ACIT-CIRCLE-1, Nashik V. INDO RUSSIAN AVIATION LTD, Nashik

ITA 121/PUN/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49845 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 21-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: TEJINDAR SINGH
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 121/PN/2010 : A.Y. 2006-07 ASSTT. CIT CIR. 1, NASIK APPELLANT VS. INDO RUSSIAN AVIATION LTD., C/O. HAL ADMINISTRATIVE BLOCK OJHAR TOWNSHIP NASIK PAN AAACT 5908 C RESPONDENT APPELLANT BY: SHRI PRAMOD SHINGTE RESPONDENT BY: SHRI TEJINDAR SINGH ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I NASIK DATED 20-10-2009 FOR A .Y. 2006-07 ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A)-I NASIK IS JUSTIFIED IN AL LOWING RS. 48,12,377/- OUT OF WARRANTY EXPENSES DISALLOWED BY THE ASSESSING OFFICER TO THE TUNE OF RS. 3,25,00,000/- IGNORING THE FACT THAT THE EXPENSES O F THIS KIND BEAR THE NATURE OF CONTINGENT LIABILITY W HICH MAY OR MAY NOT HAPPEN IN FUTURE? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-I NASIK IS JUSTIFIED IN DE LETING THE DISALLOWANCE OF RS. 17,19,519/- IGNORING THE FA CT THAT DISALLOWANCE WAS MADE SINCE THE ASSESSEE HAS BREACHED THE WRITTEN CONTRACT AND THE OBLIGATION WI TH ITS CUSTOMERS AND THEREFORE IT IS IN THE AMBIT OF PENALTY AS IS ENSHRINED IN SEC. 37(1) OF THE ACT? PAGE 2 OF 5 ITA NO. 542/PN/2010 INDO RUSSIAN AVIATION A.Y. 2006-07 2. THE ASSESSEE IS A JOINT VENTURE COMPANY OF HINDU STAN AERONAUTICS LTD (HAL), ICICI REPRESENTING THE GOVER NMENT OF INDIA AND RAC MIG, AVIZAPCHAST PLC AND GRPZ, WHICH REPR ESENT THE GOVERNMENT OF RUSSIA FEDERATION AND WAS INCORPORATE D IN 1994. THE PRIMARY PURPOSE OF THE ASSESSEE IS TO SUPPLY SP ARE PARTS FOR THE MIG AIRCRAFT SUPPLIED BY RUSSIA. FOR THE ASSESSME NT YEAR 2006-07, IT FILED A RETURN OF INCOME ON 29.11.2006 DECLARING TOTAL INCOME OF RS 4,97,03,190/- WHICH WAS PROCESSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT 1961 ON 15.12.2008 DETERMINING THE T OTAL INCOME AT RS. 1,35,24,006/- AFTER MAKING CERTAIN DISALLOWANC ES. THE MATTER WAS CARRIED IN APPEAL BEFORE THE FIRST APPELLATE AU THORITY AND THE CIT(A) ALLOWED RS. 48,12,377/- OUT OF WARRANTY EXP ENSES DISALLOWED BY THE ASSESSING OFFICER TO THE EXTENT O F RS. 3,25,00,000/-. THE CIT(A) HAS ALSO DELETED THE DISALLOWANCE OF RS. 17,19,519/- ON ACCOUNT OF LIQUIDATED DAMAGES. THE SAME IS OPPOSED BEFORE US BY THE REVENUE. 3 AS FAR AS GROUND WITH RESPECT TO WARRANTY EXPENSE S IS CONCERNED, WE FIND THAT THIS ISSUE IS SQUARELY COVE RED BY THE DECISION OF THIS BENCH OF THE TRIBUNAL IN ASSES SEES OWN CASE IN ITA NO. 229 TO 232/PN/2009 FOR A.Y. 200 1-02 TO 2004-05 WHEREIN VIDE ITS ORDER DATED 23-12-2010 THE TRIBUNAL HAS DECIDED THE ISSUE BY OBSERVING AS UNDE R: PAGE 3 OF 5 ITA NO. 542/PN/2010 INDO RUSSIAN AVIATION A.Y. 2006-07 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. IN THIS CASE, THE ASSESSEE IS UNDERTAKING SALE OF SPAR E-PARTS TO HAL AND AT THE TIME OF SALE, IT PROVIDES WARRANTY W HEREBY ASSESSEE IS TO REPLACE THE DEFECTIVE PARTS OF THE P RODUCTS SOLD. IN THIS CONTEXT, THE ASSESSEE MADE A PROVISION OF R S 29,09,518/- WHICH HAS NOT BEEN ALLOWED AS DEDUCTION BY THE ASSESSING OFFICER WHILE COMPUTING THE TOTAL INCOME. AS PER THE REVENUE, THE SAID CLAIM WAS A MERE PROVISION AND A CONTINGENT LIABILITY AND, THEREFORE, WAS NOT AN ALL OWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. THE SAI D ISSUE IS NO LONGER RES INTEGRA, INASMUCH AS THE SAME HAS BEE N DEALT WITH BY THE HONBLE SUPREME COURT IN THE CASE OF RO TOR CONTROLS INDIA (P) LTD V CIT 314 ITR 62 (SC). AS PE R THE HONBLE SUPREME COURT, A WARRANTY COST IS AN INTEGR AL PART OF THE SALE PRICE, THE ASSESSEE MUST PROVIDE FOR SUCH WARRANTY COSTS IN ITS ACCOUNT FOR THE RELEVANT YEAR OTHERWIS E THE MATCHING CONCEPT WILL FALL. THE HONBLE SUPREME COU RT APPROVED THE ACTION OF THE ASSESSEE BEFORE IT TO PR OVIDE FOR WARRANTY BASED ON THE PAST EXPERIENCE AND HELD THAT THE SAME SATISFIED THE ACCRUAL CONCEPT ALSO. AS PER THE HON BLE SUPREME COURT, A PROVISION MADE FOR WARRANTY ON THE BASIS O F PAST EXPERIENCE IS TO BE VIEWED AS A LIABILITY INCURRED DURING THE RELEVANT ASSESSMENT YEAR AND THE SAID PROVISION WAS AN ALLOWABLE DEDUCTION UNDER SECTION 37(1) OF THE ACT. THEREFORE, IN SO FAR AS THE ISSUE BEFORE US IS CONCERNED, THE CLAIM OF THE ASSESSEE IS LIABLE TO BE UPHELD IN PRINCIPLE. 21. WITH REGARD TO THE QUANTUM OF PROVISION MADE, T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 2004-05, THE COMMISSIONER OF INCOME -TAX (APPEALS) HAS ALLOWED THE CLAIM BY OBSERVING THAT T HE PROVISION WAS MADE AS PER THE SCIENTIFIC AND REASONABLE BASIS WHEREAS IN ASSESSMENT YEARS 2002-03 AND 2003-04, CLAIM HAS BEEN DENIED BECAUSE OF ABSENCE OF DETAILS TO ASCERTAIN T HE BASIS OF MAKING THE PROVISION. IN THIS CONTEXT, IT WAS SUBMI TTED THAT THE ASSESSEE IS IN A POSITION TO EXPLAIN THE BASIS OF MAKING THE PROVISION AND, FOR THAT MATTER, THE FACTUAL ASPECTS MAY BE REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO BE APPRAISED AFRESH. TO THIS SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE, THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS NOT RAISED ANY SERIOUS OBJECTION. THEREFORE, IN DEFEREN CE TO THE AFORESAID, WHILE UPHOLDING THE CLAIM OF THE ASSESSE E IN PRINCIPLE, WE REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL ALLOW THE ASSESSEE REASONABLE OPP ORTUNITY TO ADDUCE MATERIAL AND EVIDENCE TO POINT OUT THE BASIS OF PROVISION MADE FOR THE WARRANTY HAVING REGARD TO TH E PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT I N THE CASE PAGE 4 OF 5 ITA NO. 542/PN/2010 INDO RUSSIAN AVIATION A.Y. 2006-07 OF ROTOR CONTROLS INDIA (P) LTD V CIT (SUPRA) AND, AS PER LAW. THE ASSESSING OFFICER SHALL CONSIDER THE SUBMISSION S AND MATERIAL PUT-FORTH BY THE ASSESSEE AND THEREAFTER PASS AN ORDER ON THIS ASPECT IN ACCORDANCE WITH LAW. 4. FACTS BEING SIMILAR, SO FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA), WE REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER , WHO SHALL ALLOW THE ASSESSEE REASONABLE OPPORTUNITY TO ADDUCE MATERIAL AND EVIDENCE TO POINT OUT THE BASIS OF PRO VISION MADE FOR THE WARRANTY HAVING REGARD TO THE PRINCIPL ES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF RO TOR CONTROLS INDIA (P) LTD. (SUPRA) AND, AS PER LAW. T HE ASSESSING OFFICER SHALL CONSIDER THE SUBMISSIONS AN D MATERIAL PUT FORTH BY THE ASSESSEE AND THEREAFTER P ASS AN ORDER ON THIS ASPECT IN ACCORDANCE WITH LAW. 5. THE SECOND GROUND RELATES TO DELETION OF DISALLO WANCE OF RS. 17,19,519/- ON ACCOUNT OF LIQUIDATED DAMAGES . AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSI DERATION BEFORE THIS BENCH OF THE TRIBUNAL ASSESSEES OWN CA SE IN ITA NO. 229 TO 232/PN/2009 FOR A.Y. 2001-02 TO 2004 -05 WHEREIN VIDE ITS ORDER DATED 23-12-2010 THE TRIBUNA L HAS DECIDED THE ISSUE AS UNDER: 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. IT IS EVIDENT THAT THE EXPENDITURE IN QUESTION HAS RESULT ED IN THE PAGE 5 OF 5 ITA NO. 542/PN/2010 INDO RUSSIAN AVIATION A.Y. 2006-07 COURSE OF BUSINESS IN TERMS OF A CONTRACTUAL BREACH AND THERE IS NO BREACH OR INFRACTION OF LAW SO AS TO JUSTIFY THE DISALLOWANCE IN TERMS OF EXPLANATION TO SECTION 37( 1) OF THE ACT. THE FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN THIS REGARD ARE APPROPRIATE AND DO NOT REQUIRE A NY INTERFERENCE AND ARE ACCORDINGLY AFFIRMED. IN THE R ESULT, REVENUE HAS TO FAIL ON THIS GROUND. FACTS BEING SIMILAR, SO FOLLOWING THE AFORESAID ORD ER OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA), THIS GROUND IS DECI DED IN FAVOUR OF THE ASSESSEE AND AGAINST THE ASSESSEE. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED AS I NDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE 2011 SD/- (G.S. PANNU) ACCOUNTANT MEMBER SD/- (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE DATED THE 15 TH JUNE 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A) I NASIK 4. THE CIT I NASIK 4. THE D.R, A BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE