TaxTMI 
TaxTMI 
2015 (10) TMI 2300
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....ssing the assessment order; and iii. The issues involved do not qualify as mistake apparent from records. Your Appellant prays that such rectification order be treated as null and void. Ground 2: Without prejudice to ground 1, the Ld. CIT(A) has erred in upholding the rectification order, treating the excise duty provision of INR 8,082,905 as unpaid. Your Appellant prays that the addition be deleted. Ground 3: Without prejudice to ground 2, the Appellant prays that the excise duty provision of INR 8,082,905 be allowed as a deduction in AY 2006-07, if the same were to be disallowed in AY 2005-06. Your Appellant prays that the AO be directed to grant the deduction of the said amount in AY 2006-07. Ground 4: Without prejudice to ground 1, the Ld. CIT(A) has erred in upholding the rectification order and disallowing the payment of INR 14,985,639 towards warranty liability. Your Appellant prays that such disallowance be deleted. Ground 5: Without prejudice to ground 1, the Ld. CIT(A) has erred in upholding the rectification order and adding back the provision for warranties of INR 15,197,332 while computing taxable income under provisions of sectio....
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....y claim amounting to Rs. 1,49,85,639/- was reduced and balance of Rs. 2,11,693/- was disallowed. The year wise details of warranty provisions given are as under - Opening bal. as on 16.12.2004 30698112 Provision during F.Y.03-04 (AY 04-05) 686358 (686358 disallowed in AY 4-5) The opening balance of Rs. 30698112 was stated to be pertaining to mining & construction or Kennametal Widia India Ltd., which was acquired by the company on slump sale basis. As such this provision was required to be disallowed & added while computing the taxable income in earlier year, as such the deduction allowed on actual payment basis is not in order. Therefore amount of Rs. 1,49,85,639/- is proposed to be added back." 4. In response, the assessee states to have submitted its reply to the aforesaid notice under section 154 vide its letter dated 28.03.2012. However, the Assessing Officer did not pay any heed to the submissions of the assessee and passed an order under section 154 of the Act dated 30.03.2012 and made certain adjustments in the assessment order dated 22.12.2011 and also made certain adjustments in the book profits for the purposes of computing book profit under section 115JB of t....
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.... next observed that warranty provision liability has been simultaneously saddled on the Assessee in acquisition under slump sale. Therefore, the provision was required to be disallowed and added while computing the taxable income in earlier year as the assessee has not made any submission/proof in the regular assessment carried out in earlier years to show that warranty provision or liabilities have been disallowed in the hands of the transferor (KWIL) in the earlier years. Therefore, the set off or deductions granted by the Assessing Officer is not correct, which is apparent from record and accordingly he carried out the rectification by making addition of Rs. 1,49,85,639/- to the total income under the normal provisions of the Act by invoking S. 154 of the Act. 5.4 On the similar footing, the Assessing Officer proceeded to make additions towards warranty provision for a sum of Rs. 1,51,97,332/- for the purposes of determining book profit under section 115JB of the Act on the ground that the outstanding provisions for warranty to its customers is liability of contingent nature and the Assessee company has nowhere claimed that the same is ascertained liability in any of its submis....
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....ed the version of the AO and observed that the Assessing Officer while passing the assessment order, and made a disallowance of Rs. 2,11,693/- (Rs.1,51,97,332/- minus Rs. 1,49,85,639/-) by reducing actual payment towards warranty claim. While doing so, the AO missed to take note of the relevant fact that opening warranty provision pertaining to KWIL itself was Rs. 3,06,98,112/-, the construction and mining division of which was acquired by the assessee vide business purchase agreement dated 20.02.2004. Since, the warranty provisions of KWIL were not routed through Profit & Loss Account of the assessee company for the assessment year 2004-05 and also no evidence was furnished to the effect that the warranty provisions in the hands of KWIL was disallowed in relevant years of provisioning, the Assessing Officer was perfectly justified in coming to the conclusion that netting of the same was erroneous. 6.4 The disallowance of Rs. 1,51,97,332/- while computing of book profit for the purposes of section 115JB was also approved by the CIT(A) on the ground that same is contingent liability in view of remarks made by the Auditors in para 17(k) of the 3CD Report. The CIT(A) rejected the ple....
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....ged before the due date of filing of the return and therefore section 43B of the Act prohibiting deduction of unpaid statutory liabilities has no application in the facts of the case. He submitted that the observations in the tax audit report under clause 21(i)(B) of Form No.3CD that excise duty of Rs. 80,82,905/- remains unpaid on the due date of filing of the return of income is factually wrong in the light of speaking evidences placed before the CIT(A). To augment his case, he further adverted our attention to Annexure-2 of Form No.3CD relevant to clause 21(i)(A) thereof appearing at page No. 107 of the Paper Book relevant to subsequent assessment year 2006-07 to demonstrate that the amount was paid in the subsequent year. He next adverted our attention to computation of income for the assessment year 2006-07 to submit that the impugned excise duty provision for which payment has been made in the subsequent year has not been claimed as deduction on payment basis in the subsequent assessment year 2006-07 entitled to the Assessee, if the version of the revenue is found to be correct. He therefore pleaded that the benefit of payment of excise duty provision should be given either i....
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....ims made during the year is an allowable expenditure and since the same has not been claimed by the assessee in the earlier year, the same was rightly allowed by the Assessing Officer while framing the assessment and therefore no rectification is called for. He relied upon the decision of Hon'ble Madras High Court in the case of CIT vs. Fenner (India) Ltd. 241 ITR 645 to support its case the gratuity liabilities in respect of employees taken over of the amalgamated co. in that case was held to be business expenditure allowable under S. 37 of the Act. 8.4 On the next issue of disallowance of provisions for warranty of Rs. 1,51,97,352/- which was disallowed and added to the book profit under section 115JB of the Act on the ground that the liability is of contingent nature and in the converse, not an ascertained liability. The Ld. AR invited our attention to clause 17(k) of the tax audit report where particulars of any liability of contingent nature is required to be disclosed. He submitted that the tax auditors have in unequivocal terms narrated the explicit contentions of the assessee company that the provision for warranty is toward provision for performance warranty is "not" a li....
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....pt' in the year when the corresponding income is booked. Thus said provision for warranty is allowable as a deduction in the hands of M/s KWIL in the year when the provision was made and corresponding income offered for taxation. This amount cannot therefore be again allowed as deduction in the hands of the assessee more so when the corresponding income is not being offered for taxation in the hands of the assessee. The learned DR further contended in the aforesaid written note that the assessee has acquired M/s KWIL on a slump sale basis for a total consideration of Rs. 64.4 crore which includes net current assets of Rs. 25.87 crores. This net current assets includes debtors as well as creditors related to sales and purchases booked by the erstwhile M/s KWIL. The subsequent realization of debtors of KWIL are not taxable in the hands of the assessee since M/s KWIL has already booked corresponding sales in the relevant preceding years on accrual basis. Similarly on payment to the creditors and for other liabilities including provisions of KWIL cannot be claimed as a deduction by the assessee since M/s KWIL has already claimed deduction on this account in the relevant preceding years....
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....kes one on mere looking and does not need a long drawn out process of reasoning on points on which there may be conceivably two opinions. The error should not require any extraneous matter to show its incorrectness. To put it differently, it should be so manifest and clear that no Court would permit it to remain on record. If the view accepted by the income tax authority in the original order is one of possible views, the case cannot be said to be covered by an error apparent on the face of the record. In order to attract the application of s. 154, the mistake must exist and the same must be apparent from the record. Although the law is well settled, useful reference can be made to the judgments of T.S. Balaram, ITO vs. Volkart Bros. & Ors. (1971) 82 ITR 50 (SC) and CIT vs. Hero Cycles (P) Ltd. (1997) 142 CTR (SC) 122 : (1997) 228 ITR 463 (SC) and plethora of other decisions relied upon by the Assessee. 12. In the backdrop of legal position narrated above, let us examine the factual matrix concerning issues involved in the present case. 12.1 The first issue which is subject-matter of rectification under section 154 pertains to excise duty provision of Rs. 80,82,905/- which remain....
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....t basis only if it is disallowed in the earlier years when the provision was created for which no evidence has been furnished. In reply, the assessee contended that the aforesaid amount towards warranty was specifically accepted in the assessment order dated 31.12.2007 which reads as under :- "the assessee has incurred the expenditure of Rs. 1,49,85,639/- towards warranty during the year, which is acceptable and accordingly the said amount is allowed as a deduction from computing the total taxable income." We find, in view of the aforesaid unambiguous assertions made by the Assessing Officer, it is difficult to hold that 'mistake apparent from record' as contemplated under section 154 of the Act has crept in the assessment order which is sought to be rectified. The Ld. AO has sought to review its earlier decision in the garb of rectification. This is not permissible. 13.2 Let us also examine the issue from a different perspective. Needless to say, whether disallowance was made in the hands of the transferor company, KWIL and added back in the computation of income in their hands prior to acquisition of its division by the assessee under slump sale is a matter of enquiry and ve....
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....f Rs. 1.49 cr. against the gross liability of Rs. 1.51 cr. was express and explicit in the original assessment order dated 31/12/ 2007 after due deliberation has not been rebutted by the Revenue. Therefore, there is no justification to exercise power under section 154 concerning the issue. 13.4 Accordingly, we reverse the order of CIT(A) on the issue as jurisdiction under section 154 is not available to the Revenue. 14. The next issue relates to addition of Rs. 1,51,97,332/- towards warranty provision to the book profits computed under section 115JB of the Act on the ground that the liabilities are of presumably of contingent nature as reported in the tax audit report and not ascertained liability. We have perused the observations made by the tax auditor which is reproduced as under :- "(k) particulars of any liability of a contingent nature - An amount of Rs. 1,52,58,819/- has been accounted as performance warranty. The company contends that the same is not liability of a contingent nature based on the decision in ITO vs. Wanson (India) Ltd. (1983) 5 ITD 102 (PUN), Singal & Co. Vs. ITO [1982] 1 ITD 476 (CHD), Jay Bee Industries vs. DCIT [1998] 61 TTJ 403 (Asr) Voltas Ltd.....