Principal Commissioner Of Income Tax, Kota v. M/S Instrumentation Limited, Jhalawar Road, Kota

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 68 / 2015 PRINCIPAL COMMISSIONER OF INCOME TAX, KOTA ----Appellant Versus M/S INSTRUMENTATION LIMITED, JHALAWAR ROAD, KOTA ----Respondent Connected With D.B. Income Tax Appeal No. 75 / 2015 Principal Commissioner of Income Tax Kota ----Appellant Versus M/s Instrumentation Limited, Jhalawar Road, Kota ----Respondent D.B. Income Tax Appeal No. 85 / 2016 Principal Commissioner of Income Tax Kota ----Appellant Versus M/s Instrumentation Limited, Jhalawar Road, Kota ----Respondent D.B. Income Tax Appeal No. 155 / 2016 Pr. Commissioner of Income Tax, Kota ----Appellant Versus M/s Instrumentation Limited, Jhalawar Road Kota. ----Respondent D.B. Income Tax Appeal No. 179 / 2016 Pr. Commissioner of Income Tax, Kota ----Appellant Versus M/s Instrumentation Limited, Jhalawar Road Kota. ----Respondent D.B. Income Tax Appeal No. 105 / 2015Principal Commissioner of Income Tax, Kota ----Appellant Versus M/s. Instrumentation Limited, Jhalawar Road, Kota ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo JainFor Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 12/09/2017 In both these appeals common questions of law and factsare involved, hence, they are decided by this common judgment. 1.By way of these appeals, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeals of the department. 2.Though served none appeared for the respondent. 3.This Court while admitting the matters framed the followingsubstantial questions of law:- In DBITA No. 68/2015 “1. Whether the Tribunal was legally justified indeleting the disallowance of Rs. 47,17,143/- provided for contractual obligation in the returnwhichwasnotallowablebeingcontingent/unascertainable liability?” 2. Whether the Tribunal was legally justified indeleting the disallowance of Rs. 3,39,38290/-made on account of employees contribution toprovident fund specifically when the amountclaimed was not deposited in prescribed timethus being contrary to the provisions of section43B and 36(1)(va), 2(24)(x).” In DBITA No. 75/2015 1. Whether the Tribunal was legally justified indeleting the disallowance of Rs. 83,74,416/-provided for contractual obligation in the returnwhichwasnotallowablebeingcontingent/unascertainable liability?” 2. Whether the Tribunal was legally justified indeleting the disallowance of Rs. 7,57,32,300/-made on account of employees contribution toprovident fund specifically when the amountclaimed was not deposited in prescribed timethus being contrary to the provisions of section43B and 36(1)(va), 2(24)(x).” In DBITA No. 85/2016 “Whether the Tribunal was legally justified indeleting the disallowance of Rs. 12,29,56,399/-made on account of employees contribution toprovident fund specifically when the amountclaimed was not deposited in prescribed timeand also included claim for the earlierAssessment Year thus being contrary to theprovisions of section 43B and 36(1)(va), 2(24)(x).” In DBITA No. 155/2016 1. Whether the Tribunal was legally justified indeleting the disallowance of Rs. 1,62,21,162/-provided for contractual obligation in the returnwhichwasnotallowablebeingcontingent/unascertainable liability?” In DBITA No. 85/2016 “Whether the Tribunal was legally justified indeleting the disallowance of Rs. 12,29,56,399/-made on account of employees contribution toprovident fund specifically when the amountclaimed was not deposited in prescribed timeand also included claim for the earlierAssessment Year thus being contrary to theprovisions of section 43B and 36(1)(va), 2(24)(x).” In DBITA No. 155/2016 1. Whether the Tribunal was legally justified indeleting the disallowance of Rs. 1,62,21,162/-provided for contractual obligation in the returnwhichwasnotallowablebeingcontingent/unascertainable liability?” 2. Whether the Tribunal was legally justified indeleting the disallowance of Rs. 11,15,32,836/-made on account of employees contribution toprovident fund specifically when the amountclaimed was not deposited in prescribed timeand also included claim for the earlierAssessment Year thus being contrary to theprovisions of section 43B and 36(1)(va), 2(24)(x).” In DBITA No.179/2016 “Whether the Tribunal was legally justified indeleting the disallowance of Rs. 8,76,34,111/-made on account of employees contribution toprovident fund specifically when the amountclaimed was not deposited in prescribed timethus being contrary to the provisions of section43B and 36(1)(va), 2(24)(x).” In DBITA No. 105/2015 “Whether the Tribunal was legally justified indeleting the disallowance of Rs. 6,45,57,068/-made on account of employees contribution toprovident fund specifically when the amountclaimed was not deposited in prescribed timethus being contrary to the provisions of section43B and 36(1)(va), 2(24)(x).” 4.Counsel for the appellant contended that the matters arenow covered by the decision of Supreme Court in case of RotorkControls India P. Ltd. vs. Commissioner of Income Tax reported in[2009] 314 ITR 62 (SC) wherein it has been held as under:- “Held, reversing the decision of the High Court,that the value actuators, manufactured by theassessee, were sophisticated goods andstatistical data indicated that every year some ofthese were found defective; that value actuatorbeing a sophisticated item no customer wasprepared to buy a value actuator without awarranty. Therefore, the warranty became anintegral part of the sale price; in other words,the warranty stood attached to the sale price ofthe product. In this case the warranty provisionshad to be recognized because the assessee hada present obligation as a result of past eventsresulting in an outflow of resources and areliable estimate could be made of the amountof the obligation. Therefore, the assessee hadincurred a liability during the assessment yearwhich was entitled to deduction under section 37of the Income Tax Act, 1961. The present value of a contingent liability, likethe warranty expense, if properly ascertainedand discounted on accrual basis can be an itemof deduction under section 37. the principle ofestimation of the contingent liability is not thenormal rule. It would depend on the nature of the business, the nature of sales the nature ofthe product manufactured and sold and thescientific method of accounting adopted by theassessee. It would also depend upon thehistorical trend and upon the number of articlesproduced. A provision is a liability which can be measuredonly by using a substantial degree of estimation.A provision is recognized when : (a) anenterprise has a present obligation as a result ofa past event (b) it is probable that an outflow ofresources will be required to settle the obligationand (c) a reliable estimate can be made of theamount of the obligation. If these conditions arenot met, no provision can be recognized. the business, the nature of sales the nature ofthe product manufactured and sold and thescientific method of accounting adopted by theassessee. It would also depend upon thehistorical trend and upon the number of articlesproduced. A provision is a liability which can be measuredonly by using a substantial degree of estimation.A provision is recognized when : (a) anenterprise has a present obligation as a result ofa past event (b) it is probable that an outflow ofresources will be required to settle the obligationand (c) a reliable estimate can be made of theamount of the obligation. If these conditions arenot met, no provision can be recognized. This principle is that if the historical trendindicated that a large number of sophisticatedgoods were being manufactured in the past andthe facts show that defects existed in some ofthe items manufactured and sold, then provisionmade for warranty in respect of suchsophisticated goods would be entitled todeduction from the gross receipts under section37.” 5.The second issue is covered in view of the decision of thisCourt in Tax Appeal No. 61/2012 (Commissioner of Income Tax,Kota vs. M/s Instrumentation Limited, Jhalawar Road, Kota)decided on 24[th] August, 2017 wherein it has been held as under:- “4. Counsel for the appellant contended that theTribunal and the CIT (Appeal) have seriouslycommitted an error in reversing the view takenby the A.O. inasmuch as while considering theissue of payment of contribution which wasmade, the A.O. has observed in para 7 whichreads as under:- “As per audit the total employer’s contribution toprovident fund is Rs.2,89,66,398/-. All theseamount of Rs.9,19,93,302/- have been either notpaid or paid after prescribed time. Therefore, thisamount of Rs.9,19,93,302/- should have beenadded while computing the income/loss, whereasthe assessee has not added in computation. Hence the amount of Rs.2,89,66,398/- is addedto the income of the assessee due to the non payment/delayed payment by the company.” 5. He contended that the view taken by the A.O.is required to be restored, in view of theprovision of Section 43 (b) where by thepayment which was made is not allowed to bededucted. Therefore, she contended that the view taken bythe Tribunal and CIT (Appeal) is required to bereversed. 6. Counsel for the respondent has taken us to theorder passed by CIT (Appeal) who whileconsidering the case in paragraph 4.3 held asunder:- “Moreover, the Hon’ble Delhi High Court in thecase of CIT Vs. AIMIL Ltd, 321 ITR 508 has heldthat no disallowance can be made in respect ofEmployers P.F. Contribution and Employees P.F.Contribution in case such contributions are paidbefore due date of filing. It is not in disputebefore us that the contributions have not beenpaid before due date of filing of the return. Wetherefore, hold that the ld. CIT(A) was justified indeleting the Employers P.F. Contribution andEmployees P.F. Contribution.” 7. In other appeal, (68/2012) in Paragraph 5which reads as under:- “As per audit report the total employeescontributiontoprovidentfundisRs.8,95,28,233/-. Out of this amount ofRs.6,65,74,815/- have not been paid and amountof Rs.1,40,62,629/- have been paid afterprescribed time/due date. Therefore, this amountof Rs.8,06,37,444/- should have been addedwhile computing the income/loss, whereas theassessee has added in computation an amount ofRs.6,65,74,815/- only on the account. Hence thebalance amount of Rs.1,40,62,629/- is added tothe income of the assessee due to the nonpayment/delayed payment by the company.” 8. Counsel for the respondent has relied upondecision of this court reported in [2014]363 ITR70 (Raj.), wherein it has been pointed out thatSLP against the said issue is pending.” 6.Taking into consideration, subject to SLP the issue no. 2 is decided in favour of the assessee against the department. 8. Counsel for the respondent has relied upondecision of this court reported in [2014]363 ITR70 (Raj.), wherein it has been pointed out thatSLP against the said issue is pending.” 6.Taking into consideration, subject to SLP the issue no. 2 is decided in favour of the assessee against the department. 7.In view of the above, the issue no. 1 is decided in favour ofassessee in view of the judgment referred above and issue no. 2 isanswered in favour of assessee subject to SLP. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. A.Sharma/81-85 & 87