TaxTMI 
TaxTMI 
2018 (3) TMI 525
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....or which necessary endorsement was made in our file. Accordingly the cross objection of the assessee is dismissed as not pressed. 3. The first issue to be decided in this appeal of the revenue is as to whether the Ld. CIT(A) was justified in allowing the claim of pre-operative expenses of Rs. 3,01,21,223/-, in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the assessee is a domestic company engaged in the business of manufacturing of switch gear, control gear and automation, electronic motors, wires and cables, breaks and crane controls. The factory of the assessee company is situated at Faridabad, Haryana. The company is also having two branches in Mumbai and New Delhi. The assessee company had filed its return of income for the assessment year 2009-10 on 30.09.2009 disclosing net loss of Rs. 2,35,85,967/-. Thereafter the assessee filed a revised return on 19.08.2010 showing NIL income and tax was payable as per the provisions of section 115JB of the Act on the Book Profits of Rs. 51,02,910/-. The ld. AO observed that the assessee had debited a sum of Rs. 3,01,21,223/- and, claimed the same as deduction on account of prior period expenses....
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....February and March, 2009 falling in the assessment year 2009-10. The ld. AO did not agree to these contentions of the assessee and proceeded to disallow the sum of Rs. 3,01,21,223/- in the assessment. 3.3. The Ld. CIT(A) appreciated the contention of the assessee and granted relief to the assessee by deleting the disallowance. Aggrieved the revenue is in appeal before us on the following ground: 1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing claim of preoperative expenses of Rs. 3,01,21,223/- without considering that such expenses were not related to this assessment year and, therefore, were not allowable. 3.4. We have heard the rival submissions and perused the material available on record including the paper book filed by the assessee comprising of pages 1 to 239. The ld. AR also placed reliance on the copy of computation income with the assessment year 2009-10 for the year under appeal and the assessment year 2010-11. We find that the assessee had originally capitalized the employee cost of Rs. 3,01,21,223/- to capital work-in-progress in its books and did not claim the same as deduction in the return of inco....
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....ese details are duly mentioned. Hence, we deem it fit and appropriate to remand this issue to the file of the ld. AO for de novo adjudication and decided the same in accordance with the law. Needless to mention that the assessee be given reasonable opportunity of being heard. Accordingly, ground no. 2 raised by the revenue is allowed for statistical purposes. 5. The next issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the disallowance of Rs. 52,15,220/- towards provision for warranty, in the facts and circumstances of the case. 5.1. The brief facts of this issue is that the assessee in its profit and loss account had debited a sum of Rs. 52,15,220/- on account of provision for warranty expenses. The ld. AO observed that similar debits were made by the assessee for assessment years 2007-08 and 2008-09 in the sums of Rs. 1,60,88,554/- and Rs. 3,62,820/- respectively which were held to be not allowable as deduction. The ld. AO observed that the said provision for warranty had not been made by the assessee on a scientific basis and hence, disallowed the same in this assessment year also following the action taken in assessment years 20....
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....l for assessment years 2007-08 and 2008-09 in its own case vide orders dated 18.12.2015 and 18.03.2016 for assessment years 2007-08 and 2008-09 respectively wherein it was held that: "In view of the above facts and circumstances and the precedent of Hon'ble Supreme Court, since in the present case before us the provision for such warranty is being made on the basis of past experience and has been computed in a systematic and scientific manner, as in the present case, surely we have to appreciate that these warranty expenses are towards expenses which have been incurred or are likely to be incurred within the period for which warranty has been assured to the customers against the sale of products and as such, such expenses are deductible as business expenditure. Such expenditure having been incurred wholly for the purpose of business is fully allowable as business expenditure. Accordingly, we uphold the order of Ld. CIT(A). Hence, we dismiss both the appeals of revenue". We find that the provision has been made during this year based on the transaction carried out in the last preceding three years on a scientific basis and this method has been consistently followed b....
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....h provision as on 1st April of that year, then there is a reduction of the provision during that year which is claimed as deduction from the total income. This procedure is followed every year by the assessee without any change or deviation. The assessee furnished a statement containing the workings of provisions for non-moving inventories for the assessment year 2009-10 wherein there was total reduction of Rs. 73,54,027/- as under: i) For non-moving inventory of raw materials and components (-) Rs. 54,60,218/- ii) For non-moving inventory of finished goods (-) Rs. 12,22,750/- iii) For non-moving inventory of store and spares (-) Rs. 6,21,059/- Total (-) Rs. 73,54,027/- (Rs. 54,93,670/- as on 31.03.2009 less Rs. 1,28,47,697/- as on 01.04.2008). The sum of Rs. 54,60,218/- being the amount of reduction in the provision for nonmoving inventory of raw materials and components which is meant for use in manufacturing, was reduced from the manufacturing and operating expenses as per Schedule 10 of the audited accounts owing to the same and identical procedure followed from year to year and consequently the income enhanced by that amount of Rs. 54,60....
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....n-moving inventory. In respect of Rs. 18,93,809/-, it is seen that the disallowance has been made by the AO by treating the said amount as contingent in nature, whereas Rs. 1,21,43,683/- has been contended by the appellant as having been credited to the P&L a/c. and therefore, the appellant has contended that the said amount having been considered in the P&L a/c. should have been reduced in the computation of income which the AO did not considered. The AO in his assessment order has merely mentioned that the said sum of Rs. 18,93,809/- is not allowable as per the provisions of the Act and hence the disallowance and in respect of Rs. 1,21,43,683/- nothing has been mentioned by the AO. The appellant in his written submission has contended that the said sum of Rs. 18,93,809/- has already been considered in the computation of.income and has already been disallowed by the appellant itself in the computation and hence it has been contended by the appellant that the AO has wrongly made such addition. In such respect, the appellant has submitted the working of the provision / reversal which is as follows: (i) (-) Rs. 54,60,218 - Provision for !Ion-moving inventory (raw material and c....
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....80 per unit. In course of assessment proceedings, this observation was pointed out to the A.R. of' the assessee company and he was asked to furnish the basis or justification for valuation of Closing Stock @Rs.639.80 per unit which was lower than the opening value of Rs. 835.78 per unit and much less than the purchase price Rs. 1530 per unit. The assessee was asked to explain why in the absence of any explanation or basis for justification of such valuation of closing stock should not be rejected and a proper valuation on the basis of materials available should not be made. The assessee company did not furnish any basis or justification for valuation of closing stock of wires, cables, drives etc. of Rs. 639.80 per unit as against value of Rs. 835.78 per unit of the opening stock and much less then the purchase price of Rs. 1530.62 of this trading items during the year. Accordingly, the ld. AO adopted average price of all the low and high value items and valued the closing stock at Rs. 839.80 per unit and accordingly made an addition of Rs. 1,05,38,200/- in the assessment. 7.2. The assessee stated that the total closing stock comprised both low value as well as high value ite....
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....rove that this working for closing stock of trading items was very much available in the file of the ld. AO in the assessment proceedings itself, which has been ignored by him. We find from the said workings that there are innumerable number of items comprising both low and high value items. Hence, the action of the ld. AO in averaging all the items put together cannot be accepted. The assessee also indeed filed complete details with regard to material code, product description, quantity, unit of measurement, corresponding price and value thereon in the said workings. In view of these facts and findings of the Ld. CIT(A) that the books of accounts of the assessee had not been rejected by the ld. AO, and in view of the fact that this method of valuation has been consistently employed by the assessee from year to year, there is no case to make any addition towards closing stock in the facts of the instant case. We hold that the Ld. CIT(A) had rightly deleted this addition appreciating this fact and contentions of the assessee. Accordingly the ground no. 6 raised by the revenue is dismissed. 8. The last issue to be decided in this appeal is as to whether the Ld. CIT(A) was justifie....