz division, Druck division, Bentley Nevada India division, Bentley Venada Sales division, Wind division, Energy Marketing division, Consumer & Industrial division, Growth team division, and Inspection technologies division. The assessee filed original return of income for A.Y. 2006-07 on 30/11/2006 showing Gross Total Income of Rs. 33,07,71,939/-. Subsequently the assessee filed revised return on 28/03/2008 showing Gross Total income of Rs. 31,85,25,884/- & after set off of brought forward business loss & depreciation the total taxable income under normal provisions of I.T. Act was shown at Rs. Nil. The case was selected for scrutiny. The international transactions of the assessee were referred for determination of Arm's Length Price (ALP) by the Assessing Officer (AO) to Transfer Pricing Officer (TPO). The TPO after assessment proceedings u/s 92(C) of the Act proposed the adjustment of Rs. 14,00,49,993/- in respect of some of the international transactions of some of the divisions of the assessee. The assessing officer issued....
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....ad debts written off from profit & loss account of Rs. 2,31,09,143. 4.2 That Ld. AO/DRP erred in not allowing the deduction of 'bad debts' in the years in which the said bad debts have actually crystallized. 4.3 The Ld. AO/DRP erred in not allowing deduction of 'bad debts' as loss in the normal course of business u/s 29 of the Act. 4.4 Without prejudice to the above and even assuming but not admitting, that the bad debts written off are disallowed in the current year under consideration, the corresponding provision made and offered to tax in the past years ought to be allowed in the respective years. 5. That the Ld. AO/DRP erred in disallowing the claim of expenditure for the purchase of business rights as revenue expenditure under section 37(1) of the Act. 6. That the Ld. AO/DRP erred in not allowing deduction on amount of utilization of Rs. 71,82,595 in the current year out of the provision for foreseeable losses created and disallowed in the prior years. 7. That the Ld. AO erred in not allowing depreciation @ 60 % on the written down value of software expenditure which was considered as capital expenditure in the assessment for Assessment Year 2005-06. 8.1 That the Ld. AO....
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....parables. 15. That the Ld. AO and Ld. DRP erred in upholding the adjustment of INR 1,68,97,082 in the Power Controls division by rejecting the alternate economic analysis provided by the Appellant during the assessment proceedings and in upholding the TP adjustment even for the non associated enterprise transactions of the Appellant. 16. That the Ld. AO and the Ld. DRP erred in upholding the adjustments of INR 2,95,09,744 in the Lighting division of the Appellant by the Ld. TPO and therein confirming the TP adjustment even for the non associated enterprise transaction carried out by the Appellant. 17. That the Ld. AO and the Ld. DRP erred in upholding the adjustments of INR 2,34,84,807 in the Wind division of the Appellant by the Ld. TPO and in doing so erred in not excluding certain extraordinary expenses incurred by the Appellant relating to amortization of goodwill, provision of bad debts and extraordinary legal expenses. 18. That the Ld. AO and Ld. DRP erred in upholding the adjustment of INR 40,65,821 to the Transportation division of the Appellant by the Ld. TPO and doing so erred in not providing capacity adjustment on account of unutilized capacity of the employees and ....
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.... Ltd, who beneficially held shares of the company carrying, not less than 51% of voting power on the last day of the year in which the loss was incurred i e. March 31, 2000 , March 31, 2001 and March 31, 2002 and therefore the conditions stipulated in s. 79 of the Act are satisfied and therefore the assessee is entitled to carry forward and set off the entire business losses. 9. The Ld. D.R. on the other hand relied on the order of AO and DRP. 10. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect of allowance of carry forward of loss on account of provisions of s. 79. We find that the issue of carry forward would depend upon the finality of order for earlier years as it would have bearing on the year under appeal. We therefore remit the issue to the file of AO to determine the carry forward losses based on the outcome to the decsion for the earlier years. Thus this ground is a allowed for statistical purposes. 11. Gr. No 3 and the sub grounds are with respect to warranty expenses: 12. AO noticed that assessee had debited Rs 2,43,96,674/- to Profit and Loss account under the head "warranty and replacement expe....
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.... technical evaluation or past experience but the same has been made on ad-hoc basis and it is in the nature of contingent liability. Had the provision been made on the basis of adopting any scientific or technical basis or on the basis of past experience, there could not have been such a huge balance in the provision for warrantee account in the beginning of the year as well as at the end of the year under consideration. The same principle has been laid down by the Hon'ble SC in the above referred case of Rotork Controls India (P) Ltd. reported in 314 ITR 62 as the Hon'ble SC has held that if warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent year(s), may not arise in a significant way. The warrantee obligation without any proper basis cannot be treated as actual crystallization of the liability. The Assessee in the present case has failed to substantiate the basis for making the provision for warranty. There is no doubt that in the case of the assessee, the provisions are made in excess without any basis which has resulted into large accumulation of the balance and hence the same cannot b....
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....de and the actual expenses incurred against it subsequently. Thus, the decision on the warranty provision should be based on past experience of the company. A detailed assessment of the warranty provisioning policy is required particularly if the experiences suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty. Therefore, the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at the year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise should require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subseque....
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....on the basis of utilization/reversal during the current year is not acceptable as the assessee has filed appeal against the addition of provisions made in the earlier years and the matter has not reached finality and the assessee has already claimed the deduction in earlier years though it was denied by the A.O. Hence, the AO was right in holding that at the moment, no deduction on the basis of provision utilized/ reversed can be allowed to the assessee. Accordingly the claim in this respect is rejected." 21. Aggrieved by the order of DRP, assessee is now in appeal before us. Before us, the Ld. A.R. submitted that during the year under appeal no fresh provision has been created by the assessee. It was further submitted that the provision that was created in FY 2004-05 was disallowed by the AO. The amount of Rs 1,19,44,410 is reversal of the provision that was created in earlier year. Since the entire amount was disallowed in the earlier year, the disallowance made once again would amount to double disallowance. He therefore urged that the disallowance be deleted. 21. The Ld. DR on the other hand submitted that there is nothing on record to prove the claim of the assessee that the....
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....ciation @ 60% on the WDV amount of Rs 22,40,000/- but the claim of the assessee was rejected for the reason that against the disallowance made in AY 2005-06 assessee is in appeal and the matter is yet to be resolved. We are of the view that the assessee's claim of depreciation needs to be accepted in the year under appeal as it is based on the assessment order of AO. In case the appeal for AY 2005-06 is decided in favour of assessee, then the AO can take the necessary steps for rectification as per law. We thus allow this ground of assessee. 29. Ground No 7 is not pressed and therefore is dismissed. 30. Ground No 8 is with respect to assets written off of Rs. 24,68,840/-: 31. Assessee had debited to Profit and Loss account Rs. 7,32,01,710/- on account of assets written off. Assessee had sou moto added 78,51,331 in the computation and thus the balance of Rs 24,68,840 was claimed as expenses. It was submitted that the loss was on account of difference in General ledger and subsidiary ledgers arising out of posting error at the time of upgradation of ERP database and the same was allowable u/s 29. AO did not accept the contention as he was of the view that the loss was hypothetical....
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....ssment year or any earlier assessment year, so it can not held that the requirements of section 36(2) of the Act has been complied with. Hence the assessee's claim was otherwise also legally not allowable as "bad debts" u/s 36(l)(vii) r.w.s 36(2) of the Act. The assessee alternate argument that if not under section 36(l)(vii), then the said bad debts is otherwise allowable as business loss u/s 29 of the Act, is also devoid of merits as it is settled legal position that business loss can be allowable only in the year of such loss and not in any other succeeding year. Further, if any expense is governed by any specific or special provisions of the Act, then the allowability of the same has to be decided in that particular special provisions and not under general provision, since the special provisions overrides the general provisions. The maxim of generalia specialibus non derogant and generalia specialia derogant i.e. if a special provision is made on a certain matter that matter is excluded from the general provisions well settled in India and the same is also applicable to Income Tax provisions." With respect to irrecoverable advances AO noticed that an amount of Rs 1,25,97,968/-....
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....sion of this court in National Thermal Power Company Ltd., vs. CIT (1998) 229 ITR 383, to contend that it was open to the assessee to raise the points of law even before the Appellate Tribunal. The decision in question is that the power of the Tribunal under Section 254 of the IT Act, 1961 is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under Section 254 of the Income-tax Act, 1961. There shall be no order as to costs." 21.8 In view of above it is held that the AO had rightly held that any claim which has not been made in return of income or revised return of income, can not be entertained by the AO. Further, the AO has rightly submitted that the assessee is not eligible to file any objection on any issu....
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....se grounds are allowed for statistical purposes. 38. Ground No 10 is with respect to loss due to floods of Rs. 51,05,951/- 39. AO noticed that an amount of Rs. 6,40,52,401/- was debited to the profit and loss account on account of loss of stock due to floods. The same was claimed as deduction u/s 29. AO noticed that aforesaid loss was on account of loss occurred at Bhivandi Godown, Mumbai. On perusing the claim filed by the assessee, AO noticed that the claim of the assessee was not fully accepted and the Surveyor report had estimated liability of Rs. 5.25 crores. He further noted that the compensation granted to the assessee was to the extent of Rs. 5,89,46,450/- against the net loss of Rs.6,40,52,491/- claimed by the assessee. The AO was thus of the view that since the loss of Rs. 51,05,951/-( Rs. 6,40,52,491-5,89,46,450) was not entertained by insurance companies, the same was not allowable. He accordingly disallowed it. 40. Aggrieved by the order of AO assessee carried the matter before DRP. DRP after considering the submissions of the assessee upheld the order of AO by holding as under:- "18.6 The assessee's arguments have been considered carefully and the same are found n....
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....Rs. 6,40,52,491/- assessee was granted compensation only to the extent of Rs. 5,89,46,450/- and the balance amount of Rs. 51,05,951/- was rejected on account of credit items of Rs. 16,75,334/- and on account of specific exclusion stocks policy of the Insurance company. The Ld. AR further submitted that the scraped items were not considered by the insurance companies and were returned. The sale proceeds from scraped items were credited to Profit and Loss account by the assessee and have been offered to tax. He further placed reliance on the decision in the case of Prabhat Chandar Paul vs. ACIT 70 TTJ 934 He thus urged that the loss incurred by the assessee be allowed. Ld. D.R. on the other hand submitted that some items of stocks which were lost in the floods were not covered by the insurance policy and, therefore the same is not allowable as a business loss. He thus supported the order of AO. 43. We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the assessee has incurred loss due to flood. It is also a fact that entire claim of the assessee was not accepted and the reason for non-acceptance by the insurance company was ....
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.... the Act. Under section 44AB of Act, the assessee is required to get its accounts audited by the Auditor and such Auditor audits the accounts of the assesses and gives its report in the prescribed form, in the present case the assessee got its account audited by the auditor appointed by it and such auditor after analyzing the above referred payments have certified that them same is disallowable as the assessee had not complied with the provisions of section 40(a) of the Act. The AO has rightly held that the Tax Audit report, being a statutory report and a report of a professional, is an important piece of evidence and the same can not be brushed aside. In the present case the assessee neither before the AO nor before us has submitted the revised report from the Auditor certifying that his earlier report was not correct and the above referred sum is not disallowable u/s 40(a) of the Act. In view of the above the proposed disallowance of Rs. 32,60,325/- u/s 40(a) of the Act is confirmed." 46. Aggrieved by the aforesaid order of DRP the assessee is now in appeal before us. 47 Before us the Ld. AR submitted that the amount represented management fees paid by the assessee to a branch ....
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....on the nature of bad debts. He noted that in respect of Rs. 4.7 crore no details and even the party-wise break-up was filed. In respect of Rs. 3.01 crore, only party-wise break-up along with one line reasons in some of the cases were submitted. He also noted that the there was no external correspondences in any of the cases where the sums were written off. He thus concluded that the assessee has failed to prove that the trade loss had occurred during the year under consideration and has also failed to prove justification for claiming such deduction. He also noticed that some of the parties involved were Government Companies/organizations or big concerns having good financial base. He also noticed that with respect to liquidated damages written off no details with respect to payment sought as liquidated damages etc was made available. He thus concluded that the assessee has failed to prove as to why the amount can be treated as bad debts, more so, when it was adjusted against the provision account instead of debiting it to the Profit and Loss account. He therefore held that the claim of assessee was not allowable. DRP also has confirmed the action of AO in disallowance of the claim.....
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....allowable. 10.4 Without prejudice to above legal ground the AO has held that on facts also the assessee's claim of bad debt is not allowable. Before us the assessee has not made any submissions in respect of factual finding of the AO given in the Draft assessment order. Hence it is presumed that the assessee has nothing to say on the factual finding given by the AO on this issue in the draft assessment order. The assessee has not controverted the actual finding of the AO given in the draft assessment order that in most of the cases, the assessee has not submitted the details of the parties. the nature of debts, why said debts have been considered as bad and the evidence that the said debts have been actually written off as irrecoverable in its accounts. Even before us the assessee has not submitted any details in this regard. 10.5 Similarly in the Draft assessment order the AO has given factual finding that on perusal of the details filed it is found that the amounts involved are mostly in the nature liquidated damages and not the bad debts in its true sense perse, the assessee has not made any submission on the said finding of the AO and hence it is presumed that the assessee ha....
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.... the same were written off as irrecoverable in the books of accounts by debiting "provision of doubtful debts" and crediting "debtors" account. It was further submitted that the assessee has duly applied that the provision of section 36(i)(vii) read with 36(2) of the Act. Ld. AR further submitted that after amendment made to clause (vii) of sub-section 1 of section 36, it is not necessary for the assessee to establish that the debt has become bad and it would suffice if the debts are merely written off in the books as bad, and hence not recoverable. He also placed reliance on the decision of Apex Court in the case of TRF Ltd vs. (Civil Appeal No. 5293 of 2003) Ld. AR also relied on the decision of Gujarat High Court in the case of Torrent Cable on the matter of liquidated damages. Ld. DR on the other had submitted that the bad debts were not written off in the Profit and Loss account. He further submitted that the party-wise details, nature of debts, when the same was offered to tax was not submitted by the assessee. In case of liquidated damages, the nature of dispute, the year in which the customer deducted the amount, the reason for deduction were also not submitted by the asses....
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....s under: 22.6 The assessee's submissions have been considered, carefully and the same are found not acceptable. It is admitted fact that the assessee has not made any such claim in the return of income nor has filed revised return of income making said claim therein. In absence of any such claim made either in original return of income or revised return of income, the AO could not have entertained the same, even though the same was made during the course of assessment proceedings. The AO in his comments have rightly submitted that entertaining of any claim made during the course of assessment proceedings, beyond the period u/s 139(5) of the Act will be violation of provisions of section 139(5) of the Act. This view has been confirmed by the Hon'ble SC in the case of Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 323(SC) as already discussed in para 22.5 above. 22.7 In view of above, it is held that the AO had rightly disallowed the claim which has not been made in return of income or revised return of income. Further, the AO has rightly submitted that the assessee is not eligible to file any objection on any issue before the DRP, if AO has not proposed any variation in the returned i....
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.... carefully, but the same are found not acceptable. In the computation of 'Book Profit' the assessee has not added back the provisions for doubtful debts at Rs. 18,55,416/- and provision for doubtful advances at Rs. 20,31,681/- , both aggregating to Rs. 38,87,097/-. A new clause (i) has been added to Explanation 1 of section 115JB by the Finance Ac!, 2009 with retrospective effect from 1.4.2001 which mentions that the net profit is to be increased by the amount or amounts set aside as provision for diminution in the value of any asset. Undoubtedly, the debts and the advances given by the assessee were assets for the assessee and the provision for doubtful debts or advances are nothing but provision for diminution in the value of the asset and hence the same is required to be added back while computing the book profit. Hence the action of the AO in adding back the same for computation of 'Book profit' is confirmed. 19.8 In the computation of 'Book Profit' the assessee has not added back the provisions for foreseeable losses at Rs. 2,34,18,769/- provision for claims at Rs. 41,42,302/- and provision for import duty at Rs. 2,97,06,000/-, though the same were debited to the P & L accoun....
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....eneral and ground no. 18, 20 and 22 were not pressed at the time of hearing, thus only three grounds survive for adjudication as last ground is consequential to earlier three. In the remaining three grounds, assessee challenged the transfer pricing adjustment made in respect of Power Control Division, Wind Energy Division and Training Division. The TPO in the order passed u/s 92CA(3) had proposed the following adjustments namely:- Sr. No. Description Amt (Rs.) 1 Downward adjustment in the related party transaction in GE Power Control Division 3,59,55,689 2 Upward adjustment to the sale price of re-export of equipment to the AE 9,55,21,944 3 Upward adjustment on cost in respect of the transactions of marketing support services in the Power Control Division 10,90,196 4 Upward adjustment on cost in respect of the transactions of marketing support services in the Lighting Division 63,623 5 Upward adjustment on cost in respect of the transactions of training and administrative services in the training division. 74,18,541 Total 14,00,49,993 66. The AO included the aforesaid additions in the draft assessment order passed u/s 144C(1) of the Act against which th....