M/s Amco Batteries Ltd., Bangalore V. DCIT, Bangalore

ITA 1166/BANG/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7707 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 28-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI CITII
• Section: 143(3)

Judgement Text

PAGE 1 OF 6 ITA NO.1 166/BANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.1166/BANG/2011 (ASSESSMENT YEAR 2008-09) M/S AMCO BATTERIES LTD., 3 RD FLOOR, TOWER BLOCK, UNITY BUILDINGS, J C ROAD, N R SQUARE, BANGALORE-2. PA NO. AABCA 1726 F VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(4), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 03.07.2012 DATE OF PRONOUNCEMENT : 03.07.2012 APPELLANT BY : SMT. SHEETAL BORKAR, ADVOCA TE RESPONDENT BY : SHRI FARHAT HUSSAIN QURESHI, CIT-II ORDER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I, BANGALORE DATED 17.10.2011. THE RELEVANT ASSESSMENT YEAR IS 2008-09. I) THE SOLITARY ISSUE THAT ARISE FOR OUR CONSIDERATION IS WHETHER THE CIT(A) IS JUSTIFIED IN AFFIRMING THE ASSESSING OFFICERS ORDER IN DISALLOWING THE PROVIS ION FOR WARRANTY AMOUNTING TO RS.3,98,18,294/-. 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- PAGE 2 OF 6 ITA NO.1 166/BANG/2011 2 THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE B USINESS OF MANUFACTURING AND TRADING OF BATTERIES. THE RETURN OF INCOME FOR THE CONCERNED ASSESSMENT YEAR WAS FILED ON 26/7/2008 DEC LARING AN INCOME OF RS.2,17,18,047/-. ASSESSMENT WAS COMPLETED UNDER S ECTION 143(3) RWS 144A OF THE ACT VIDE ORDER DATED 29/11/2010. IN THE SCR UTINY ASSESSMENT COMPLETED, THE ASSESSING OFFICER HAD DISALLOWED A S UM OF RS.3,98,18,294/- BEING PROVISION FOR WARRANTY BY OBSERVING THUS:- I HAVE CAREFULLY CONSIDERED THE SUBMISSION MADE. T HE PROVISION FOR WARRANTY FOR THIS YEAR DEBITED TO THE P&L ACCOUNT IS RS.9,80,90,650/-. THE ASSESSEE HAS INCU RRED ACTUAL EXPENSES ONLY TO THE EXTENT OF RS.5,82,72,356 /-. THUS A SUM OF RS.3,98,12,294/- DEBITED TO THE P&L ACCOUNT IS STILL OUTSTANDING IN THE NATURE OF PROVI SION. UNDER THE INCOME TAX ACT THERE IS NO PROVISION TO A LLOW ANY EXPENDITURE WHICH IS IN THE NATURE OF PROVISION AND CONTINGENT. ACCORDINGLY, A SUM OF RS.3,98,18,294/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME. 4. AGGRIEVED BY THE DISALLOWANCE MADE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORI TY. 5. ELABORATE WRITTEN SUBMISSION WAS FILED BEFORE T HE FIRST APPELLATE AUTHORITY, WHICH IS REPRODUCED FROM PAGES 3 TO 5 OF THE IMPUGNED ORDER OF THE CIT(A). THE CIT(A), HOWEVER, REJECTED THE APPEAL FILED BY THE ASSESSEE BY FOLLOWING THE PRINCIPLES ENUNCIATED IN T HE CIT(A)S ORDER IN THE CASE OF M/S APPLE INDIA (P) LTD. (ITA NO.77/DC-11(1 )/A-I/10-11 DATED 22.9.2011). THE RELEVANT FINDING OF THE CIT(A) AT PARA 9 READS AS FOLLOWS:- PAGE 3 OF 6 ITA NO.1 166/BANG/2011 3 9. THUS I HAVE CONCLUDED THAT IF THE RATIO BETWEEN ACTUAL EXPENDITURE AND PROVISIONS IS 70:100 THEN TH E PROVISION BE CONSIDERED ASCERTAINABLE AND THEREFORE DEDUCTIBLE. ON THIS PREMISES I HAVE ALLOWED DELETI ON OF ADDITIONS IN APPELLANTS OWN CASE IN AYS 2005-06 AND 2007-08. BUT EACH CASE IS DIFFERENT ON FACTS. THE ASSESSEE ALSO ADMITS THAT SALES OF THE COMPANY HAS G ROWN BY LEAPS AND BOUNDS. IN THIS YEAR THE RATIO BETWEEN ACTUAL EXPENDITURE AND WARRANTY PROVISION IS 59:100 AND THEREFORE DO NOT MEET THE PARAMETER FIXED BY ME I.E. 70:100 ON THE BASIS OF WHICH THE ADDITIONS OF ASSES SMENT YEAR 2005-06 AND 2007-08 HAD BEEN DELETED. IN VIEW OF THE ABOVE I DO NOT CONSIDER THE ESTIMATION OF PROVI SION IN THIS YEAR IS SCIENTIFIC AND REASONABLE. HOWEVER THE ALLOWANCE OF ACTUAL EXPENDITURE REDUCED BY THE ASSES SING OFFICER AND DISALLOWANCE OF THE BALANCE IS FOUND JUSTIFIED. THE ADDITION IS UPHELD. THE RELATED GR OUNDS OF APPEAL ARE DISMISSED. 6. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFOR E US BY RAISING THE FOLLOWING GROUNDS:- I) THE LEARNED CIT(A) ERRED IN DISALLOWING THE WARRANT Y PROVISION BY HOLDING THAT IF THE RATIO BETWEEN ACTUA L EXPENDITURE AND WARRANTY PROVISION IS 59:100 AND NOT 70:100, THEN THE SAME CANNOT BE ALLOWED WITHOUT APPRECIATING THAT THE PROVISION FOR WARRANTY WAS IN RELATION TO THE SALES MADE DURING THE RELEVANT YEAR AND THE LIABILITY WAS AN ASCERTAINED LIABILITY AND ACCRUE D DURING THE RELEVANT YEAR AND WAS PROVIDED IN COMPLI ANCE OF THE ACCOUNTING STANDARD 29 PRESCRIBED BY THE INSTITU TE OF CHARTERED ACCOUNTANTS OF INDIA AND ACCORDINGLY TH E SAME IS LIABLE TO BE ALLOWED AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. V CIT (2009) 314 ITR 62 (SC) WHICH HAS ALSO BE EN CONFIRMED BY THE KARNATAKA HIGH COURT IN THE CASE OF CIT V WIPRO GE MEDICAL SYSTEMS. PAGE 4 OF 6 ITA NO.1 166/BANG/2011 4 II) THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE ORDER OF THE ITAT IN THE APPELLANTS OWN CASE ON SIMILAR ISS UE FOR THE ASSESSMENT YEARS 2005-06 AND 2007-08 IN ITA NO.265/AC-11(1)/A-1/07-08 AND ITA NO.101/DC-11(1)/A - 1/09-10 DATED 11.1.2011. III) WITHOUT PREJUDICE, THE IMPUGNED ADDITIONS CONFIRMED BY THE LEARNED CIT(A) ARE ARBITRARY, EXCESSIVE AND OUGH T TO BE DELETED. 7. THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME-TAX AUTHORITIES. 8. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E FINDING/CONCLUSION OF THE CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. IT IS NOT IN DISPUTE THAT THERE IS ANY C HANGE IN THE METHOD OF ACCOUNTING IN THIS ASSESSMENT YEAR. IT IS ALSO NOT IN DISPUTE THAT THE CIT(A) HAD CONSIDERED THE SAME WORKING METHOD OF PROVISION IN THE PREVIOUS TWO YEARS AND ALLOWED THE PROVISION. THE TRIBUNAL HAS A LSO ALLOWED THE PROVISION FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.142/2010 D ATED 21/3/2011. THE CIT(A) DID NOT ALLOW PROVISION FOR WARRANTY FOR THE CONCERNED ASSESSMENT YEAR ON THE GROUND THAT THE RATIO BETWEEN THE ACTUAL AND THE PROVISION IS LESS THAN 70:100. THIS RATIO ADOPTED BY THE FIRST APPELL ATE AUTHORITY IS PURELY IMAGINARY AND ARBITRARY AND WITHOUT ANY BASIS. THE P ROVISION FOR WARRANTY MADE EVERY YEAR IS IN ACCORDANCE WITH THE ACCOUNTING STANDARDS 29 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS . THE ACCOUNTING STANDARD PRESCRIBES TO RECOGNIZE WARRANTY AS EXPENDI TURE AT THE TIME OF PAGE 5 OF 6 ITA NO.1 166/BANG/2011 5 SALE. IN THE INSTANT CASE, THE PROVISION MADE IS B ASED ON THE SALE AND ALSO THE ACTUAL TREND OF THE LAST FEW YEARS. THIS PROVISION IS WORKED OUT SCIENTIFICALLY EVERY YEAR. SIMPLY BECAUSE THE PROVISION HAS COME DOW N TO 59:100 INSTEAD OF 70:100 IS WRONG AND IMAGINARY. THE TABLE OF LAST TH REE YEARS OF SALE, THE PROVISION AND ACTUAL SETTLEMENT ARE AS FOLLOWS:- FINANCIAL YEAR RUPEES IN CRORES GROSS SALES AS 29 PROVISION DURING THE YEAR % LIABILITY AS AT THE YEAR END 2006-07 116.49 5.44 4.7 2.35 2007-08 168.14 9.81 5.8 6.33 2008-09 194.35 8.80 4.5 8.66 FROM THE ABOVE, IT IS CLEAR THAT THE SALES HAVE GON E UP FROM RS.116.49 CRORES IN THE FINANCIAL YEAR 2006-07 TO RS.194.35 CRORES IN THE FINANCIAL YEAR 2008- 09. IN THE CONCERNED FINANCIAL YEAR (2007-08), THE PROVISION OF WARRANTY IS 5.8% I.E. RS.9.81 CRORES ON RS.168.13 CRORES. THE PROVISION HAS GONE UP BECAUSE OF INCREASE IN THE SALES AND ALSO THE PRORA TED WARRANTY IS CONSIDERED IN THE BATTERY INDUSTRY, NAMELY, 12, 18 AND 24 MONTHS ON DIFFERENT TYPES OF BATTERIES. HENCE, THERE IS AN INCREASE IN PROVISIO N. HOWEVER, THERE WAS SETTLEMENT IN THE SUBSEQUENT NINE MONTHS AGGREGATIN G TO RS.5.76 CRORES AS AGAINST OPENING LIABILITY OF RS.6.33 CRORES. HENCE, THE ARBITRARY RATIO OF 70:100 ASSUMED BY THE CIT(A) IS WITHOUT ANY JUSTIFICA TION AND UNWARRANTED. 9.1 IN THE LIGHT OF THE AFORESAID REASONING, WE HO LD THAT THE WARRANTY PROVISION MADE BY THE ASSESSEE FOR THE CONCE RNED ASSESSMENT YEAR IS JUSTIFIED AND NO ADDITION IS CALLED FOR. IT IS ORDERED ACCORDINGLY. PAGE 6 OF 6 ITA NO.1 166/BANG/2011 6 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED ON THE 3 RD DAY OF JULY, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BA NGALORE.