Culture Company India P.Ltd, Mumbai vs Assessee

Wartsila India Limited DCIT, Range-3(3) 21st Floor, Plot no.5 बनाम/ Mumbai Sec-19, Palm Beach Road Sanpada, Navi Mumbai 400 705 Vs. अऩीराथी / Appellant प्रत्मथी / Respondent P.A. No.AAACW0345D

याजस्व की ओर से / Revenue by Shri N.V. Nadkarni

ननधाारयती की ओर से / Assessee by Shri J.D. Mistry

सुनवाई की तायीख / Date of Hearing 28/5/2015

आदे श की तायीख /Date of Order: 05 /6/2015

आदे श / O R D E R

Per Joginder Singh (Judicial Member)

The assessee has challenged the impugned order dated 31st January 2012, passed by the learned Commissioner of Income Tax (Appeals), Mumbai. The first ground pertains to confirming 2 Wartsila India Limited

the disallowance of provision for trade guarantee amounting to Rs.1,03,34,220.

2. The crux of arguments advanced by Shri J.D. Mistry, learned Counsel for the assessee is identical to the ground raised by submitting that the impugned issue is covered by the decision from the Tribunal in the case of assessee itself (ITA no.2027 and 3931/Mum./2009, for the assessment year 2005-

06. This factual matrix was not controverted by the Mrs. N.V. Nadkarni, learned D.R.

2.1 We have considered the rival submissions and perused the material available on record. In view of the above factual matrix, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 27th April 2011 for ready reference:-

"2 In grounds of appeal no.1, the assessee has challenged the order of the CIT(A) in confirming the action of the Assessing Officer in disallowing the provision for trade guarantees of Rs. 1,41,92,093/-.

2.1 Facts of the case, in brief, are that the assessee is engaged in the business of diesel generating sets and installation and service of diesel generating power plants. From the accounts of the assessee, the Assessing Officer observed that the assessee has claimed an expense of Rs. 1,41,92,093/ on account of provision for trade guarantee. From the perusal of the method of arriving at such trade guarantee provision, the Assessing Officer noted that there was no consistency and there was no scientific method to arrive at such values of provision for trade guarantee. Therefore, according to the Assessing Officer, it appears that prima facie, the assessee has claimed contingent liabilities.

3 Wartsila India Limited

He, therefore, asked the assessee to explain as to why the provision for such trade guarantee should not be disallowed.

2.2 Rejecting the various explanations given by the assessee, he came to the conclusion that provision created by the assessee is purely irrational and adhoc basis and therefore, is in the nature of contingent liability, which is not an allowable deduction in view of the provisions of the Act. The liability in this particular case has not accrued. It is the irrational belief of the assessee that such and such amount of liability may accrue on account of repairs during the warranty period. Since the method followed by the assessee is not evident, from the wide discrepancy in the figure of actual liability and provision, the various decisions cited by the assessee are also not applicable to the facts of the present case. Relying on a couple of decisions, the Assessing Officer disallowed the amount of Rs. 1,41,92,093/- being in the nature of contingent liability. After deducting actual expenditure of Rs. 64,33,230/- incurred by the assessee he disallowed an amount of Rs. 77,58,863/-.

3 In appeal, the CIT(A) following the order of his predecessor for Assessment Year 1991-92 upheld the action of the Assessing Officer and held that provision of trade guarantee debited in the books of account is not an ascertained liability and hence it does not qualify for deduction. He, however, directed the Assessing Officer to give deduction to the assessee of the actual expenditure incurred in respect of trade guarantee performance during the earlier year.

4 Aggrieved by such order of the CIT(A), the assessee is in appeal here before us.

5 The ld counsel for the assessee, at the outset, referring to the decision of the Tribunal in assesse's own case in ITA No.7114/Mum/2008 order dated 26.2.2010 for the Assessment Year 2004-05, submitted that the issue stands covered in favour of the assessee by the decision of the Tribunal in assesse's own case. Referring to para 5 of the order, he drew the attention of the Bench to the dispute relating to disallowance of provision for trade guarantee of Rs. 1,03,04,465/- for the Assessment Year 2004-05.

5.1 Referring to para 10 of the order, he submitted that the issue was stated to be covered in favour of the assessee from 4 Wartsila India Limited

Assessment Year 1990-91 to 2001- 02 in assessee's own case.

5.2 Referring to paras 13 to 16 of the order, he drew the attention of the Bench to the findings given by the Tribunal and submitted that the Tribunal following the consistent decisions of the Tribunal in assessee's own case and the decision of the Hon'ble Supreme Court in the case of Rotork Controls India P Ltd vs CIT and ors reported in 314 ITR 62 had set aside the order of the CIT(A) and allowed the claim of the assessee. Therefore, this being a covered matter, the ground raised by the assessee should be allowed.

5.3 The ld DR, on the other hand, fairly conceded that the ground in principle is covered against the revenue and in favour of the assessee. However, he submitted that quantification is required to be examined at the level of the Assessing Officer since the period of warranty is not known. He, accordingly submitted that the matter may be set aside to the file of the Assessing Officer for quantification.

6 We have considered the rival submissions made by both the parties, perused the orders of the Assessing Officer and the CIT(A) and the paper book 5 ITA No.2027/Mum/2009 filed on behalf of the assessee. After hearing both the parties, we find the issue stands covered in favour of the assessee by the consistent decisions of the Coordinate Benches of the Tribunal in assessee's own case from Assessment Years 1990-91 till 2001-02 and Assessment Year 2004-05. In view of the decisions of the Tribunal in assessee's own case for Assessment Year 2004-05 where the Tribunal after considering the decision in the case of the assessee for earlier years has allowed the claim and in absence of any contrary material brought to our notice by the ld DR, this ground by the assessee is allowed."

2.2 If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsels and conclusion drawn by the Tribunal for the assessment year 2005-06, if kept in juxtaposition and analyzed, we find that identically, the Tribunal has placed 5 Wartsila India Limited

reliance upon the decision of the Tribunal for the assessment year 2004-05, wherein a detailed deliberation has been made on identical facts / issue. In the absence of any contrary material or any case law cited by the Revenue against the assessee, on the reasoning contained in the aforesaid order / earlier order of the Tribunal, we allow this ground of the assessee.

3. The next ground pertains to disallowance of provision for trade guarantee written-back of Rs.64,85,216. The crux of argument advanced on behalf of the assessee is that the learned Commissioner of Income Tax (Appeals) has not dealt with this issue though raided by the assessee, however, pointed out that if ground no.1, is decided in favour of the assessee, then automatically this ground will be disposed off. The learned D.R. fairly agreed with the argument of the assessee. In view of the above, since we have decided the issue of trade guarantee in favour of the assessee, therefore, this ground is automatically disposed off in favour of the assessee.

4. The next ground pertains to disallowance of deduction u/s 80IA of the Act for future years. The crux of arguments advanced on behalf of the assessee is that the learned Commissioner of Income Tax (Appeals) wrongly confirmed the disallowance claimed u/s 80IA of the Act, because no claim was made by the assessee, therefore, there is no question of fulfilling the conditions required under the section. The learned D.R. consented that no claim was made by the assessee.

4.1 In view of the assertion of the learned Counsel for the assessee that no claim was made by the assessee u/s 80IA of the Act and admission by the learned D.R. that no such claim was 6 Wartsila India Limited

made, there is no question of making any addition / disallowance.

5. The next ground pertains to disallowance of professional fee of Rs.30,36,211. The crux of argument advanced by the learned Counsel for the assessee is that it was a fee paid to the consultant for which our attention was invited to various pages of the paper book by claiming that the sole business of the assessee is generation of power for the last 50 years and the same business is continued. The learned D.R. defended the conclusion arrived at by the learned Commissioner of Income Tax (Appeals). We find that the Assessing Officer dealt with this issue in Para-10.1 of the assessment order wherein it has been mentioned that vide letter dated 18th October 2010, the assessee filed the details of legal and professional consultancy charges in excess of Rs.2 lakhs for the parties. The Assessing Officer disallowed the amount of Rs.30,36,122, which was fees for study conducted and feed-back given on power generation to a feed-back business consultant. In a query to the order sheet dated 18th October 2010, the assessee vide letter dated 25th October 2010, claimed the nature of expenses as professional fee. The Assessing Officer disallowed the same on the ground that power generation is not a regular business of the assessee. The learned Commissioner of Income Tax (Appeals) affirmed the same. The assessee is aggrieved and is in appeal before this Tribunal.

5.1 We have considered the rival submissions and perused the material available on record. The totality of facts clearly indicates that the assessee is in the business of generation of power. Broadly, the power is generated either through water (electricity) or generator set and also through wind (wind energy / electricity). The assessee is manufacturing generators through which the power is generated and 7 Wartsila India Limited

such generators are used by the customers. Thus, we are not in agreement with the observation of the Assessing Officer that power generation is not the regular business of the assessee because the assessee is manufacturing generators which are used for power generation. The Assessing Officer has also observed that these are pre-operative expenses. We are not agreeing with this observation also because the assessee is in the business of power generation for the last about 50 years, therefore, how these can be treated as pre- operative expenses. More specifically when the Assessing Officer himself has observed that the amount was paid to the consultant in connection with feasibility report on power generation, as is evident from Para-10.3 of the assessment order. Power generation is not the new business of the assessee. It is evident from Page-63 of the paper book that the assessee disclosed income to the tune of Rs.270,38,23,066=24, from sales, services and operation, etc. The assessee rendered services to the extent of Rs.95,02,33,220, as is evident from page-68 of the paper book and Form no.3CD [col. 8(a)], the nature of business shown by the assessee is manufacturing / trading in diesel engine, trading in engineering goods and other engineering services. Thus, it can be concluded that it is not the new business of the assessee. Therefore, this ground of the assessee has to be allowed.

6.1 The next ground pertains to addition for provision of trade guarantee to book profit computed u/s 115JB of the Act amounting to Rs.1,03,34,220. The crux of argument advanced on behalf of the assessee is that it is actually determined liability in the accounts of the assessee. Reliance was placed upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT v/s Echjay Forgings Pvt. Ltd., order dated 8th February 2001, 2001-(IT2)-GJX-0075-BOM. The 8 Wartsila India Limited

learned D.R. contended that the conclusion arrived at in the impugned order is correct.

6.2 We have perused the record and considered the rival submissions and found, as agreed by the learned Counsel for the assessee also, that actuarial valuation report was not filed by the assessee before the Assessing Officer. Therefore, we remand this issue to the file of the Assessing Officer to examine the claim of the assessee and decide in accordance with law. The assessee be given opportunity of being heard with further liberty to furnish evidence, if any, in support of its claim. This ground is allowed for statistical purposes.

7. Identically, the issue of provision for gratuity and leave encashment is also remanded back to the file of the Assessing Officer to examine the actuarial valuation, if any, filed by the assessee and decide the same in accordance with law. The assessee be given opportunity of being heard. This ground is also allowed for statistical purposes.

Finally, the appeal of the assessee is partly allowed for statistical purposes.

This order was pronounced in the open Court in the presence of learned Representatives from both the sides at the conclusion of the hearing on 5th June 2015.

Sd/- Sd/- (N.K. Billaiya) (Joginder Singh) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER

भफ ुंु ई Mumbai; ददनाुंक Dated : 05/06/2015 9 Wartsila India Limited

प्रदीऩ जे. चौधयी / Pradeep J. Chowdhury वरयष्ठ ननजी सचचव / Sr. Private Secretary

आदे श की प्रयिसऱपप अग्रेपषि/Copy of the Order forwarded to :

1. अऩीराथी / The Appellant

2. प्रत्मथी / The Respondent.

3. आमकय आमक् ु त(अऩीर) / The CIT, Mumbai.

4. आमकय आमक् ु त / CIT(A)- , Mumbai

5. ववबागीम प्रनतननचध, आमकय अऩीरीम अचधकयण, भफ ुुं ई / DR, ITAT, Mumbai

6. गार्ा पाईर / Guard file.

आदे शानसार/ BY ORDER, सत्मावऩत प्रनत //True Copy//

उप/सहायक पुंजीकार (Dy./Asstt. Registrar) आयकर अपीऱीय अधिकरण, भफ ुुं ई / ITAT, Mumbai