TaxTMI 
TaxTMI 
2019 (7) TMI 795
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....e. First we take up the appeal of the assessee in ITA No.1156/Chd/2013. ITA No.1156/Chd/2013(Assessee's Appeal): 3. The assessee in this appeal has taken the following grounds: "1. That the Ld. CIT (A) is not justified in confirming the assessment made by the Ld. A. 0. u/s 143 (3) by holding that assessment is not barred by limitation, whereas the assessment made by the Ld. A. O. u/s. 143 (3) is barred by limitation and be quashed. 2.a) That the Ld. CIT (A) is not justified in confirming the addition of Rs. 10,12,24,416/- by holding that the said expenditure was treated as pre-operative expenditure by the appellant. How can the appellant claim expenditure as revenue expenditure, once it has itself named and has claimed it as pre-operative expenditure. b) That without prejudice to above, the appellant disputes the quantum of addition. 3.a) That the Ld. CIT (A) is not justified in confirming the disallowance of interest amounting to Rs. 1,80,52,000/- on adhoc basis. b) That without prejudice to above, the appellant disputes the quantum of disallowance. 4. That the appellant craves leave for any addition, deletion or amendmen....
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...., admitted that the said expenditure was capital in nature. The A.O. thus held that the expenses towards expansion of the business were not allowable as revenue deduction. 8. On appeal, the CIT(A) vide order dated 22.10.2013 confirmed the action the A.O. in treating the expenses incurred as capital in nature. 9. Before us, the Ld.Counsel for the asssessee has submitted that the impugned expenditure was incurred by the assessee though, during the pre-commercial operation period, however, the same was incurred for the expansion of already existing business of the assessee and further that the said expenditure was purely revenue in nature and not relating to setting up of the plant. The Ld.Counsel for the asssessee in this respect has relied upon the following decisions to stress the point that the revenue expenditure incurred for setting up of a new unit, which is a part of existing business of the assessee, is allowable as a business deduction: 1) Setabganj Sugar Mills Ltd. Vs. CIT, 41 ITR 272 2) Produce Exchange Corporation Ltd. Vs. CIT, 77 ITR 739 3) Veecumsees Vs. CIT, 220 ITR 185 (SC) 4) DCIT Vs. Core Health Care Ltd., 298 ITR 194 (SC....
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....its. Even the existing dealer network is being used to sell the new models of vehicles. 11. The Ld. DR, on the other hand, has submitted that the aforesaid expenditure has rightly been disallowed by the A.O. as the same relates to pre-operative period of the new unit and the same cannot be allowed as revenue expenditure. 12. We have considered the rival contentions. We find that in some of the case laws cited by the Ld.Counsel for the asssessee, the facts were different. However, the decision of the Hon'ble Delhi High Court in the case of 'Jay Engineering Works Ltd.' (supra) is found applicable wherein it has held that where a new unit set up is only an expansion of the business of the assessee, the pre-operative revenue expenditure incurred by the assessee on the said project will be allowable expenditure. The facts of the case are squarely covered by the aforesaid decision of the Hon'ble Delhi High Court. The Ld. DR could not bring any contrary decision to the above proposition of law laid down by the Hon'ble Delhi High Court. Even there is no denial of the fact that the expenditure claimed by the assessee is otherwise revenue in nature and not relating to the s....
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....ance made by the A.O., which even exceeds the actual interest expenditure incurred by the assessee. In view of this, the disallowance on this issue is restricted to the extent of suo moto capitalized by the assessee and the addition made by the A.O. is ordered to be deleted. Ground No.4: 19. Ground No.4 is general in nature and does not require any adjudication. 20. In view of our above observations, the appeal of the assessee is treated as partly allowed. 21. Now coming to the appeal of the Revenue in ITA No.1193/Chd/2013. ITA No.1193/Chd/2013(Revenue's Appeal): 22. The Revenue in this appeal has taken the following grounds: "1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 1,87,66,884/- made by the A.O. under section 145A by including excise duty in closing stock of work in progress. 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 37,00,....
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....s ground and the same is dismissed. Ground No.3: 28. Vide ground No.3, the assessee has agitated the decision of the CIT(A) in deleting the addition of Rs. 37 lacs made by the A.O. on account of provision for warranty. 29. The brief facts relevant to the issue are that during the year under consideration, the assessee debited to the Profit & Loss Account the provision on account of warranty claim amounting to Rs. 303 lacs. On being asked to explain the assessee explained that the assessee was engaged in the business of manufacturing and distribution of commercial vehicles. That the assessee was under the obligation to replace/rectify the defective parts or other manufacturing defects occurring during the specified period of usage of products by the customers. That the warranty period varied according to the nature of product and market practices. The assessee further explained that the provision for the year under consideration was calculated on the basis of average actual warranty cost of previous three years. The A.O., however, did not agree with the above contention of the assessee and disallowed the provision for warranty expenses to the extent of Rs. 37 lacs holding t....
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.... by the Department till assessment year 2007-08. Hence, based on the principle of consistency as well as considering that the provision was calculated by adopting a consistent method, we do not find any infirmity in the order of the CIT(A) in deleting the disallowance made by the A.O. on this issue. This ground of appeal is accordingly, dismissed. Ground No.4: 32. Vide ground No.4, the Revenue has agitated the action of the CIT(A) in deleting the addition of Rs. 1.10 crores made by the A.O. on account of bad debts written off. 33. The A.O. noted that the assessee had written off a sum of Rs. 165.66 lacs as bad debts out of the provision for bad and doubtful debt account. Out of the aforesaid amount, an amount of Rs. 1.10 crores pertained to the amount recoverable from Government Agencies. The A.O. held that the amount recoverable from the Government could not be held to be bad debt as it would amount to labeling the Government as bankrupt. He, therefore, disallowed the deduction of bad debts written off to the tune of Rs. 1.10 croroes. However, the Ld.CIT(A) deleted the addition so made by the A.O. observing that since the assessee had written off the claim of bad debts....