ITO, New Delhi V. Smt. Paramjit Luthra Prop, New Delhi

ITA 1326/DEL/2011

• Counselvise Citation: 132620114 RSA 2011
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 16-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEENAKSHI VOHRA SENIOR
• Keywords: Additional evidence
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1326/DEL./2011 (ASSESSMENT YEAR : 2007-08) ITO, WARD 30 (1), VS. SMT. PARAMJIT LUTHRA, NEW DELHI. PROP. M/S. INTERNATIONAL SURGICAL AG ENCY, 3071/8, PRATAP STREET, DARYAGANJ, NEW DELHI 110 002. (PAN : AABPL3149C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY WADHWA, ADVOCATE REVENUE BY : MS. MEENAKSHI VOHRA, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF THE CIT (APPEALS)-XXV, NEW DELHI DATED 10.01.2011. THE GRO UNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER :- 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION, IGNORING THE FACT THAT THE ASSESSEE DID NOT HAVE AN Y BASIS ON WHICH THE FURTHER OBLIGATION CAN BE RELIABLY ESTIMA TED AND THE ASSESSEE CAN BE ALLOWED TO POSTPONE THE TAXATION OF REVENUE ACCRUED TO HIM DURING THE ASSESSMENT YEAR UNDER CONSIDERATION.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO ALLOW PRO VISION FOR ITA NO.1326/DEL./2011 2 WARRANTY AMOUNTING TO ABOVE RS.57 LAC WHICH CONTING ENT LIABILITY NOT ENTITLED FOR DEDUCTION U/S 37 OF THE INCOME TAX ACT,' 3. 'THE APPELLANT CRAVES LEAVE FOR RESERVING THE RI GHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING THIS APPEAL.' 2. THE ASSESSEE IS A PROPRIETOR OF M/S. INTERNATION AL SURGICAL INDUSTRIES WHICH IS ENGAGED IN THE BUSINESS OF TRADING OF MEDI CAL EQUIPMENTS AND SUPPLYING THE SAME TO THE GOVERNMENT HOSPITALS. TH E ASSESSEE ALSO ACTED AS AGENT FOR THE SUPPLY OF IMPORTED MEDICAL EQUIPMENTS AND OTHER INSTRUMENTS IN THE GOVERNMENT HOSPITALS ON BEHALF OF FOREIGN MANUF ACTURERS. THE ASSESSEES JOB IS TO LIAISON AND PROCURE ORDERS FROM THE HOSPI TALS AND ARRANGE THE EQUIPMENTS FROM THE FOREIGN MANUFACTURERS AND ENSUR E THE DELIVERY AND INSTALLATION ON THE STIPULATED TIME. THE ASSESSEE HAS TO ALSO PROVIDE COMPREHENSIVE WARRANTY AND ANNUAL SERVICE MAINTENAN CE FOR THE MAINTENANCE OF MEDICAL EQUIPMENT SUPPLIES. THE ASSESSEE HAS CO NTRACT FOR MAINTENANCE OF FIVE YEARS WITH THE SUPPLY OF SPARE PARTS AND FURTH ER FIVE YEARS FOR MAINTENANCE ONLY WITHOUT SPARE PARTS. 3. LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFI CER AND PLEADED THAT FOR THE YEAR, ASSESSEE HAS DECLARED SALES OF MORE THAN RS.70 LACS AND THE ASSESSEE HAS MADE PROVISION FOR WARRANTY ON ACCOUNT OF MAINT ENANCE FOR FIVE YEARS TO THE EXTENT OF 39% OF THE TOTAL PRICE VALUE CHARGED WHEREAS THE OWNERSHIP RIGHT OF THE GOODS SOLD WAS TRANSFERRED TO THE BUYER IMME DIATELY ON THE DELIVERY OF ITA NO.1326/DEL./2011 3 THE GOODS. THE PRICE TOWARDS THE GOODS SOLD AND MA INTENANCE CHARGES WERE RAISED AND THERE IS NO SUCH SEGREGATION IN THE BIDS MADE BY THE PARTIES. THE ASSESSEE HAS KEPT HUGE AMOUNT OF THE SALE PRICE TOW ARDS THE MAINTENANCE WITHOUT ANY VALID AND JUSTIFIED REASONS. HE PLEADE D TO SET ASIDE THE ORDER OF THE CIT (A). 4. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT AS PER AGREEMENT DATED 10.01.2006 BETWEEN THE SUPPLIER/MANUFACTURERS OF CR ITICAL MEDICAL EQUIPMENTS AND THE ASSESSEE, THE ASSESSEE HAS TO PR OVIDE COMPREHENSIVE WARRANTY FOR FIVE YEARS AND IN THE CONTRACT PRICE, THE AMOUNT WILL BE INCLUDED FOR TROUBLE FREE MAINTENANCE CHARGES AND THERE WAS A LIMIT OF THESE CHARGES IN THE RANGE BETWEEN 36 TO 48% OF THE CUSTOMER PRICE/C ONTRACT PRICE DEPENDING ON THE COMPETITIVE BIDDING. THUS, THE ASSESSEE WAS UNDER THE OBLIGATION TO PROVIDE TROUBLE FREE MAINTENANCE AND FOR WHICH THE AUTHORITIES WERE INCLUDED IN THE CONTRACT PRICE. THIS IS EVIDENT FROM CONTRA CT PLACED AT PAGES 65 & 66 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE ASSE SSEE WAS ALSO TO PROVIDE ON-SITE WARRANTY AND CHARGES FOR THE SAME WERE INCL UDED IN THE EQUIPMENT PRICES. THE ASSESSEE HAS GOT 39% FOR THE SAME AND WHICH HAS BEEN DIVIDED INTO FIVE YEARS IN THE FOLLOWING METHOD :- (I) 5% FOR THE PERIOD RELATING TO ASSESSMENT YEAR 2007-08 (II) 7% FOR THE PERIOD RELATING TO ASSESSMENT YEAR 2008-09 (III) 8% FOR THE PERIOD RELATING TO ASSESSMENT YEAR 2009- 10 ITA NO.1326/DEL./2011 4 (IV) 9% FOR THE PERIOD RELATING TO ASSESSMENT YEAR 2010- 11 (V) 10% FOR THE PERIOD RELATING TO ASSESSMENT YEAR 2011-12 THE DETAILS ARE PLACED AT PAGE 68 OF THE PAPER BOOK . HE FURTHER SUBMITTED THAT WHEN THE CIT (A) CALLED FOR THE REMAND REPORT ON TH E ADDITIONAL EVIDENCES FILED, THE ASSESSING OFFICER HAS REPORTED THAT THE ASSESSING OFFICER HAD NOT ISSUED ANY QUESTIONNAIRE WITH REGARD TO PRODUCING N ECESSARY ACCOUNTS OR THE SERVICE REPORTS AND HE ALSO REPORTED THAT EXPENDITU RE MADE FOR THE MAINTENANCE OF EQUIPMENTS IN THE SUBSEQUENT YEARS W AS ADJUSTED AGAINST THE PROVISIONS MADE FOR EQUIPMENT MAINTENANCE BY THE AS SESSEE AND THE PROVISION FOR EQUIPMENT MAINTENANCE FOR ASSESSMENT YEARS 2006 -07, 2007-08 AND 2008-09 WERE VERIFIED BY THE ASSESSING OFFICER. HE VEHEMENTLY PLEADED THAT PROVISION FOR WARRANTY WAS BASED ON SCIENTIFIC CALC ULATION AND ASSESSEE WAS UNDER THE OBLIGATION TO PROVIDE TROUBLE FREE MAINTE NANCE OF EQUIPMENTS FOR FIVE YEARS AND WHEREVER THERE IS A BALANCE THE ASSE SSEE HAS OFFERED THE INCOME FOR TAXATION. 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ASSESSEE SUPPLIES MEDICAL EQUIPMENT TO THE GOVERNMENT HOSPITALS. ASSE SSEE WAS LIABLE TO PROVIDE COMPREHENSIVE WARRANTY FOR FIRST FIVE YEARS TROUBLE FREE WARRANTY SERVICE AND ANOTHER FIVE YEARS OF FREE SERVICE BUT WITH THE CHARGE OF SPARE PARTS TO THE HOSPITAL FOR THE MAINTENANCE OF MEDICA L EQUIPMENTS SUPPLIED. THUS, THE ASSESSEE WAS HAVING FUTURE OBLIGATIONS FO R WARRANTY SERVICE FOR NEXT ITA NO.1326/DEL./2011 5 FIVE YEARS. IN OUR CONSIDERED VIEW, THERE IS NO ES CAPEMENT OF INCOME BUT ONLY REALLOCATION OF INCOME IN VIEW OF THE PENDING OBLIG ATIONS FOR SUBSEQUENT YEARS. THE ASSESSEES CASE IS ALSO COVERED BY THE DECISION OF ITAT, CHENNAI SPECIAL BENCH IN THE CASE OF ACIT VS. MAHINDRA HOLI DAYS & RESORTS (INDIA) LTD. (2010) 39 SOT 438 (CHENNAI). THE PROVISION FOR WARRANTY WAS NOT FOR CONTINGENT LIABILITY BUT FOR THE OBLIGATION ON THE ASSESSEE IN THE COMING YEARS. THE CIT (A) HAS DELETED THE ADDITION BY HOLDING AS UNDER :- 5.7 I HAVE PERUSED THE ORDER OF THE AO, REMAND REP ORT OF THE AO AND THE SUBMISSIONS OF THE ASSESSEE AND THE SAME ARE CONSIDERED ON MERIT AND THE APPEAL IS ADJUDICATED A CCORDINGLY. IT IS APPARENT THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROPERLY EXPLAIN THE FACTS AND CIRCUMSTANCES OF THE CASE BEF ORE THE AO AND THE AO ALSO DID NOT TAKE THE PAINS TO UNDERSTAN D THE IMPLICATIONS OF THE CASE AS STATED BY THE AO SUBSEQ UENTLY ADMITTED BY THE AO IN THE REMAND REPORT. SO FAR AS THE AMOUNT OF RS.5,58,404/- IS CONCERNED, IT IS APPARENT THAT IT IS A SEPARATE AMOUNT AND NOT PART OF THE DEFERRED REVENUE INCOME. IT IS A PROVISION THAT IT IS A SEPARATE AMOUNT AND NOT PART OF THE DEFERRED REVENUE INCOME. IT IS A PROVISION WHICH H AS BEEN CARRIED OVER FROM THE EARLIER YEARS FOR THE MAINTEN ANCE OF LOCAL MEDICAL EQUIPMENTS AND THE SAME HAS BEEN CHARGED AN D ACCOUNTED FOR IN THE SUBSEQUENT YEARS AND I FIND CO NSIDERABLE MERIT IN THE SUBMISSION OF THE ASSESSEE AS DISCUSSE D EARLIER AND ACCORDINGLY, THE A.O. IS NOT JUSTIFIED TO MAKE THIS ADDITION AND THE SAME IS DELETED. . . . 5.11 I HAVE CONSIDERED THIS PART OF THE SUBMISSION ALSO BUT IT CANNOT BE OVER LOOKED THAT THE ASSESSEE HAS NOT DEC LARED ANY PART OF THE INCOME IN THE CURRENT AY. IT IS SEEN AS PER THE CHART THAT THE ASSESSEE HAS ACCOUNTED FOR RS.14,13,356/- FOR WHICH THE YEAR IS YET TO COME AND IT WILL NOT DISTURB THE PLAN OF THE ASSESSEE IF SOME PART OF THE INCOME OF THIS YEAR I. E. A Y 2012- ITA NO.1326/DEL./2011 6 13 IS BROUGHT BACK AND TAXED IN THE CURRENT AY WITH OUT DISTURBING THE OTHER YEARS INCOME. SINCE THE ASSESS EE HAS HERSELF ACCOUNTED FOR @ 5% OF THE SERVICE CHARGES O F RS.7,06,678/- IN THE AY 2008-09, THE ENDS OF JUSTIC E WILL BE MET IF TWO AND HALF PERCENT I.E. RS.3,53,339/- IS B ROUGHT TO TAX IN THE CURRENT AY. CONSEQUENTLY. THE ASSESSEE IS AL LOWED TO REDUCE RS.3,53,339/- FROM THE TOTAL INCOME OF RS.14 ,13,356/- OUT OF THE COMING AY 2012-13 AND DECLARE ONLY THE B ALANCE AMOUNT OF RS.10,60,017/- (RS.14,13,356/- (-) RS.3,5 3,339/-). ACCORDINGLY, THE ADDITION TO THE EXTENT OF RS.3,53, 339/- IS CONFIRMED AND THE BALANCE AMOUNT OF RS.51,58,749/- IS DELETED OUT OF THE TOTAL ADDITION OF RS.55,12,088/-. TO SUM MARISE THE RELIEF, THE ADDITION TO THE EXTENT OF RS.3,53,339/- IS CONFIRMED AND THE BALANCE ADDITION OF RS.57,17,153/- (RS.51,5 8,749/- (+) RS.5,58,404/-) IS DELETED OUT OF THE TOTAL ADDITION OF RS.60,70,492/-. IN VIEW OF THESE FACTS AND IN OUR CONSIDERED VIEW, WE FIND NO FAULT IN THE ORDER OF THE CIT (A). WE SUSTAIN THE SAME AND DISMISS TH E REVENUES APPEAL. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 7 TH DAY OF FEBRUARY, 2014. SD/- SD/- (R.P. TOLANI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 7 TH DAY OF FEBRUARY, 2014 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXV, DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.