TaxTMI 
TaxTMI 
2015 (10) TMI 2300
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....ctification order are already examined by his predecessor while passing 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 ....
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.... that provision of Rs. 1,51,97,332/- made for warranty claim is of contingent in nature and cannot be allowed. However, while disallowing the provision, actual payment made during the year towards warranty 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....
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....ot be allowed. However, while disallowing the provision, actual payments made during the year towards warranty claim amounting to Rs. 1,49,85,639/- were incorrectly reduced and remaining balance of Rs. 2,11,693/- was only disallowed. The Assessing Officer 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 ....
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.... apparent from record and therefore action of the Assessing Officer under section 154 of the Act is fully justified. 6.3 On the issue of warranty payment of Rs. 1,49,85,639/- being adjusted and the warranty provision amounting to Rs. 1,51,97,332/-, the CIT(A) reiterated 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 disall....
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....d not be collated at the time of S.154 proceedings. However, he adverted our attention to monthly returns filed before the Excise Authority for the period of April, 2005 to July, 2005 as placed at page 90 to 93 of the Paper Book to submit that the outstanding excise duty liability in question has duly been discharged 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 p....
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....enditure amounting to Rs. 1,49,85,639/- towards payment of warranty claimed from customers during the assessment year 2005-06, such expenditure was debited to the liability account in respect of warranty provisions and not charged to the Profit & Loss Account. The expenditure incurred towards payment of warranty claims 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)....
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....oresaid decision relates to payment of gratuity and which is allowable as deduction as per the provision of S. 43B of the IT Act on actual payment basis whereas in the instant case, the issue relates to allowability of deduction on provision of warranty which allowable as a deduction as per the principles of 'matching concept' 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 KWI....
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....gument to establish it, can be said to be an error apparent on the face of the record and can be corrected under s. 154. An error cannot be said to be apparent on the face of the record if one has to travel beyond the record to see whether order impugned is correct or not. An error apparent on the record means an error which strikes 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 ....
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....ranty provision of Rs. 1,49,85,639/- by way of rectification while computing the income under the normal provision of the Act. 13.1 It is the case of the Revenue that the payment of Rs. 1,49,85,639/- has been wrongly adjusted against the warranty provision of Rs. 1,51,97,332/-. As per the Revenue, the amount could be allowed on payment 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 rectifica....
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....ting apparently from records. The text and tenor of the Ld. DR itself suggests so. The facts marshaled by the Ld. DR on the other hand seeks to enlarge the reasonings of the AO which is not permissible in so far as exercise of jurisdiction under 154. These reasons apart, the contention of the Assessee that set off of the impugned warranty payments of 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 cont....