Income Tax Appellate Tribunal - Ahmedabad
Hitachi Home & Life Solutions(I) ... vs Assessee on 27 August, 2014
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ ''B'', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD,
"B" BENCH
सव[ौी ौी अिनल चतुवद
ȶ ȣ,
ȣ, लेखा सदःय एवं कुल भारत,
भारत, Ûयाियक सदःय के सम¢ ।
BEFORE S/SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND
KUL BHARAT, JUDICIAL MEMBER)
ITA No.182/Ahd/2011
[Asstt.Year : 2005-2006]
The DCIT, Cir.4 बनाम/Vs. Hitachi Home & Life Solutions (India) Ltd.
Ahmedabad. 9th Floor, Abhijeet, Mithakhali Six Road
Ahmedabad.
PAN : AABCA 2392 K
ITA No.216/Ahd/2011
[Asstt.Year : 2005-2006]
Hitachi Home & Life Solutions (India) Ltd. बनाम/Vs. The ACIT, Range.4
9th Floor, Abhijeet, Mithakhali Six Road Ahmedabad.
Ahmedabad.
ITA No.1136/Ahd/2011
With
CO No.148/Ahd/2011
[Asstt.Year : 2006-2007]
The DCIT, Cir.4 बनाम/Vs. Hitachi Home & Life Solutions (India) Ltd.
Ahmedabad. 9th Floor, Abhijeet, Mithakhali Six Road
Ahmedabad.
(अपीलाथȸ / Appellant) (ू×यथȸ / Respondent)
राजःव कȧ ओर से/ :
Revenue by Shri V.K. Singh, Sr.DR
िनधा[ǐरती कȧ ओर से/ :
Assessee by Shri S.N. Soparkar
सुनवाई कȧ तारȣख/ :
Date of Hearing 12th August, 2014
DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO
घोषणा कȧ तारȣख/ :
Date of Pronouncement 27-08-2014
आदे श / O R D E R
PER ANIL CHATURVEDI, ACCOUNTANT MEMBER: These are appeals
by the Revenue and the cross-appeals by the assessee challenging respective orders of the Commissioner of Income-tax (Appeals) for the Asstt.Years 2005-06 and 2006-2007. Since common issues are involved in these appeals, we proceed to dispose of all the appeals and CO by this consolidated order for the sake of convenience.
2. The brief facts of the case, as culled out from the records for the Asstt.Year. 2005-06 are that the assessee is company engaged in the business of manufacturing and trading of air-conditioners ("ACs." for short). The assessee filed its return of income for A.Y. 2005-06 on 30.10.2005 declaring total income of Rs.NIL, which was later revised on 6.6.2006 by declaring total income at Rs.NIL after adjustment of carry forward loss. The case was selected for scrutiny and thereafter, the assessment was framed under section 143(3) vide order dated 30.12.2008 and the total income before the adjustment of brought forward loss was determined at Rs.21,57,22,429/-. Aggrieved by the order of the AO, the assessee carried the matter before the CIT(A)-XX, who vide order dated 29.10.2010 granted partial relief to the assessee. Aggrieved by the order of the CIT(A), both the assessee and the Revenue are in appeal before us. First we take up assessee's appeal for adjudication.
ITA No.216/Ahd/2011 (Asstt.Year 2005-06) - Assessee's Appeal: -2-DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO
3. The ground no.1 of the appeal of the assessee challenging validity of the assessment is general in nature not pressed for adjudication, and therefore, dismissed as not pressed.
4. The ground no.2 is with respect to disallowances of deduction in respect of writing off of the irrecoverable advances and other debit balances. During the course of assessment proceedings, AO noticed that the assessee had written off an amount of Rs.14,83,037/- which was claimed as advances and another amount of Rs.30,48,835/- as "Balances written off". AO noted that the amounts were in the nature of advances and balances which were debit balances not arising out of sales and did not fall under the purview of section 36(1)(vii) of the Act. The assessee was asked to show cause as to why the deduction claimed under the above head be not disallowed, to which, the assessee, inter alia, submitted that the advances written off were Earnest Money Deposit ("EMD" for short) paid in respect of submission of tenders for supply of ACs., and since the said deposits were not received back, an amount of Rs.14,83,037/- was written off and claimed as business loss. With regard to balance written off aggregating to Rs.30,48,835/-, the assessee submitted the reasons like party not traceable, company's efforts to recover failed, there was a dispute with customer etc. The submissions of the assessee were not found acceptable to the AO. The AO was of the view that the assessee has not justified as to how the debt has become bad, and had also not mentioned about recovery measures taken by the assessee against the parties. He was, therefore, of the view that it could not be said that the debt has become actually bad, and therefore, the same were not allowable under section 36(1)(vii) of the Act. He further placing reliance on the decision of the Hon'ble Gujarat High Court in the case of Dhall Enterprises and Engineers P. Ltd. Vs. CIT, 207 CTR 729, disallowed advances written off of Rs.14,83,037/-, balances written of Rs.30,48,835/- and bad debts written off of Rs.42,51,367/- aggregating to -3- DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO Rs.87,83,239/-. Aggrieved by the order of the AO, the assessee carried the matter before the CIT(A). The CIT(A) after considering the submissions of the assessee, upheld the order of the AO by holding as under:
"7.8 I have gone through the assessment order as also submissions of the AR carefully. It is seen that what is written off is not bad debt arising out of sales. The AR of the appellant was not able to justify why these advances were given and why the write-off should be treated as bad debts. The amount written off as business loss it has to be proved by the assessee that the advance is given in the regular course of business and that they have become irrecoverable. In the instant case the AO has brought out clearly that the appellant has not been able to prove that the debts have become bad. The reliance of the AR of the case of TRF Ltd. Vs. CIT, reported in 323 ITR 397 (SC) is not correct. In that case the Honourable Supreme Court was dealing with bad debts mentioned in section 36(1)(vii)of the IT Act wherein after the amendment it is sufficient for the assessee to claim bad debts under section 36(1)(iii) of the IT Act, 1961 by writing off the amounts in its books of accounts. For claim of business loss of advances given which have become bad, the appellant has to prove that the advances have indeed become bad. In the instant case the details of the advances given has not been furnished only General explanation has been given to the AO. Thus, the condition for the claim of business loss has not been satisfied.
In view of the above the AO is justified in disallowing these amounts. The addition made is hence confirmed."
Ld. CIT(A), however, deleted the addition of Rs.42,51,367/- by holding as under:
"8.1 It is seen that the AO had made addition of Rs.42,51,367/- being bad debts written off relying on the decision of Gujarat High Court in the case of Dhall Enterprises & Engineers P. Ltd. Vs. CIT reported in (2006) 207 CTR 729. However, in the recent judgment, the Hon'ble Supreme Court in the case of TRF Limited Vs. CIT (2010) 323 IT 397 (SC) has held that for claim of bad debts, the appellant just needs to write off the books of accounts. It is not necessary for the appellant to prove that debt had become bad."-4-
DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO In view of the above, the addition made by the AO is not justified and the same is deleted."
5. Aggrieved by the order of the CIT(A), the assessee is now in appeal before us. Before us, the learned counsel for the assessee reiterated submissions made before the CIT(A). With respect to advances written off amounting to Rs.14,83,037/-, he submitted that in the business of the assessee, it is the business practice to give advances to the parties to supply ACs, which was in the nature of earnest money in respect of tenders, and it is a necessary business custom which cannot be foregone. He further relied on the decisions in the case of CIT Vs. Abdul Razak & Co., (1982) 136 ITR 825 (Guj), in the case of Commonwealth Trust (India) Ltd. Vs. CIT, (2000) 242 ITR 593 and Commissioner of Income-tax v. Triveni Engineering and Industries Ltd., 343 ITR 245. He also pointed out the list of advances placed at page no.48 and 49 of the paper book, in support of his contention that the deposits were towards EMD. With respect to debit balances written off amounting to Rs.30,48,835/-, he submitted that the same was paid for expenses against which invoices were not received, and was also on account of wrong accounting. He also pointed out to list of details of balances written off placed at page nos.50-51 of the paper book. He also placed reliance on the decision in the case of CIT Vs. Rao Construction P. Ltd., (2013) 33 taxmann.com 613 (Gujarat). The learned DR, on the other hand, supported the orders of the AO and the CIT(A).
6. We have considered rival submissions and perused the material on record. From the details of advances placed at page nos.48-49, it is seen that majority of the amounts are stated to be towards EMDs. of which the earliest amount outstanding is from the year 1997 and the last being outstanding from the year 2001. It is also seen that the list also includes an amount of Rs.7,31,425/- shown against Amtrex Employees' Welfare Trust, for which no details have been -5- DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO furnished in the statement. As far as EMD deposits are concerned, the submission of the assessee has not been controverted by the Revenue. Further, relying on the decision cited by the assessee in the case of Commonwealth Trust (India) Ltd. (supra) and Abdul Razak & Co. (supra), we are of the view that the amounts towards EMDs., was having nexus with the business of the assessee, and therefore, the same needs to be allowed. However, with respect to the "Employees' Welfare Trust", amounting to Rs.7,31,425/-, in the absence of any details, we are of the view that the same has rightly been disallowed by the AO. With respect to the balance written amount of Rs.30,48,835/-, from the list placed at page no.50-51 of the paper book, it is seen that it contained various amounts which are shown to be not recoverable from the parties. However, it also includes certain amounts like provision for gratuity, salary payable, PF payable, staff loan etc. from which the full details thereof not placed before us Considering totality of the facts, we are of the view that disallowance in the present be restricted to Rs.1,00,000/- (Rupees One Lakh) to cover such amounts. We direct accordingly, and the ground no.2 of the appeal are partly allowed.
7. The ground no.3 is with respect to disallowance of deduction of Rs.46,247/- . During the assessment proceedings, the AO disallowed Rs.46,247/- which was not added back while making computation by the assessee. Aggrieved by the action of the AO, the assessee carried the matter before the CIT(A). The CIT(A) upheld the disallowance by holding as under:
"9. Donation is not diversion of income but application of income. Hence payments by way of donations are not allowable as deduction from the business income. In the case of Malayala Manorma Co. Ltd., Reported in (2006) 150 Taxmann 505 (Ker) he Hon'ble Kerala High Court has held that contribution made to the trust for rehabilitation of earth quake victims was not expenditure laid out wholly, necessarily and exclusively for the purpose of business and was not allowable as deduction.-6-
DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO In view of the above the AO was justified in disallowing the donation made of Rs.46,247/-. The same is confirmed."
8. Aggrieved by the order of the CIT(A), the assessee is now in appeal before us. Before us, the learned AR submitted and pointed out to the break-up of the donation of Rs.46,247/- at page no.14 of the paper book. From the details, he submitted that major amount of Rs.42,320/- was paid to Red Cross Society and was given to the society to comply with the social responsibility towards society and was not in the nature of donation. With respect to other donations listed out at page no.14of the PB, he submitted that the payments were made on account of business expediency and social responsibility, and hence allowable as deduction. The learned DR, on the other hand, relied on the order of the AO and the CIT(A).
9. We have considered rival submissions and perused the material available on record. From the details of the donation given at page no.14 of the paper book, it is seen that the major amount of Rs.42,320/- is donation to the Red Cross society, and therefore, claimed as business expenditure. The aforesaid submission of the assessee has not been controverted by the Revenue by bringing any material on record. We, therefore, are of the view that same needs to be allowed.
10. With respect to other donations, considering meagerness/smallness of the amounts, aggregating to Rs.3900/-, and considering the peculiar facts of the case we consider that the same be allowed. Thus, we allow this ground of the appeal of the assessee.
11. In the result, the appeal of the assessee being ITA No.216/Ahd/2011 is partly allowed.
ITA No.182/Ahd/2011 (Asstt.Year 2005-2006 : Revenue's appeal): -7-DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO
12. First ground is with respect to deletion of Rs.16,64,667/- on account of adjustment in respect of international transaction of royalty payment.
13. During the course of assessment proceedings, the AO noticed that the assessee had international transaction with Associate Enterprise ("AE" for short) as defined under section 92B of the Income Tax Act in respect of purchase/sale of compressor, valves, copper tubes, remote parts etc. Reference was made to TPO. TPO vide order passed u/s.92CA(3) noted that the assessee was charged royalty by AE at rate higher than what has been charged to other group entities. The TPO, therefore, held that arm's length rate for payment of royalty should be at 3% instead of 3.75% charged from the assessee. He accordingly suggested an adjustment of Rs.16,64,667/- being the payment for arm's length price ("ALP" for short) relating to the royalty. Based on the order of TPO, AO made addition of Rs.16,64,667/-. Aggrieved by the order of the AO, assessee carried the matter before CIT(A), and the CIT(A) following his predecessors order for A.Y.2004-05, deleted the addition by holding as under:
"4..
It is seen that in this case, on identical issue appeal has been decided by the CIT(A)-VIII, for A.Y.2004-05 vide appeal order No.CIT(A)-VIII/DC- 4/347/2006-07 dated 19-3-2008 following the earlier year's decision and deleted the addition made. Since the facts are similar for this year, after considering the order of the Addl.CIT, as also submissions/evidences filed and following the order of CIT(A)-VIII for A.Y.2004-05, the disallowance made for Rs.16,64,667/- being adjustment on account of international transaction is directed to be deleted."
14. Aggrieved by the order of the CIT(A), the Revenue is now in appeal before us. Before us, at the outset, the learned AR submitted that similar disallowance was made in A.Y.2004-05 and in appeal, the Hon'ble ITAT, Ahmedabad Bench in ITA No.2363/Ahd/2008 order dated 24.9.2013 has deleted the disallowance made by the AO. He placed on record copy of the aforesaid order and pointed to para 51 -8- DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO at page no.28 of the order. He further submitted that since the facts of the case in the year under appeal are identical to that of earlier years, the order of the CIT(A) be upheld. The learned DR, on the other hand relied on the order of the AO.
15. We have considered rival submissions and perused the material available on record. We find that the CIT(A) while deleting the addition has noted that facts of the case of the assessee in this year are identical to the earlier years, and he had followed the decision of his predecessor. We further find that in ITA No.2363/Ahd/2008 for A.Y.2004-05, similar issue was decided by the Co-ordinate Bench of ITAT in favour of the assesee and the addition was deleted following the order in Revenue's appeal for A.Y.2003-04 in ITA No.2281/Ahd/2007, while deciding the Revenue's appeal, the issue was decided by holding as under:
"36. We have considered rival submissions and perused the material on record, and gone through the orders of the authorities below. We find that the issue regarding payment of royalty at the rate of 3.75% to the AE by the assessee, as against the royalty at the rate of 3% by other group entities, it was explained by the assessee before the AO that the royalty at 3.75% was applied after reducing various expenses from ex-factory sale value of the concerned products. It was also explained before the learned CIT(A) that if the effective rate is considered, then the effective rate of royalty is less than the royalty paid by other AEs to Hitachi Limited i.e. parent company. In our considered opinion, only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with ex-factory sale value, without deducting various expenses, such as dealer commission, special commission, warranty etc., as has been noted by the learned CIT(A) at page no.4 of his order, then the effective rate worked out is only 2.3% on sale, as against 3% paid by other group entities. This finding of the fact given by learned CIT(A) could not be controverted by the learned DR of the Revenue, and hence, on this aspect, we hold that no interference is called for in the order of the learned CIT(A), and accordingly, the ground no.5 of the Revenue is rejected."-9-
DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO Since the facts in the year under appeal are identical to earlier years as admitted by both the parties, we find no reason to interfere with the order of the CIT(A) on this issue, and thus, this ground of the Revenue is dismissed.
16. The ground no.2 of the appeal of the Revenue is with respect to disallowance of Rs.1,33,36,786/- on account of provision of obsolescence of inventory.
17. During the course of assessment proceedings, the AO noticed that the assessee has debited provisions for slow moving/obsolete stock amounting to Rs.1,33,36,786/-. The assessee was asked to show cause as to why the same should not be disallowed being provision. The assessee, inter alia, submitted that non-moving items included the inventory, which were lying for long time in the stock, and were valued at "cost or market value, whichever is less", which is as per the method of valuation regularly followed by the assessee-company. It was further submitted that the items of inventory have become obsolete and the value of stock was reduced below its cost, and therefore, considering the reduction in market value of inventory, a provision was made. The submission of the assessee was not found acceptable to the AO, as he was of the view that the provision made by the assessee was not for any ascertained liability but has made the provision for slow moving/obsolete stock and that the provision was contingent in nature. He accordingly, disallowed the claim of the assessee.
18. Aggrieved by the order of the AO, the assessee carried the matter before the CIT(A). The CIT(A), following order of his predecessor for A.Y.2004-05, deleted the addition by holding as under:
"5.
On identical issue appeal has been decided by the CIT(A)-VIII for a.Y.2004-05 vide appeal order No.CIT(A)-VIII/DC-4/347/2006-07 dated -10- DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO
19.3.2008 following the earlier year's decision and allowed the claim of the appellant. Since the facts are similar for this year, after considering the order of the Addl. CIT, as also submissions/evidences filed and following the order of the CIT(A)-VIII for A.Y.2004-05, the AO is directed to allow the claim of the for deduction on account of provision for obsolescence of inventory subject to furnishing of complete particulars in that regard by the appellant."
19. Aggrieved by the order of the CIT(A), the Revenue is in appeal before us. Before us, the learned DR relied on the order of the AO, on the other hand, the learned AR reiterated the submissions before the CIT(A). He further submitted that similar disallowance was made in A.Y.2004-05 and in appeal, the Hon'ble ITAT, Ahmedabad Bench in ITA No.2363/Ahd/2008 order dated 24.9.2013 has deleted the disallowance made by the AO. He placed on record copy of the aforesaid order and pointed to para 51 at page no.28 of the order. He further submitted that since the facts of the case in the year under appeal are identical to that of earlier years, the order of the CIT(A) be upheld.
20. We have considered rival submissions and perused the material available on record. We find that the CIT(A) while deleting the addition has noted that facts of the case of the assessee in the year are identical to the earlier years, and he had followed the decision of his predecessor. We further find that while deciding the Revenue's appeal in ITA No.2363/Ahd/2008 and others (ITA No.2881/Ahd/2007 for A.Y.2003-04), similar issue was decided by the ITAT in favour of the assesee and the addition was deleted as under:
"33. We have considered rival submissions. We find that this issue was decided by the learned CIT(A) on this basis that the assessee has claimed this amount as per the normal practice of valuation of closing stock as per the audited accounts and it is an omission on the part of the AO not to have dealt with this issue. The ld.CIT(A) has directed the AO to allow the claim of the assessee subject to the assessee furnishing the complete particulars in this regard, if necessary, with adequate proof. Hence, in our considered opinion, no interference is called for in the order of the ld.CIT(A) on this -11- DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO issue, because he has taken proper care to ensure that all the details and evidences are obtained and are examined by the AO and only thereafter, deduction is to be allowed, if the assessee is able to establish before the AO that such write off in respect of provision for obsolescence of inventory claimed by the assessee is in line with the accepted method of valuation of stock, i.e. at cost or market price, whichever is lower. Hence, this ground no. 4 of the Revenue is also rejected."
21. Since the facts in the year under appeal are identical to earlier years as claimed by both the parties, we find no reason to interfere with the order of the CIT(A) on this issue, and thus, this ground of the Revenue is also dismissed.
22. The ground no.3 of the Revenue's appeal is with regard to deletion of disallowance on account of warranty expenses of Rs.1,55,65,120/- .
23. During the course of assessment proceedings, the AO noticed that the assessee has debited sales and warranty commission amounting to Rs.6,40,41,310/- which included five years warranty provision on compressors amounting to Rs.76,12,205/- and the warranty expenses amounting to Rs.5,61,70,715/-. The AO noticed that the warranty for AC was for one year and for compressors it was five years from the date of commissioning of the ACs., and thus, the period of warranty expenditure extended well beyond the accounting period. The AO, therefore, was of the view that since the assessee was following mercantile system of accounting, the expenses incurred during or related to the relevant accounting period should only be allowed. In the absence of the detailed working of actual warranty expenses incurred during the year and for subsequent years being not available, the AO considered the warranty period for ACs. as three months for calculating the provision for warranty expenses pertaining to the subsequent years, and in the case of compressor, the warranty expense was divided into five equal parts. The AO accordingly disallowed warranty expenses of Rs.1,55,65,120/-.
-12-DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO
24. Aggrieved by the order of the AO, the assessee went in appeal before the CIT(A), and the CIT(A) deleted the disallowance by following the order of his predecessor dated 19.3.2008 for the Asstt.Year 2004-05 in the assessee's case . The Revenue being aggrieved, is now in appeal before us.
25. Before us, the learned DR relied on the order of the AO, on the other hand, the learned AR reiterated the submissions before the CIT(A). He further submitted that similar disallowance was made in A.Y.2004-05 and in appeal, the Hon'ble ITAT, Ahmedabad Bench in ITA No.2361/Ahd/2008 order dated 24.9.2013 has restored this matter back to the file of the ld. CIT(A) for fresh decisions, in view of the decision of Hon'ble Apex Court in the case of Rotork Control India P. Ltd. CIT, 314 ITR 62 (SC). He placed on record copy of the aforesaid order and pointed to para 5 at page no.3 of the order. He, therefore, submitted that the matter may be restored to the file of CIT(A) with suitable directions.
26. We have considered rival submissions and perused the material available on record. We find that the CIT(A) while deleting the addition has noted that facts of the case of the assessee in the year are identical to the earlier years, and he had followed the decision of his predecessor. We further find that in ITA No.2361/Ahd/2008 for A.Y.2004-05, similar issue was before the Co-ordinate Bench of ITAT, and the Co-ordinate Bench of ITAT after detailed discussion and following the decision of the Hon'ble Apex Court in the case of Rotork Control India P. Ltd., (supra) set aside and restored the issue back to the file of the ld. CIT(A) to decide the same afresh. The relevant portion of the above ITAT order is reproduced below:
"5. Regarding ground no.2, we find that this issue was decided by the ld.CIT(A) on this basis that this issue is covered in favour of the assessee by -13- DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO the decision of the Bangalore Bench of the Tribunal rendered in the case of IBM India Ltd. Vs. CIT, 290 ITR 183 (AT) (Bang). By now, this issue is also covered by the judgment of the Hon'ble Apex Court rendered in the case of Rotork Controls India P. Ltd v. Commissioner of Income-tax, 314 ITR 62 (SC). As per these judgments of the Hon'ble Apex Court rendered in the case of Rotork Controls India P. Ltd (supra), it was held that the provision made for incurring warranty expenses is allowable on provision basis also, if such provision is made by the assessee on some scientific basis. Before us, the assessee has not furnished details regarding the basis of this provision. As per the judgment of the Hon'ble Apex Court, it was held that the assessee-company should scrutinise the historical trend of warranty provision made and the actual expenses incurred against it, and on this basis, a sensible estimate should be made. In the present case, we feel that the expenses provided for by the assessee in respect of warranty should be allowed to the extent the provision is made on a scientific basis, as held by the Hon'ble Apex Court in this judgment rendered in the case of Rotork Controls India P. Ltd. (supra). Since these details are not available before us, and it was not examined by the authority below also, we feel it proper to restore this matter back to the file of the learned CIT(A) for fresh decision after examining the details, on the basis of which, the provision has been made by the assessee, and if it is found that such provision was made on scientific basis, as has been approved by the Hon'ble Apex Court, in the judgement rendered in the case of Rotork Control India P. Ltd. (supra), then no disallowance should be made out of this provision in respect of warranty expenses. But if it is found that the provision is excessive, then such excess provision, if any, should be disallowed. With these observations, we restore this matter back to the file of the ld.CIT(A) for fresh decision. The ground no.2 is allowed for statistical purpose."
27. Since it is admitted by both the parties that the facts of the case in the year under appeal are identical to that of earlier years, we respectfully following the decision for A.Y.2004-5 and with similar directions restore the issue of warranty expenses for A.Y.2005-06 to the file of the ld.CIT(A) for decision afresh. Needless to state that CIT(A) shall grant adequate opportunity of hearing to both the parties. Thus, this ground of Revenue is allowed for statistical purposes.
28. In the result, the ITA No.182/Ahd/2011 of the Revenue is partly allowed for statistical purpose.
-14-DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO ITA No.1136/Ahd/2011 (A.Y.2006-2007 : Revenue's appeal)
30. The following three grounds are raised in this appeal of the Revenue:
"1. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.22,58,337/- on account of adjustment in respect of international transaction of royalty payment, without properly appreciating the facts of the case and the material brought on record by the AO.
2. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.1,85,59,435/- made by the AO on account of provision for obsolescence of inventory, without properly appreciating the facts of the case and the material brought on record by the AO.
3. The ld. CIT(A) has erred in law and on facts in disallowance of warranty expenses of Rs.1,55,65,120/- made by the AO without properly appreciating the facts of the case and the material brought on record by the AO."
31. Both the parties before us submitted that the above three issues are similar to issues raised in the appeal of the Revenue in ITA No.182/Ahd/2011 for A.Y.2005-2006, and therefore, the above grounds may be decided accordingly.
32. After hearing the parties, we find that grounds raised in this appeal are identical to the grounds raised in the appeal of the Revenue for A.Y.2005-2006, and for the reasons recorded in the appeal of the Revenue in ITA No.182/Ahd/2011 for A.Y.2005-2006 in the foregoing paras of this order, we decide the issue accordingly.
33. In the result, the appeal of the Revenue in ITA No.1136/Ahd/2011 for A.Y.2006-2007 is partly allowed for statistical purpose.
CO No.148/Ahd/2011 (A.Y.2006-2007 : Assessee's CO) -15- DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO
34. The first ground of the CO of the assessee is as under:
"1. On the facts and in the circumstances of the case, the Departmental authorities erred in rejecting assessee's claim for deduction of Rs.1,58,529/- for the debit balances written off for the sums which were due from different parties for and on connection with the assessee's business in spite of the fact that the claim was allowable u/s.28 or 37."
35. The AO, during the course of assessment, found that the assessee also has written off advances amounting to Rs.1,58,529/- . This according to the AO was not allowable as the assessee has not justified as to how the debts has become bad, hence, the AO added back to the income of the assessee. This action of the AO was challenged before the CIT(A), who also confirmed the same by holding that the amounts of Rs.1,58,529/- representing advance given to different parties was not arising out of sale, and accordingly, it was not in the nature of bad debts. Aggrieved assessee is now before us.
36. The learned counsel for the assessee submitted that the impugned claim of the assessee is allowable under section 28 or 37 and that it is common practice in the business that any sums either not recovered or ceased to be recoverable, are deductible expenditure in the computation of business income, hence the claim of the assessee be allowed. On the other hand, the learned DR relied on the orders of the AO and the CIT(A).
37. We have considered rival submissions and perused the material available on record. We find that the Revenue authorities have disallowed the claim of the assessee for deduction of Rs.1,58,529/- for the debit balances written off which were due from different parties, on the ground that the same were not arising out of the sales made by the assessee. We find that there is no dispute to the fact that the loss of Rs.1,58,529/- incurred during the course of business and that the assessee has written off the said amount from its accounts, as the same became -16- DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO irrecoverable. The Hon'ble Apex Court in the case of T.R.F. Ltd. Vs. CIT, 323 ITR 397 (SC) held that in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable; it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. This being so in the case of assessee, we are not inclined to take a different view on this issue, and accordingly, this ground of the CO of the assessee is allowed.
38. The ground no.2 of the CO of the assessee is as under:
"2. On the facts and in the circumstances of the case, this Hon'ble Tribunal may be pleased o direct the AO to process and consider on merits the assessee's claim made in its letter dated 16.2.2011 addressed to the AO for claiming further deduction Rs.1,21,39,516 in pursuance of the provisio to section 40(a)(ia) as amended retrospective with effect from 1.4.2005 by the Finance Act, 2008."
39. The assessee in its written submissions stated that as per the proviso to section 40(a)(ia) the assessee claimed deduction of Rs.7,26,31,338/- in the return for A.Y.2006-07 for the sums of expenditure pertaining to A.Y.2005-06 on which TDS was effected and paid during the time available for A.Y.2006-07. Thus, out of disallowance effected a sum of Rs.9,09,94,234/- during A.Y.2005-06 a sum of Rs.7,26,31,338/- was claimed as deduction in A.Y.2006-07. It is submitted that actually there was a further sum of Rs.1,21,39,516 which had become deductible but could not be claimed during the assessment proceedings before the AO. However, the claim for the same was made vide assessee's letter dated 16.2.2011 addressed to the AO, and copy of which is filed in the compilation before the Tribunal. In the meanwhile, the CIT(A) passed appellate order dated 20.1.2011 and the claim of the assessee could not be considered by the CIT(A). The assessee, therefore, submitted that the Tribunal to issue direction to the Department to consider the claim of the assessee for further deduction of -17- DCIT Vs. Hitachi Home & Life Solutions (India) Ltd.
ITA No.182, 216 and 1137/Ahd/2011 with CO Rs.1,21,39,516. The learned DR has not objection if the issue is restored the file of the AO for consideration of the assessee's claim.
40. After hearing both the sides and considering material available on record, we find that this claim of the assessee for further deduction of Rs.1,21,39,516/- was not before the CIT(A) or the AO, before passing their respective orders. Therefore, we deem it fit to send this issue to the file of the AO for considering admissibility or otherwise of the claim of the assessee as per the law. Needless to say, the assessee shall furnish all the details, as required by the AO for determination of the claim of the assessee, and accordingly, this ground of the CO of the assessee is allowed for statistical purpose.
41. Thus, the CO of the assessee is allowed for statistical purpose.
42. In the result, the appeals of the assessee being ITA No.216/Ahd/2011 is partly allowed, the ITA No.182 and 1136/Ahd/2011 of the Revenue are partly allowed for statistical purpose, and the CO of the assessee is partly allowed for statistical purpose.
Order pronounced in Open Court on the date mentioned hereinabove.
Sd/- Sd/-
कुल भारत /KUL BHARAT)
(क अिनल चतुवȶदȣ / ANIL CHATURVEDI)
(अिनल
Ûयाियक सदःय/JUDICIAL
सदःय MEMBER लेखा सदःय /ACCOUNTANT MEMBER
Copy of the order forwarded to:
1) : Appellant
2) : Respondent
3) : CIT(A)
4) : CIT concerned
5) : DR, ITAT.
BY ORDER
DR/AR, ITAT, AHMEDABAD
-18-