TaxTMI 
TaxTMI 
2018 (11) TMI 781
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....25% of sales though actual utilization has consistently remained much lower as reflected in the table below: Provision for warranties Ay 2007-08 AY 2008-09 AY 2009-10 AY 201 0-11 At the beginning of the year 2,624,632 3,752,694 4,294,678 6,773,290 Arising during the year 3,752,694 4,294,678 6,773,290(a) 12,885,450(c) Utilized during the year 441769 181,971 431 ,360 372,842(b) Unused amount 2,182,863 3,570,723 3,863,318 6,400,448 Reversed At the end of the year provision 3,752,694 4,294,678 6,773,290 12,885,450 Table 1 (source : Assessee's submission dtd 21.02.13) 4. From the above table, it can be seen that assessee has continuously utilized a very small amount. During the year, it is (c)- [(a)-(b)] which comes to 64,85,002 and this net amount is debited to profit and loss account during the year. Therefore it is clear that though the assessee is utilizing merely a very small portion of the provision created each year but still creating huge provision without any basis to reduce profit and defer the payment of taxes. The method is not sci....
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....ity. 10. Accounts-Valuation of closing stock-Excise duty-Excise duty is levied on goods manufactured by an assessee and it is not cost of goods purchased-lt is not a part of manufacturing cost-It can be termed as post-manufacturing cost-Unless and until it is entered on one side as an item of cost, it cannot be taken as a component of the value of the closing stock on the other side-Assessee under the Excise Act is not required to discharge the liability to pay duty levied upon the manufacture of excisable goods, till such goods are removed from the factory premises, or a bonded warehouse-Mere production or manufacture by itself would not be sufficient. Though there might be levy under s. 3 of the Excise Act, yet neither the rate nor the value would be determinable till the point of time of removal of the excisable goods from the factory premises and hence the scheme itself indicates that so far as an assesses is concerned, he incurs liability to pay excise duty only upon both the event taking place, namely, manufacture of excisable goods and removal of excisable goods-For the purpose of IT Act, the position in law cannot be different-The Act does not provide for any contrary in....
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....ards warranty during the warranty period: > Cost of material (i.e. cost of pans to be replaced free of cost): such cost is debited as "Warranty expenses"; > Travelling cost (i.e. cost incurred on travelling by the staff in the course of providing services during warranty period); Such cost is debited separately in P&L a/c; > Salary cost of CSD Department 5, 45%; Such cost is also separately debited in P&L a/c; 20. Since "travelling cost" and "salary of CSD Dept." is separately debited, the amount of "cost of material" debited under the head "warranty expenses" is very low. However, the actual warranty cost is summation of the above three expenses. 20. A chart showing details of "Provision for warranty" and "Actual Warranty expenses" ( all three expense) incurred by the assessee for AY. 09-10 & 10-11 was furnished along with supporting evidences before A.O. vide letter dated 18.03.2013. 22. A perusal of the above reveals the following picture: Particulars A.Y. 2009-10 A.Y. 2010-11 Provisions for Warranty (A) Rs. 67,73,290/- 1,28,85,450/- Actual Warranty expenses (B) Rs. 71, 27, 337/- Rs. 1,02,68,158/- Difference (A-B)....
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....but thereafter, such provision has been reduced to 2,25% AY 2008-09 onwards on the basis of experience of the assessee. Thus, such estimation was based on past experience and there in not much difference in the actual expenses. Thus, in a way, approach adopted by assessee is scientific. Accordingly, AO was not correct in holding that provision was based on estimation and not backed by scientific method. 30. As regards the third objection raised by AO. assessee's estimate is absolutely reliable as there is not much variation in the actual expenses as compared to provision for warranty and also the actual expenses are in the range of 1.79-2.37% of sales i.e. very much near to the percentage of provision. 31. As regards the fourth objection raised by AO, it is submitted that AO failed to understand the accounting treatment adopted by the assessee. Assessee creates "Provision for warranty" and debits the same to P&L a/c. In the next year, such provision is reversed by crediting P&L a/c after deducting amount utilized and thereafter, various expenses incurred for warranty services like travelling and salary of CSD are debited. AO has completely overlooked the fact that excess ....
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....sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. "On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter - and if there was no change it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken." 38. In the light of the above, in our considered opinion, ld. CIT(A) has rightly deleted the impugned addition and he has passed detailed and reasoned order and same does not require any kind of interference at our end. 39. In the result, we allow this ground of appeal. 40. Now we come to ground relating to deleting the addition of Rs. 52,43,994/-. 41. AO, upon finding that assessee follows "Exclusive method" of accounting, made addition of Rs. 52,43,994/- u/s 145A in respect of "unutilized CENVAT credit" on the count that it must be added to "closing stock" of raw material. 42. AO failed to appreciate that the assessee has been cons....
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....the effect of including excise duty in valuation of closing stock does not affect the profit and is Revenue neutral. He has further relied on the decision of Hon'ble Gujarat High Court in the case of Narmada Chematur Petrochemicals Ltd.(supra). Before us, Revenue has neither controverted the finding of Id.CIT(A) nor has placed any contrary binding decision in its support. We further find that the Hon'ble Apex Court in the case of Indo Nippo Chemicals (2003) 261 ITR 375 has held that unavailed MODVAT credit cannot be construed as income and there is no liability to pay tax on such unavailed MODVAT credit. In view of the aforesaid facts, we find no reason to interfere with the order of the ld.CIT(A). Thus, this ground of Revenue is dismissed." 4. We see no reason to take any other view of the matter than the view so taken by the co-ordinate bench. Respectfully following the same, we see no reasons to interfere in the conclusions arrived at by the Id. CIT(A). Accordingly, we confirm the order of the learned CIT(A) and dismiss the appeal of the Revenue. 5. In the result, appeal of the Revenue is dismissed. Pronounced in the open court today on the 26th day of ....