SL LUMAX LIMITED, KANCHIPURAM V. DCIT CORPORATE CIRCLE 6(2), CHENNAI

ITA 1692/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6569 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 29-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Keywords: Revision of order; Audit objection; Assessment record; Prejudicial to interest; Reason to believe; Set aside
• Section: 143(3); 142(1); 13; 22; 147; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , $ % .. ' , * + BEFORE SHRI RAMIT KOCHAR , ACCOUNTANT MEMBER AND SHRI DUVVURU R.L.REDDY , JUDICIAL MEMBER ITA NO.1692/CHNY/2019 *, , /ASSESSMENT YEAR: 2013-14 M/S.SL LUMAX LTD., G-14, 15 & 25, SIPCOT INDUSTRIAL PARK, IRRUNGATTUKOTTAI, SRIPERUMBUDUR-602 117. KANCHEEPURAM DISTRICT. V . THE PRINCIPAL COMMISSIONER OF INCOME TAX, ROOM NO.602, VI FLOOR, AAYAKAR BHAWAN, NEW BLOCK, MAHATAMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI-600034. [PAN: AAACL 1857 B ] ( / /APPELLANT) ( 01/ /RESPONDENT) / 2 / APPELLANT BY : MR. VIKRAM VIJAYARAGHAVAN, ADV. 01 / 2 /RESPONDENT BY : MR. A.SUNDARARAJAN, CIT 2 /DATE OF HEARING : 28.11.2019 2 /DATE OF PRONOUNCEMENT : 10.02.2020 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST REVISIONARY ORDER DATED 30.03.2019 PASSED BY LEARNED PRINCIPAL COMMI SSIONER OF INCOME TAX-6, CHENNAI (HEREINAFTER CALLED THE PCIT) U/S 263 OF THE INCOME-TAX ACT, 1961(HEREINAFTER CALLED THE ACT), IN C.NO.61 19(27)/PCIT-6 /2018-19 FOR ASSESSMENT YEAR (AY) 2014-15 , WHEREIN LEARNED PCIT HELD ASSESSMENT ORDER DATED 27.02.2017 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S.143(3) READ WITH SECTION 92CA (4) READ WITH SECTION ITA NO.1692/CHNY/2019 :- 2 -: 144C(3) OF THE 1961 ACT TO BE ERRONEOUS SO FAR AS P REJUDICIAL TO THE INTEREST OF REVENUE BY INVOKING PROVISIONS OF SECTI ON 263 OF THE 1961 ACT. 2. THE GROUNDS OF APPEAL RAISED BY ASSESSEE IN MEM O OF APPEAL FILED WITH INCOME-TAX APPELLATE TRIBUNAL, CHENNAI (HEREIN AFTER CALLED THE TRIBUNAL) READ AS UNDER:- THE GROUNDS OF APPEAL LISTED BELOW ARE WITHOUT PRE JUDICE TO EACH OTHER. 1. THE ORDER OF THE LEARNED PRINCIPAL COMMISSIONER OF INCOME-TAX - 6, CHENNAI ['PCIT'] IS ERRONEOUS, BAD IN LAW, PREJUDICIAL TO THE APPELLANT AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. ISSUE 1: ON JURISDICTION TO SET ASIDE THE ASSESSMENT ORDER UNDER SECTION 263 OF THE INCOME- TAX ACT, 1961 ('THE ACT') 2. THE LEARNED PCIT HAS ERRED IN EXERCISING POWERS UNDER SECTION 263 OF THE ACT AND HAS FAILED TO APPRECIATE THAT THE ORDER UNDER SECTION 1 43(3) OF THE ACT PASSED BY THE ASSESSING OFFICER ('AO') DID NOT PASS THE TWIN CONDITIONS OF BEI NG 'ERRONEOUS' AND 'PREJUDICIAL TO INTEREST OF THE REVENUE', 3. THE LEARNED PCIT HAS ERRED IN HOLDING THAT THE AO HAS NOT APPLIED HIS MIND ON THE SUBJECT ISSUE MERELY BECAUSE THE AO HAS NOT DISCUSSE D THE SAME IN THE ASSESSMENT ORDER. 4. THE LEARNED PCIT HAS FAILED TO APPRECIAT E THAT AO HAS ADOPTED ONE OF THE POSSIBLE VIEWS OF THE MATTER AND THE JURISDICTION UNDER SECT ION 263 OF THE ACT CANNOT BE EXERCISED MERELY TO SUBSTITUTE THE VIEW TAKEN BY THE AO. 5. THE ORDER PASSED BY THE LEARNED PCIT UND ER SECTION 263 OF THE ACT IS BAD IN LAW SINCE THE PROCEEDINGS UNDER SECTION 263 WERE INITIA TED BASED ON THE AUDIT OBJECTIONS. 6. THE LEARNED PCIT HAS FAILED TO DISPOSE THE OBJE CTION RAISED BY THE APPELLANT AND PASSED THE ORDER ON THE MERITS OF THE ISSUE. ISSUE 2: ON MERITS - PROVISION FOR WARRANTY OF INR 1 ,40,45,352 7. THE LEARNED PCIT HAS FAILED TO APPRECIATE THE F ACT THAT THE PROVISION FOR WARRANTY HAS BEEN MADE ON A SCIENTIFIC BASIS BEING THE HISTORICA L EXPERIENCE OF THE WARRANTY EXPENSES INCURRED BY THE APPELLANT. 8. THE LEARNED AO HAS FAILED TO APPRECIATE THE RULI NG OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF ROTORK CONTROLS INDIA P LTD V CIT (3 14 ITR 62) AND JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF THE COMMISSIONER OF INCOME- TAX VS LUK INDIA (P.) LTD [347 ITR 674 (MAD)] WHICH HAS ALLOWED DEDUCTION OF PROVISION FOR WARRANTY CREATED BASED ON HISTORICAL EXPERIENCES. THE APPELLANT CRAVES LEAVE TO ADD, SUPPLEMENT, AMEN D, DELETE OR OTHERWISE MODIFY ANY OF THE GROUNDS STATED HEREINABOVE AT THE TIME OF HEARI NG. 3. THIS APPEAL FILED BY THE ASSESSEE HAS CHALLENGED REVISIONARY ORDER PASSED BY LEARNED PCIT U/S.263 OF THE ACT DATED 30. 03.2019 HOLDING THAT ITA NO.1692/CHNY/2019 :- 3 -: ASSESSMENT ORDER DATED 27.02.2017 PASSED BY AO U/S. 143(3) READ WITH SECTION 92CA(4) READ WITH SECTION 144C(3) OF THE 19 61 ACT TO BE ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE BY INVOKING PROVISIONS OF SECTION 263 OF THE 1961 ACT. BRIEF FA CTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURIN G AUTO PARTS. THE ASSESSEE HAD DECLARED AN INCOME OF RS. 74.30 CRS. IN RETURN OF INCOME FILED WITH REVENUE, WHICH WAS ASSESSED BY REVENUE I N SCRUTINY ASSESSMENT FRAMED BY AO U/S.143(3) READ WITH SECTIO N 92CA(4) READ WITH SECTION 144C(3) OF THE 1961 ACT BY THE AO , VIDE AS SESSMENT ORDER DATED 27.02.2017 ASSESSING THE INCOME OF THE ASSESSEE AT RS. 76.04 CRS. THE LEARNED PCIT AFTER EXAMINING RECORDS WAS OF THE VIE W THAT PROVISION FOR WARRANTY CLAIMED BY ASSESSEE TO THE TUNE OF RS. 1,4 0,45,352/- FOR FINANCIAL YEAR 2012-13 IN ITS PROFIT AND LOSS ACCOU NT IN SCHEDULE 22 AND SCHEDULE 8 TO THE AUDITED FINANCIAL STATEMENTS, IS SOUGHT TO BE JUSTIFIED BY ASSESSEE ON THE BASIS OF SUBSEQUENT YEAR FIGURES , WHILE THE SAME IS TO BE ALLOWED BASED ON PAST FIGURES OF CLAIMS AGAINST PRO VISIONS MADE AND HENCE SAID CLAIM OF PROVISION TOWARDS WARRANTY WAS WRONGLY ALLOWED BY THE AO . THUS, THE LEARNED PCIT HAD AFORESAID REA SONS TO BELIEVE THAT ASSESSMENT ORDER PASSED BY THE AO WAS ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE WARRANTING INTERFERENCE U/S 263 OF THE 1961 ACT, BY OBSERVING AS UNDER IN SCN DATED 14.03.2019 ISSUED BY LEARNED PCIT: ' ....ON EXAMINATION OF THE ASSESSMENT RECORD FOR A Y 2013-14, IT HAS BEEN OBSERVED BY ME AS UNDER:- ITA NO.1692/CHNY/2019 :- 4 -: (I) IT IS SEEN FROM THE P & L A/C SCH-22 OTHER EXPENSES, YOU HAVE CLAIMED RS.1,40,45,352/- TOWARDS PROVISION FOR WARRANTY, I T IS SEEN FROM THE SCH-8, UNDER MOVEMENT OF WARRANTY PROVISION, IT IS SHOWN AS FOLL OWS: OP. BAL - RS.2,43,88,044/- ADD: PROVISION CREATED - RS.1,40,45,352/- LESS: UTILISED / REVERSED - RS.99,37,415/- CLOSING BALANCE - RS.2,84,95,981/- IT IS NOTICED FROM THE DETAILS FURNISHED THAT YOU H AVE SOUGHT TO JUSTIFY THE CLAIM OF PROVISION BASED ON THE SUBSEQUENT FIGURES. SINCE, WARRANTY PR OVISION ARE TO ALLOWED ONLY ON THE PAST FIGURES OF CLAIM AGAINST PROVISION MADE, THE PROVIS ION TOWARDS WARRANTY CREATED OF RS. 1,40,45,352/-AS EXPENDITURE FOR FY 2012-13 IS BASED ON THE FIGURES SUBSEQUENT FY 2013- 14. HENCE THE CLAIM OF PROVISION TOWARDS WARRANTY W AS WRONGLY ALLOWED IN THE ASSESSMENT ORDER. IN THESE CIRCUMSTANCES, I HAVE REASON TO BELIEVE TH AT THE ORDER OF THE ASSESSING OFFICER PASSED U/S 143(3) OF THE ACT FOR AY 2013-14 ON 27.02. 2017 , IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IT IS , THEREFORE, PROPOSED TO EXERCISE REVISIONARY POWERS CONFERRED U/S 263 OF THE ACT. 3.2 THE ASSESSEE ON ITS PART CHALLENGED THE SAID SH OW CAUSE NOTICE ISSUED BY LEARNED PCIT ON SEVERAL GROUNDS AND ALSO RELIED UPON JUDICIAL PRECEDENTS AS DETAILED IN THE REVISIONARY ORDER D ATED 30.03.2019 PASSED BY LEARNED PCIT U/S.263 OF THE ACT, WHEREIN, LEARN ED PCIT INVOKED PROVISIONS OF SEC.263 OF THE ACT AND HELD THAT ASS ESSMENT ORDER PASSED BY AO TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO T HE INTEREST OF THE REVENUE , BY HOLDING AS UNDER: 3. DECISION - I HAVE CONSIDERED THE FACTS AND CIRC UMSTANCES OF THE CASE AND SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGARD AND FIND THAT T HE CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE, ACCORDING TO THE CASE LAW RELIED BY THE ASSESSEE IN THE CASE OF ROTORK CONTROLS INDIA P LTD , THE FOLLOWING 3 CONDITIONS HAVE TO BE SATISFIED TO RECOGNIZE A PROVISION AND ALLOW THE SAME AS EXPENDITURE. THE PROVISION IS A L IABILITY WHICH CAN BE MEASURED ONLY BY USING SUBSTANTIAL DEGREE OF ESTIMATION. A PROVISION IS RECOGNIZED WHEN: A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESUL T OF A PAST EVENT: B) IT IS PROBABLE THAT AN OUTFLOW OF SOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION: AND C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. 3.1 IF THESE CONDITIONS ARE NOT MET, NO PROVISION CAN BE RECOGNIZED. LIABILITY IS DEFINED AS A PRESENT OBLIGATION ARISING FROM PAST EVENTS, THE SE TTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUTFLOW OF RESOURCES FROM THE ENTERPRISES EMBODY ING ECONOMIC BENEFITS. A PAST EVENT THAT LEADS TO A PRESENT OBLIGATION IS CALLED AN OBL IGATING EVENT WHICH IS AN EVENT THAT CREATES AN OBLIGATION WHICH RESULTS IN AN OUTFLOW O F RESOURCES. IT IS ONLY THOSE OBLIGATIONS ARISING FROM PAST EVENTS WHICH EXIST INDEPENDENTLY OF THE FUTURE CONDUCT OF THE BUSINESS OF THE ENTERPRISE, THAT ARE RECOGNIZED AS A PROVISION. FOR A LIABILITY TO QUALIFY FOR RECOGNITION, ITA NO.1692/CHNY/2019 :- 5 -: THERE MUST BE NOT ONLY PRESENT OBLIGATION BUT ALSO THE PROBABILITY OF AN OUTFLOW RESOURCES TO SETTLE THAT OBLIGATION. WHERE, THERE ARE A NUMBER O F OBLIGATIONS (E.G, PRODUCT WARRANTIES OR SIMILAR CONTRACTS), THE PROBABILITY THAT AN OUTFLOW WILL BE REQUIRED IN SETTLEMENT IS DETERMINED BY CONSIDERING THE SAID OBLIGATIONS AS A WHOLE. 3.2 THIS CONTENTION IS CORROBORATED FROM THE FACT THAT THE ASSESSEE COMPANY HAS MADE REVERSAL ENTRY ALSO FROM THE PROVISION AND THE UTIL IZATION IS NOT MADE TO THE FULL EXTENT OF PROVISION, BUT THERE IS A BIG GAP BETWEEN THE PROVI SION MADE AND THE UTILIZATION. THIS SHOWS THAT THE OBLIGATION AND OUTFLOW OF THE SOURCE WAS N OT CORRECTLY ESTIMATED AND THIS SHOULD BE ALLOWED ON ACTUAL BASIS ONLY. 3.3 FURTHER, AS EXPLAINED ABOVE FOR A LIABILITY TO QUALIFY FOR RECOGNITION, THERE MUST BE NOT ONLY PRESENT OBLIGATION BUT ALSO THE PROBABILITY OF AN OUTFLOW OF RESOURCES TO SETTLE THAT OBLIGATION. THE ABOVE MENTIONED FACTS WERE NOT CONS IDERED AND DISCUSSED WHILE ALLOWING THE PROVISION FOR WARRANTY BY THE ASSESSING OFFICER. 3.4 HENCE, IT WOULD APPEAR THAT THE ASSESSEE HAD M ADE AN INCORRECT CLAIM AND THE SAME HAS BEEN DEBITED IN THE P&L ACCOUNT. IN THE CIRCUMS TANCES, THE AO SHOULD HAVE DISALLOWED THE CLAIM. HOWEVER, THE AO HAS FAILED TO DO SO IN TH E ASSESSMENT ORDER. THEREFORE, IN CONCLUSION, THE ASSESSING OFFICER HAS NOT MADE COMP LETE VERIFICATION WITH RESPECT TO THESE ASPECTS AND HAS PASSED THE ASSESSMENT ORDER WITHOUT PROPER AND DILIGENT APPLICATION OF MIND AND HENCE IN MY CONSIDERED OPINION THE ASSESSM ENT ORDER SO PASSED IS ERRONEOUS, TO THE EXTENT IT IS PREJUDICIAL TO THE INTERESTS OF TH E REVENUE. ACCORDINGLY, THE ASSESSMENT ORDER IS HEREBY SET ASIDE U/S.263 OF THE ACT, WITH T HE DIRECTION TO THE ASSESSING OFFICER TO EXAMINE THE ASPECTS DISCUSSED ABOVE AND PASS A FRES H ORDER AFTER GRANTING OPPORTUNITY TO THE ASSESSEE. THE ASSESSEE CAN FURNISH DOCUMENTS W HICH WERE NOT AVAILABLE AT THE TIME OF ASSESSMENT, TO THE ASSESSING OFFICER FOR FRESH EXAMI NATION. IT IS ORDERED ACCORDINGLY. 4. AGGRIEVED BY REVISIONARY ORDER DATED 30.03.2019 PASSED BY LEARNED PCIT U/S 263 OF THE 1961 ACT, THE ASSESSEE FILED FI RST APPEAL WITH TRIBUNAL AND ELABORATE CONTENTIONS ARE MADE BY LEARNED COUNS EL FOR THE ASSESSEE BEFORE THE TRIBUNAL. THE ASSESSEE HAS ALSO FILED W RITTEN SUBMISSIONS BEFORE TRIBUNAL WHICH ARE PLACED IN FILE. THE ASSE SSEE HAS ALSO FILED PAPER BOOK BEFORE THE TRIBUNAL, WHICH ARE PLACED IN FILED . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSMENT ORDER WAS PA SSED BY THE AO AFTER MAKING ENQUIRIES ABOUT PROVISION FOR WARRANTY MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS AND THE SAID ASSESSMENT ORDER COU LD NOT BE CALLED AS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE WARRANTING INTERFERENCE BY LEARNED PCIT U/S 263 OF THE 1961 AC T. THE LD.AR DREW OUR ATTENTION TO PAGE NO. 30 TO 34 OF THE PAPER BOOK, W HEREIN, NOTICE ISSUED BY AO DATED 20.04.2015 U/S 142(1) DURING THE COURSE OF ASSESSMENT ITA NO.1692/CHNY/2019 :- 6 -: PROCEEDINGS ARE PLACED AS WELL AS SUBMISSIONS MADE BY THE ASSESSEE IN RESPONSE THERETO BEFORE THE AO ARE PLACED. IT WAS S UBMITTED THAT VIDE POINT NUMBER 10 ENQUIRIES WERE MADE BY THE AO TO J USTIFY PROVISIONS MADE AND THE TAX TREATMENT OF THE SAME. OUR ATTENT ION WAS ALSO DRAWN TO PAGE NOS.13 OF THE PAPER BOOK WHEREIN THERE IS A NO TES TO AUDITED FINANCIAL STATEMENTS/ACCOUNTS ON PROVISION FOR WARR ANTY MADE, WHICH READ AS UNDER: PROVISION FOR WARRANTY: PROVISION FOR PRODUCT RELATED WARRANTY COSTS IS BAS ED ON THE CLAIMS RECEIVED UPTO THE YEAR END AS WELL AS MANAGEMENT ESTIMATES O F FURTHER LIABILITY TO BE INCURRED IN THIS REGARD DURING THE WARRANTY PERI OD, COMPUTED ON THE BASIS OF TECHNICAL EVALUATION AND PAST TREND OF SUC H CLAIMS. OUR ATTENTIONS WAS ALSO DRAWN TO PAGE 17 OF THE PAP ER BOOK, WHEREIN, PROVISIONS WERE MADE AS PER SCHEDULE 8 OF THE AUDIT ED FINANCIAL STATEMENTS OF THE ASSESSEE COMPANY. OUR ATTENTION WAS ALSO DRAWN BY LEARNED COUNSEL FOR THE ASSESSEE TO NOTICE DATED 17 .10.2016 ISSUED BY AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 14 2(1) BY THE AO WHICH IS SEPARATELY FILED BEFORE THE BENCH BY LEARNED COU NSEL FOR THE ASSESSEE AND ATTENTION IS DRAWN TO POINT NUMBER 5 WHEREIN TH ERE IS SPECIFIC QUERY MADE BY THE AO AS TO JUSTIFY PROVISION FOR WARRANTY OF RS. 1,40,45,352/- CLAIMED AS AN EXPENDITURE BY THE ASSESSEE. STATEMEN T IS MADE BEFORE THE BENCH BY LEARNED COUNSEL FOR THE ASSESSEE THAT REPL Y WAS FILED BY ASSESSEE ON 24.10.2016 BEFORE AO DURING ASSESSMENT PROCEEDIN GS CONDUCTED BY AO, ALONG WITH EXPLANATION FOR PROVISION FOR WARRA NTY AS TO HOW IT WAS COMPUTED AND THE AFORESAID REPLY DATED 24.10.2016 CLAIMED TO BE FILED ITA NO.1692/CHNY/2019 :- 7 -: BEFORE AO ALONG WITH COMPUTATION OF WARRANTY PROVIS ION IS PLACED IN FILE. THE SAID CONTENTION OF HAVING FILED DETAILS OF PROV ISION FOR WARRANTY IS ALSO REITERATED BY ASSESSEE IN WRITTEN SUBMISSIONS FILED BY LEARNED COUNSEL FOR THE ASSESSEE AND THE AFORESAID REPLY DATED 24.10.20 16 IS ALSO FILED ALONG WITH WRITTEN SUBMISSIONS FILED BY ASSESSEE BEFORE T HE TRIBUNAL. THE LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT PROPER ENQUIRIE S WERE MADE BY AO DURING ASSESSMENT PROCEEDINGS AS WELL REPLIES WERE FILED DURING ASSESSMENT PROCEEDINGS , AND HENCE ASSESSMENT ORDER PASSED BY AO CANNOT BE TERMED AS ERRONEOUS IN SO FAR AS PREJUDIC IAL TO THE INTEREST OF REVENUE. RELIANCE IS PLACED BY LEARNED COUNSEL FOR THE ASSESSEE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT V. GABRIEL INDIA LTD., REPORTED IN [1993] 71 TAXMAN 585 (BOMBA Y) . THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RELIED UPON FOLLO WING DECISIONS IN THE WRITTEN SUBMISSIONS FILED BEFORE THE TRIBUNAL: A) HONBLE DELHI HIGH COURT DECISION IN THE CASE OF CI T V. VIKAS POLYMERS REPORTED IN (2010) 194 TAXMAN 57(DEL. HC) B) HONBLE ALLAHABAD HIGH COURT DECISION IN THE CASE O F MEERUT ROLLER FLOUR MILLS PRIVATE LIMITED V. CIT REPORTED IN (2019) 110 TAXMANN.COM 170(ALL. HC) C) ITAT, MUMBAI DECISION IN THE CASE OF NARAYAN TATU R ANE V. ITO REPORTED IN (2016) 70 TAXMANN.COM 227(MUM-TRIB) ITA NO.1692/CHNY/2019 :- 8 -: D) HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. SUNB EAM AUTO LIMITED REPORTED IN (2010) 189 TAXMAN 436(DEL HC) IT IS THE CONTENTIONS OF LEARNED COUNSEL FOR THE A SSESSEE BEFORE THE BENCH THAT AO MADE ENQUIRIES AND VERIFICATIONS WHILE FRAM ING ASSESSMENT AND HAS TAKEN A VIEW THAT THE PROVISIONS FOR WARRANTY W AS CORRECTLY MADE BY ASSESSEE , AND HENCE NO ADDITIONS WERE MADE BY AO W HILE PASSING ASSESSMENT ORDER U/S.143(3) READ WITH SECTION 92CA( 4) READ WITH SECTION 144C(3) OF THE 1961 ACT. THE LEARNED COUNSEL FOR ASSESSEE ALSO RELIED UPON DECISION OF HONBLE RAJASTHAN HIGH COURT IN TH E CASE OF CIT V. JAIN CONSTRUCTION COMPANY REPORTED IN (2012) 83 CCH 0234 (RAJ.HC). THE LD.CIT-DR, ON THE OTHER HAND, SUPPORTED THE REVISIO NARY ORDER PASSED BY LEARNED PCIT AND SUBMITTED THAT EXPLANATION-2 TO S EC.263 OF THE ACT IS BROUGHT INTO STATUTE BY FINANCE ACT, 2015 WHICH IS APPLICABLE IN THE INSTANT CASE AS ORDERS OF THE AUTHORITIES BELOW WAS MADE PO ST INSERTION OF EXPLANATION 2 TO SECTION 263 OF THE 1961 ACT. IT WA S SUBMITTED BY LEARNED CIT-DR THAT THE AO DID NOT MADE PROPER ENQUIRIES WH ILE PASSING ASSESSMENT ORDER AS TO CLAIM OF PROVISION FOR WARRA NTY MADE BY ASSESSEE. IT WAS SUBMITTED BY LEARNED CIT-DR THAT THERE WAS N O SCIENTIFIC BASIS FOR MAKING PROVISIONS FOR WARRANTY AND IT WAS SUBMITTED THAT THE AO HAS NOT MADE PROPER ENQUIRIES AND VERIFICATION BEFORE PASSI NG ASSESSMENT ORDER AND LEARNED PCIT WAS JUSTIFIED IN INVOKING REVISIO NARY PROVISIONS UNDER SEC.263 OF THE ACT. IT WAS SUBMITTED BY LD. CIT-DR THAT DECISION IN THE CASE OF MALABAR INDUSTRIAL COMPANY LIMITED V. CIT R EPORTED IN (2000) 109 ITA NO.1692/CHNY/2019 :- 9 -: TAXMAN 66(SC) WAS RENDERED BY HONBLE SUPREME COURT PRIOR TO AMENDMENT IN SECTION 263 OF THE 1961 ACT , WHEREIN NOW EXPLANATION-2 IS INSERTED IN SECTION 263 OF THE 1961 ACT BY FINANCE ACT, 2015 W.E.F. 01.06.2015 AND DEEMING FICTION IS CREATED BY EXPLAN ATION 2 TO SECTION 263 WHICH IS INSERTED BY FINANCE ACT, 2015 . THE LEAR NED CIT-DR RELIED UPON DECISION IN THE CASE OF TOYOTO MOTOR CORPORATION V. CIT REPORTED IN (2008)173 TAXMAN 458(SC) AND DECISION OF HONBLE HI GH COURT OF GAUHATI IN CIT V. JAWAHAR BHATTACHARJEE REPORTED IN (2012) 24 TAXMANN.COM 215(GAU. HC) AND IT WAS SUBMITTED THAT THERE WAS N O APPLICATION OF MIND BY THE AO WHILE PASSING ASSESSMENT ORDER AND HENCE THE SAME IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. THE LD.AR SUBMITTED IN REJOINDER THAT LEARNED PCIT CANNOT S UBSTITUTE ITS OPINION WITH THE OPINION FORMED BY THE AO WHILE PASSING ASS ESSMENT ORDER, UNLESS IT IS SHOWN THAT ASSESSMENT ORDER IS ERRONEOUS IN S O FAR AS IS PREJUDICIAL TO THE INTEREST OF REVENUE TO INVOKE REVISIONARY POWER S U/S 263 OF THE 1961 ACT. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAW. WE HAVE OBSERVE D THAT ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF AUTO PARTS. THE A SSESSEE FILED ITS RETURN OF INCOME FOR IMPUGNED AY: 2013-14 ON 29.11.2013 DE CLARING TOTAL INCOME OF RS.74.30 CRS. THE CASE OF THE ASSESSEE WAS SELECTED BY REVENUE FOR FRAMING SCRUTINY ASSESSMENT , AND ASSESSMENT OR DER DATED 27.02.2017 WAS PASSED BY AO U/S.143(3) R.W.S.92CA(4) R.W.S.144 C(3) OF THE 1961 ACT ITA NO.1692/CHNY/2019 :- 10 -: ASSESSING INCOME OF THE ASSESSEE AT RS. 76.04 CRORE S AS AGAINST RETURNED INCOME OF RS. 74.30 CRORES , AFTER MAKING ADDITIONS TO THE INCOME OF THE ASSESSEE TO THE TUNE OF RS. 1.74 CRORES TO THE RETU RNED INCOME IN THE HANDS OF THE ASSESSEE WHILE FRAMING SCRUTINY ASSESS MENT BY THE AO. HOWEVER, THE AO DID NOT MADE ANY ADDITIONS TO THE I NCOME OF THE ASSESSEE TOWARDS PROVISION FOR WARRANTY TO THE TUNE OF RS. 1,40,45,352/- MADE BY ASSESSEE IN ITS AUDITED FINANCIAL STATEMENT S WHICH WAS CLAIMED BY ASSESSEE AS DEDUCTION WHILE COMPUTING INCOME CHA RGEABLE TO TAX WHILE FILING ITS RETURN OF INCOME. WE HAVE OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAD SPECIFICALLY ASK ED ASSESSEE TO EXPLAIN AND JUSTIFY AS TO ALLOWABILITY PROVISIONS FOR EXPEN SES MADE IN ITS P& L ACCOUNT AS DEDUCTION , WHILE COMPUTING INCOME CHARG EABLE TO TAX, INCLUDING PROVISION FOR WARRANTIES TO THE TUNE OF R S. 1,40,45,352/- MADE BY ASSESSEE IN ITS AUDITED FINANCIAL STATEMENTS. IT IS OBSERVED THAT THE AO HAD ISSUED NOTICES DATED 20.04.2015 AND 17.10.2016 , BOTH U/S 142(1) OF THE 1961 ACT TO THE ASSESSEE ASKING ASSESSEE TO EXP LAIN AND JUSTIFY AS TO ALLOWABILITY OF THE CLAIM OF PROVISION FOR EXPENSES MADE IN THE AUDITED FINANCIAL STATEMENTS AND CLAIMED AS DEDUCTION WHILE COMPUTING INCOME CHARGEABLE TO TAX IN RETURN OF INCOME FILED WITH R EVENUE. THE SAID NOTICES ARE PLACED IN FILE. THE ASSESSEE HAS DULY REPLIED , INTER-ALIA, BY GIVING DETAILS OF PROVISIONS MADE FOR WARRANTIES TO THE TU NE OF RS. 1.40 CRORES IN ITS BOOKS OF ACCOUNTS WHICH WAS CLAIMED AS DEDUCTIO N WHILE COMPUTING INCOME CHARGEABLE TO TAX, VIDE REPLY DATED 24.10.2 016 ALONG WITH COMPUTATIONAL ASPECT OF MAKING PROVISION FOR WARRAN TIES , AND SAID REPLY ITA NO.1692/CHNY/2019 :- 11 -: OF THE ASSESSEE WAS ACCEPTED BY THE AO WHILE FRAMIN G SCRUTINY ASSESSMENT FOR THE IMPUGNED AY, VIDE ASSESSMENT ORD ER DATED 27.02.2017 PASSED BY AO AND NO ADDITIONS WERE MADE BY THE AO TO THE INCOME OF THE ASSESSEE WHILE FRAMING AFORESAID SCRU TINY ASSESSMENT. THE LEARNED PCIT HAS HELD ASSESSMENT ORDER DATED 27.02. 2017 PASSED BY THE AO TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE , VIDE REVISIONARY ORDER DATED 30.03.2019 PASSED BY L EARNED PCIT U/S 263 OF THE 1961 ACT, BY HOLDING THAT THERE IS A BIG GAP BETWEEN THE PROVISION MADE FOR WARRANTIES AND ITS UTILIZATION THEREOF , A ND SECONDLY THAT THE ASSESSEE HAS ITSELF REVERSED THE EXCESS PROVISION M ADE TOWARDS WARRANTIES AS THE UTILIZATION WAS NOT MADE TO THE FULL EXTENT OF PROVISIONS AND FURTHER HOLDING THAT THE AO HAS NOT MADE PROPER ENQUIRIES A ND VERIFICATION BEFORE ALLOWING CLAIM FOR PROVISIONS FOR WARRANTY. BEFORE PROCEEDING FURTHER, IT WILL BE PROFITABLE AT THIS STAGE TO ANALYZE THE BA CKGROUND AND FINANCIALS OF THE ASSESSEE FOR THE CURRENT FINANCIAL YEAR AS WELL FOR PRECEDING FINANCIAL YEARS. THE AUDITED FINANCIALS STATEMENTS FROM FINAN CIAL YEAR 2007-08 TO 2012-13 ARE PLACED BY ASSESSEE IN PAPER BOOK FILED WITH TRIBUNAL . THE ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURING OF AUTO PARTS AND HAS TO OFFER WARRANTIES AGAINST THE SALE OF PRODUCTS MANUF ACTURED /SERVICES RENDERED BY THE ASSESSEE. THE ASSESSEE IS MAKING C LAIM FOR PROVISIONS FOR WARRANTIES IN PRECEDING YEARS ALSO , AS IS EMERGING FROM RECORDS BEFORE THE BENCH. ON PERUSAL OF THE AUDITED FINANCIAL S TATEMENT FOR FINANCIAL YEAR 2012-13 RELEVANT TO IMPUGNED AY: 2013-14, WE HAVE OBSERVED THAT ITA NO.1692/CHNY/2019 :- 12 -: ASSESSEE HAS GROSS REVENUE FROM OPERATIONS TO THE TUNE OF RS. 782.04 CRS.( RS. 675.79 CRORES FOR FINANCIAL YEAR 2011-12) . WE HAVE OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION VIZ. AY: 2 013-14, THE ASSESSEE HAS MADE PROVISION FOR WARRANTIES TO THE TUNE OF RS. 1.40 CRS. WHICH IS 0.18% OF THE GROSS REVENUES FROM OPERATIONS REPORTE D BY ASSESSEE. THE ASSESSEE HAS DECLARED INCOME OF RS. 74.30 CRORES CH ARGEABLE TO TAX IN THE RETURN OF INCOME FILED FOR AY: 2013-14. THE TOTAL A CTUAL CLAIMS AGAINST WARRANTIES RECEIVED BY ASSESSEE DURING THE YEAR UND ER CONSIDERATION VIZ. AY: 2013-14 WERE TO THE TUNE OF RS. 99.37 LACS. IN THE IMMEDIATELY PRECEDING FINANCIAL YEAR 2011-12, THE PROVISION FO R WARRANTIES MADE BY ASSESSEE WERE TO THE TUNE OF RS. 2.40 CRS. AS AGAINST GROSS REVENUE FROM OPERATIONS TO THE TUNE OF RS. 675.79 CRORES REPORTE D BY ASSESSEE FOR, WHICH TRANSLATES IT INTO 0.36% OF THE GROSS REVENUE FROM OPERATIONS. THE ACTUAL CLAIM FOR WARRANTIES RECEIVED BY ASSESSEE FO R FINANCIAL YEAR 2011-12 WERE TO THE TUNE OF RS. 1.87 CRORES. THUS, IT COU LD BE SEEN THAT ALTHOUGH, THE GROSS TURNOVER OF THE ASSESSEE INCREASED FROM RS. 675.79 CRS. TO RS. 782.04 CRS. , THE PROVISION FOR WARRANTIES HAVE B EEN SCALED DOWN TO RS. 1.40 CRS. IN AY : 2013-14, FROM RS. 2.40 CRS. IN AY: 2012-13 VIZ. FROM 0.36% IN AY: 2012-13 TO 0.18% IN AY: 2012-13 , AS T HE ASSESSEE HAS DURING THE FINANCIAL YEAR 2012-13 WHICH IS UNDER CO NSIDERATION BEFORE US, RECEIVED CLAIMS FOR WARRANTIES TO THE TUNE OF RS. 9 9.37 LACS AS AGAINST CLAIMS FOR WARRANTIES TO THE TUNE OF RS. 1.87 CRO RES RECEIVED IN FINANCIAL ITA NO.1692/CHNY/2019 :- 13 -: YEAR 2011-12 . IT IS PERTINENT TO MENTION THAT THE AO FRAMED SCRUTINY ASSESSMENT FOR AY: 2012-13 ALSO , VIDE ASSESSMENT O RDER DATED 26.03.2016 PASSED U/S 143(3) READ WITH SECTION 92CA OF THE 1961 ACT , WHEREIN THE AO ACCEPTED CLAIM FOR PROVISION FOR WAR RANTY MADE BY THE ASSESSEE WHILE COMPUTING INCOME CHARGEABLE TO TAX A ND NO ADDITIONS WERE MADE BY THE AO WHILE FRAMING SCRUTINY ASSESSMENT FO R AY: 2012-13. THE SAID ASSESSMENT ORDER FOR AY: 2012-13 IS PLACED IN PAPER BOOK AT PAGE NUMBER 49 TO 53 AND ON PERUSAL OF SAID ASSESSMENT O RDER, IT IS OBSERVED THAT NO ADDITION HAS BEEN MADE BY AO TOWARDS CLAIM FOR PROVISION FOR WARRANTIES MADE BY THE ASSESSEE FOR AY: 2012-13. SI MILARLY, SCRUTINY ASSESSMENT FOR AY: 2011-12 WAS ALSO FARMED BY THE A O UNDER PROVISIONS OF SECTION 143(3) VIDE ASSESSMENT ORDER DATED 16.02 .2015 PASSED BY AO AND NO ADDITIONS TO THE INCOME OF THE ASSESSEE WAS MADE BY THE AO TOWARDS CLAIM FOR PROVISION FOR WARRANTIES WHILE FR AMING SCRUTINY ASSESSMENT FOR AY: 2011-12. AS PER DETAILS PLACED O N RECORD, THE ASSESSEE MADE PROVISION FOR WARRANTIES TO THE TUNE OF RS. 85 .28 LACS FOR AY: 2011- 12 ON GROSS TURNOVER OF RS. 558.40 CRORES, WHICH TR ANSLATES IT TO 0.15% OF GROSS TURNOVER. THUS, AS COULD BE SEEN THE AO ALLOW ED CLAIM FOR PROVISIONS FOR WARRANTIES FOR AY: 2011-12 AND 2012-13 IN SCRUT INY ASSESSMENT FRAMED UNDER PROVISIONS OF THE 1961 ACT AND NO ADDI TIONS TO INCOME WAS MADE BY THE AO TOWARDS CLAIM FOR PROVISIONS FOR WAR RANTIES CLAIMED AS DEDUCTION WHILE COMPUTING INCOME CHARGEABLE TO TAX FOR AY: 2011-12 AND 2012-13 ALSO. IT IS NOT SHOWN BY REVENUE BEFORE THE BENCH THAT ASSESSMENT ORDERS PASSED BY THE AO FOR AY: 2011-12 AND 2012-13 WERE ITA NO.1692/CHNY/2019 :- 14 -: INTERFERED BY REVENUE EITHER U/S 147 OR 263 OF THE 1961 ACT OR ANY OTHER PROVISIONS OF THE 1961 ACT SO FAR AS CLAIM FOR PROV ISIONS FOR WARRANTIES SO ALLOWED BY THE AO FOR AY: 2011-12 AND 2012-13 IS CO NCERNED. IT IS ALSO NOT SHOWN BY REVENUE BEFORE THE BENCH THAT THE CLAI M FOR PROVISION FOR WARRANTIES MADE BY THE ASSESSEE WAS UNCONSCIONABLY HIGHER FOR RELEVANT PREVIOUS YEAR 2012-13 RELEVANT TO IMPUGNED AY: 2013 -14 VIS--VIS EARLIER YEARS , RATHER THE ASSESSEE HAS CLAIMED PROVISION F OR WARRANTIES TO THE TUNE OF 0.18% OF GROSS TURNOVER FOR AY: 2013-14 AS AGAINST 0.36% OF GROSS TURNOVER FOR AY: 2012-13 AND 0.15% OF GROSS T URNOVER FOR AY: 2011-12, AND AS COULD BE SEEN THE AO ALLOWED CLAIM FOR PROVISION FOR WARRANTIES FOR AY: 2011-12 AND 2012-13 IN SCRUTINY ASSESSMENT AND NO ADDITIONS WERE MADE TO THE INCOME OF THE ASSESSEE B Y AO WHILE FRAMING SCRUTINY ASSESSMENT. IT IS ALSO NOT BROUGHT ON RECO RD BY LEARNED CIT-DR THAT ASSESSMENT ORDERS FOR AY: 2011-12 AND 2012-13 WERE INTERFERED BY REVENUE BY INVOKING PROVISIONS OF SECTION 147 OR SE CTION 263 OR ANY OTHER PROVISIONS OF THE 1961 ACT. IT IS ALSO OBSERVED THA T SIMILAR POSITION PREVAILED EVEN IN AY: 2010-11 WHEREIN IN THE SCRUTI NY ASSESSMENT, THERE WERE NO ADDITIONS MADE BY THE AO TOWARDS PROVISIONS FOR WARRANTIES CLAIMED BY ASSESSEE AS DEDUCTION WHILE COMPUTING IN COME CHARGEABLE TO TAX. THUS, IT COULD NOT BE SAID THAT THE AO WAS NOT AWARE OF THE CLAIM FOR PROVISIONS FOR WARRANTIES MADE BY THE ASSESSEE OVER SEVRAL PRECEDING YEARS , RATHER THE SAID CLAIMS WERE ALLOWED BY THE AO AS DEDUCTION WHILE COMPUTING INCOME OF THE ASSESSEE CHARGEABLE TO TAX, WHILE FRAMING SCRUTINY ASSESSMENT ORDERS. THOSE ASSESSMENT ORDERS WERE ACCEPTED BY ITA NO.1692/CHNY/2019 :- 15 -: THE REVENUE AS IT COULD NOT BE SHOWN BY LEARNED CIT -DR BEFORE US THAT REVENUE INTERFERED WITH THE SAID ASSESSMENT ORDERS FOR AY: 2010-11 TO 2012-13 BY INVOKING PROVISIONS OF SECTION 147 OR 26 3 OR ANY OTHER PROVISIONS OF THE 1961 ACT. IT IS ALSO OBSERVED THA T THE ASSESSEE HAS DULY GIVEN A NOTE IN ITS FINANCIAL AUDITED STATEMENTS AS TO THE BASIS ON WHICH PROVISION FOR WARRANTIES WERE MADE BY IT IN ITS BOO KS OF ACCOUNTS WHICH WAS CLAIMED BY IT AS DEDUCTION WHILE COMPUTING INCO ME CHARGEABLE TO TAX UNDER PROVISIONS OF THE 1961 ACT, WHICH IS REPRODUC ED HEREUNDER: PROVISION FOR WARRANTY: PROVISION FOR PRODUCT RELATED WARRANTY COSTS IS BAS ED ON THE CLAIMS RECEIVED UPTO THE YEAR END AS WELL AS MANAGEMENT ESTIMATES O F FURTHER LIABILITY TO BE INCURRED IN THIS REGARD DURING THE WARRANTY PERI OD, COMPUTED ON THE BASIS OF TECHNICAL EVALUATION AND PAST TREND OF SUC H CLAIMS. ON CAREFUL PERUSAL OF THE AFORESAID NOTE, IT IS OBS ERVED THAT THE ASSESSEE IS FOLLOWING A METHOD FOR COMPUTING PROVISION FOR WARR ANTIES BASED ON THE CLAIMS RECEIVED UPTO YEAR END AS WELL MANAGEMENT ES TIMATE OF FURTHER LIABILITY TO BE INCURRED IN THIS REGARD DURING THE WARRANTY PERIOD , COMPUTED ON THE BASIS OF TECHNICAL EVALUATION AND P AST TRENDS OF SUCH CLAIM. IN OUR CONSIDERED VIEW, IT COULD NOT BE SAID THAT SUCH METHOD FOR MAKING PROVISION FOR WARRANTIES IS IN THE REALM OF PERVERSITY AND RATHER IN OUR CONSIDERED VIEW THE METHOD ADOPTED IS FAIR AND REASONABLE METHOD TO COMPUTE PROVISION FOR WARRANTIES , AS IT CONSIDERED ACTUAL CLAIMS RECEIVED UPTO YEAR END AS ALSO MANAGEMENT ESTIMATE BASED ON TECHNICAL EVALUATION AND PAST TRENDS. WHILE MAKING PROVISIONS FOR WARRAN TIES , THE TAX-PAYER HAS TO MAKE PRESENT ESTIMATE OF LIKELY OBLIGATION WHICH MAY ARISE IN ITA NO.1692/CHNY/2019 :- 16 -: FUTURE ARISING OUT OF EXISTING CONTRACTS OF SALE AN D SERVICES MADE BY ASSESSEE ENTAILING OUTGO IN FUTURE ON ACCOUNT OF CO MMITMENTS MADE BY TAX-PAYERS TO ITS CUSTOMERS WHILE EXECUTING SALES/S ERVICES CONTRACTS ALREADY MADE BEFORE THE END OF YEAR. IT IS ALSO WEL L SETTLED THAT AN ESTIMATES WOULD ALWAYS ENTAIL SOME GUESS WORK BUT T HE SAID ESTIMATE HAS TO BE AN HONEST AND FAIR GUESS WORK . REFERENCE IS DRAWN TO DECISION OF HONBLE SUPREME COURT IN THE CASE OF KACHWALA GEMS V. JCIT REPORTED IN (2007) 288 ITR 10(SC) , ALTHOUGH IT WAS RENDERED IN THE CONTEXT OF BEST JUDGMENT ASSESSMENT. MERELY BECAUSE, THE PROVISION FOR WARRANTIES MADE DURING THE YEAR UNDER CONSIDERATION IS IN EXCESS OF CLAIMS RECEIVED DURING THE YEAR UNDER CONSIDERATION, COULD NOT BE A REASO N FOR DISALLOWING SAID CLAIM UNLESS IT IS SHOWN THAT PROVISION FOR WARRANT IES MADE DURING THE YEAR IS UNCONSCIONABLY HIGH WHICH WAS MADE WITH AN INTEN T TO ARTIFICIALLY REDUCE TAX-LIABILITY WITH AN INTENT TO DEFRAUD REVENUE. IN CIDENTALLY , IN THE PRECEDING YEAR VIZ. AY: 2012-13 , THE ASSESSEE RECE IVED ACTUAL CLAIMS FOR WARRANTIES TO THE TUNE OF RS. 1.87 CRORES WHILE IN THE YEAR UNDER CONSIDERATION VIZ. AY: 2013-13, IT MADE PROVISION F OR WARRANTIES TO THE TUNE OF RS. 1.40 CRORES IN ITS BOOKS OF ACCOUNTS . THUS, IN THE PRECEDING YEAR, THE ASSESSEE RECEIVED CLAIMS TOWARDS WARRANTI ES UPTO YEAR END TO THE TUNE OF RS.1.86 CRORES AND IT MADE PROVISIONS F OR WARRANTIES TO THE TUNE OF RS. 2.40 CRORES WHICH WAS 0.36% OF THE GROS S TURNOVER, WHILE DURING THE YEAR UNDER CONSIDERATION IT RECEIVED CLA IMS TOWARDS WARRANTIES TO THE TUNE OF RS. 99.37 LACS AND ACCORDINGLY THE A SSESSEE VOLUNTARILY SCALED DOWN THE PROVISION FOR WARRANTIES TO THE TUN E OF RS. 1.40 CRORES ITA NO.1692/CHNY/2019 :- 17 -: WHICH IS 0.18% OF THE GROSS TURNOVER. IT IS CLEARLY BROUGHT ON RECORD THAT THE AO DID MADE ENQUIRIES AS TO CLAIM MADE BY ASSES SEE TOWARDS PROVISIONS FOR WARRANTIES AND THE ASSESSEE DID REPL Y AS TO HOW IT MADE PROVISIONS FOR WARRANTIES, WHICH REPLY STOOD ACCEPT ED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS ALSO PLACED IN PAPER BOOK, THE METHOD FOLLOWED BY IT FOR MAKING PROVISIO NS FOR WARRANTIES IN ITS BOOKS OF ACCOUNTS, WHICH IS REPRODUCED HEREUNDER: TABLE A: WORKINGS COMPUTING PROVISION FOR WARRANT Y CREATED IN FY 2012-13 S.NO. DESCRIPTION TURNOVER ( ` `` ` ) 1. TURNOVER FOR 5 CONSECUTIVE YEARS: (A) 2008-09 4,24,19,80,814 2009-10 4,84,88,60,032 2010-11 5,03,95,36,000 2011-12 6,11,23,89,566 2012-13 5,53,40,64,705 TOTAL 25,77,68,31,117 2 CLOSING BALANCE OF PROVISION FOR WARRANTY TO BE RETAINED, BASED ON PAST EXPERIENCE OF ACTUAL WARRANTY EXPENSE (B) (WORKING PROVIDED BELOW IN TABLE B) 0.1% 3 CLOSING BALANCE OF PROVISION FOR WARRANTY FOR FY 2012-13 -(C=A*B) 2,84,95,981 4 OPENING BALANCE OF PROVISION FOR WARRANTY FOR FY 2012-13 2,43,88,044 5 ACTUAL WARRANTY EXPENSE INCURRED DURING FY 2012-13 99,37,415 6 PROVISION FOR WARRANTY TO BE CREATED DURING THE FY 2012-13 1,40,45,352 TABLE B: WORKINGS FOR COMPUTING PERCENTAGE OF WARR ANTY EXPENSE IN PROPORTION TO THE TURNOVER. YEAR TURNOVER ( ` `` ` ) WARRANTY CLAIMS ( ` `` ` ) CLAIM % ON SALES CONSIDERED FOR WARRANTY PURPOSES 2007-08 2,98,75,94,875 - 0.0% 2008-09 4,24,19,80,814 - 0.0% 2009-10 4,84,88,60,032 19,15,893 0.0% 2010-11 5,03,95,36,000 85,28,070 0.2% 2011-12 6,11,23,89,566 1,86,54,652 0.3% TOTAL 23,23,03,61,287 2,90,98,615 0.1% COPY OF FINANCIAL STATEMENT FOR THE FY REFERRED ABO VE IS ENCLOSED. ITA NO.1692/CHNY/2019 :- 18 -: THE ISSUE OF CLAIM OF PROVISIONS FOR WARRANTIES WAS A RECURRING ISSUE WHICH IS ARISING EVERY YEAR AND IT IS BROUGHT ON RECORD B Y ASSESSEE THAT THE AO DID FRAMED SCRUTINY ASSESSMENT EVEN FOR AY: 2010-11 , 2011-12 AND 2012- 13 , APART FROM MAKING SCRUTINY ASSESSMENT FOR IMPU GNED AY: 2013-14 AND FOR ALL THESE YEARS THE ASSESSEES CLAIM FOR PR OVISION FOR WARRANTIES WAS ACCEPTED BY THE AO WHILE FRAMING SCRUTINY ASSES SMENT. THE REVENUE DID NOT INTERFERED WITH THE ASSESSMENT FRAMED BY TH E AO FOR AY: 2010-11, 2011-12 AND 2012-13 AND HENCE THE ISSUE OF ALLOWABI LITY OF CLAIM OF PROVISION FOR WARRANTY BY THE AO FOR AY: 2010-11, 2 011-12 AND 2012-13 ATTAINED FINALITY AT THE LEVEL OF THE AO ITSELF FOR AY: 2011-12 AND 2012-13. THUS, IT COULD NOT BE SAID THAT THE AO DID NOT MADE ANY OPINION WHILE FRAMING SCRUTINY ASSESSMENT FOR AY: 2013-14 BEFORE ALLOWING DEDUCTION FOR CLAIM OF PROVISION FOR WARRANTIES FOR AY: 2013-14 A ND THE SAID OPINION IN OUR CONSIDERED VIEW WAS FORMED AFTER DUE ENQUIRIES AND VERIFICATIONS . IN OUR CONSIDERED VIEW, IN THE PRESENT CASE EXPLANATIO N 2 TO SECTION 263 OF THE 1961 ACT CANNOT BE INVOKED BY REVENUE AS FIRSTL Y, THE AO DID MADE PROPER ENQUIRIES AND VERIFICATIONS AS TO CLAIM OF P ROVISIONS FOR WARRANTY MADE BY THE ASSESSEE, SECONDLY, THE ASSESSEE DULY R EPLIED TO SAID QUERY RAISED BY THE AO DURING ASSESSMENT PROCEEDINGS, THI RDLY, THIS IS A RECURRING ISSUE ARISING FROM PRECEDING YEARS AND TH E AO WAS ALLOWING THE SAID CLAIM IN EARLIER YEARS ALSO, FOURTHLY THE AO M ADE CONSCIOUS DECISION WHILE ALLOWING CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PROVISION ITA NO.1692/CHNY/2019 :- 19 -: FOR WARRANTIES. THE LEARNED PCIT CANNOT SUBSTITUTE ITS OPINION WITH THAT OF THE AO FORMED DURING THE COURSE OF ASSESSMENT PROCE EDINGS, UNLESS IT IS SHOWN THAT EITHER THE AO DID NOT MADE ANY OPINION W HILE ALLOWING THE CLAIM OF DEDUCTION WHICH WAS ALLOWED BY AO WITHOUT MAKING ANY ENQUIRY OR VERIFICATION OR AFTER MAKING INADEQUATE OR IMPRO PER ENQUIRIES INSTEAD OF MAKING PROPER ENQUIRIES OR VERIFICATION WHICH THE A O OUGHT TO HAD MADE, OR THEVIEW TAKEN BY THE AO WAS PERVERSE VIEW WHILE ALLOWING THE CLAIM OF DEDUCTION SO MUCH SO THAT THE ORDER PASSED BY THE A O WAS ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. ON P ERUSAL OF QUANTUM OF CLAIM FOR PROVISION FOR WARRANTIES MADE BY THE ASSE SSEE DURING IMPUGNED AY: 2013-14 WHICH IS TO THE TUNE OF 0.18% OF GROSS TURNOVER AS AGAINST 0.36% OF GROSS TURNOVER IN IMMEDIATELY PRECEDING YE AR WHICH WAS ALSO ALLOWED BY THE AO , IT COULD NOT BE SAID THAT THE A SSESSEE IS MAKING AN ATTEMPT TO CLAIM HIGHER PROVISIONS TOWARDS WARRANTI ES IN THE YEAR UNDER CONSIDERATION TO REDUCE ITS TAX LIABILITY OR TO DE FRAUD REVENUE OR THE CLAIM SO MADE WAS UNCONSCIONABLY HIGHER. UNDER THESE CIR CUMSTANCES, WE ARE OF THE CONSIDERED VIEW, THE AO HAS FORMED AN CONSCI OUS OPINION WHILE ALLOWING DEDUCTION TOWARDS CLAIM OF PROVISION FOR WARRANTIES WHILE FRAMING SCRUTINY ASSESSMENT FOR IMPUGNED AY AND IT COULD NOT BE SAID THAT THE AO FORMED AN OPINION WHICH COULD BE TERMED AS P ERVERSE TO THE EXTENT THAT THE ASSESSMENT ORDER PASSED BY THE AO COULD B E TERMED AS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE WARRANTING INTERFERENCE U/S 263 OF THE 1961 ACT. TH E POWERS U/S 263 ARE EXTRA-ORDINARY REVISIONARY POWERS VESTED WITH LEARN ED PCIT WHO IS ITA NO.1692/CHNY/2019 :- 20 -: REQUIRED TO PASS AN REVISIONARY ORDER AFTER EXAMINI NG THE RECORD AS STIPULATED IN SUB-SECTION 1 TO SECTION 263 OF THE 1 961 ACT READ WITH EXPLANATION 1 CLAUSE (B), WHICH EXPLANATION PROVIDE THAT THE RECORD SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDINGS UNDER THE 1961 ACT AVAILABLE AT THE TIME OF EXAMINATION BY LEARNED PCIT OR CIT. THE WORD RECOR D IS DEFINED UNDER EXPLANATION 1(B) TO SECTION 263 IN AN MOST EXHAUSTI VE MANNER AND SHALL ALSO INCLUDE RECORDS AVAILABLE FOR SCRUTINY ASSESSM ENT PROCEEDINGS CONDUCTED BY AO NOT ONLY FOR RELEVANT AY BUT ALSO E VEN FOR PRECEDING AYS. IT WAS INCUMBENT ON LEARNED PCIT TO HAVE LOOKED INT O ASSESSMENT RECORDS OF EVEN PRECEDING YEARS AVAILABLE WITH REVENUE AS T HE ISSUE REGARDING CLAIM OF PROVISIONS FOR WARRANTIES IS A RECURRING I SSUE ARISING EVERY YEAR ON YEAR, BEFORE PREJUDICING ASSESSEE WITH AN REVISIONA RY ORDER PASSED U/S 263 OF THE 1961 ACT DECLARING ASSESSMENT ORDER PASS ED BY THE AO TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. AS A SERIOUS PREJUDICE IS LIKELY TO BE CAUSED TO THE TAX-PAYER B Y INVOCATION OF EXTRA- ORDINARY REVISIONARY POWERS VESTED WITH LEARNED PCI T OR CIT BY INVOKING PROVISIONS OF SECTION 263 OF THE 1961 ACT , SUCH PO WERS ARE TO BE USED BY LEARNED PCIT OR CIT NOT IN AN TECHNICAL , ROUTINE O R CASUAL MANNER BUT ONLY AFTER EXAMINING OF THE RECORD WHICH , INERT-ALIA , ALSO INCLUDES ASSESSMENT RECORDS OF PRECEDING AYS APART FROM THAT OF CURREN T AY UNDER CONSIDERATION BEFORE US. SHOW CAUSE NOTICE DATED 14 .03.2019 WAS ISSUED BY LEARNED PCIT TO THE ASSESSEE ,AND THE ASSESSEE M ADE DETAILED REPLY BEFORE LEARNED PCIT ON 26.03.2019 CHALLENGING INVOC ATION OF REVISIONARY ITA NO.1692/CHNY/2019 :- 21 -: POWERS OF LEARNED PCIT BOTH ON LEGAL GROUNDS AS WEL L ON MERITS . IN THE REPLY SUBMITTED BY ASSESSEE BEFORE LEARNED PCIT DUR ING REVISIONARY PROCEEDINGS CONDUCTED BY LEARNED PCIT U/S 263 OF TH E 1961 ACT , THE ASSESSEE IN NUT-SHELL SUBMITTED BEFORE LEARNED PCIT THAT PROVISION FOR WARRANTY WAS MADE BASED ON HISTORICAL EXPERIENCE OF THREE YEARS BASED ON STATISTICAL DATAS AND THUS, IT WAS AN ASCERTAINED LIABILITY. IT WAS SUBMITTED BEFORE LEARNED PCIT BY ASSESSEE THAT THE AO DID MAD E ENQUIRIES WITH THE ASSESSEE W.R.T. CLAIM FOR DEDUCTION OF PROVISION FO R WARRANTIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR IMPUGNED AY AN D IT WAS CLAIMED THAT THE ASSESSEE DID REPLIED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINFS EXPLAINING CLAIM FOR DEDUCTI ON OF PROVISIONS FOR WARRANTIES. IT WAS INCUMBENT ON LEARNED PCIT TO HAV E VIEWED THE ENTIRE SUBMISSIONS MADE BY ASSESSEE AS ALSO ASSESSMENT REC ORDS OF CURRENT YEAR AS WELL THAT OF PRECEDING YEARS AS IT WAS AN RECURR ING ISSUE EVERY YEAR , ALSO KEEPING IN VIEW THAT THE REVENUE HAS FINALLY A CCEPTED THE CLAIM FOR DEDUCTION TOWARDS PROVISIONS MADE TOWARDS WARRANTIE S IN THE PRECEDING YEARS UNDER SCRUTINY ASSESSMENTS FOR AY: 2010-11 TO 2012-13 AND PROVISION FOR WARRANTIES MADE DURING THE YEAR UNDER CONSIDERATION IS NOT UNCONSCIONABLY HIGHER THAN THAT OF PRECEDING YEARS WARRANTING INTERFERENCE U/S 263 OF THE 1961 ACT RATHER IT HAS FALLEN TO 0.18% OF GROSS TURNOVER DURING THE YEAR UNDER CONSIDERATION FROM 0 .36% OF GROSS TURNOVER DURING IMMEDIATELY PRECEDING YEAR. IT IS N OW WELL SETTLED BY CATENA OF JUDGMENTS THAT IN TAX PROCEEDINGS , PRINC IPLES OF RES-JUDICATA IS NOT APPLICABLE BUT PRINCIPLES OF CONSISTENCY HAS TO BE MAINTAINED TO INSTILL ITA NO.1692/CHNY/2019 :- 22 -: CERTAINTY IN TAX MATTERS IN THE MINDS OF TAX-PAYER SO THAT THEY CAN PLAN THEIR AFFAIRS , UNLESS PERVERSITY IS SHOWN IN THE A CTION OF TAX-PAYER IN CLAIMING DEDUCTION WHILE COMPUTING INCOME CHARGEABL E TO TAX OR IT IS SHOWN THAT AN ATTEMPT IS MADE BY TAX-PAYER TO DEFRA UD REVENUE OR AN UNCONSCIONABLY HIGH CLAIM OF DEDUCTION IS MADE BY T HE TAX-PAYER WHICH BREACHES ALL CANNON OF EQUITY, JUSTICE AND LAW. WE DONOT FIND ANY SUCH ATTEMPT MADE BY ASSESSEE IN THE INSTANT CASE TO DEF RAUD REVENUE WHILE MAKING CLAIM FOR PROVISIONS FOR WARRANTIES IN THE Y EAR UNDER CONSIDERATION RATHER WE FIND THE METHOD ADOPTED FOR MAKING CLAIM FOR PROVISION FOR WARRANTIES AS FAIR AND REASONABLE AND IN OUR CONSID ERED VIEW THE AO DID FORMED AN PROPER OPINION AFTER MAKING DUE ENQUIRIES AND VERIFICATION WHILE ALLOWING CLAIM OF DEDUCTION OF PROVISIONS FOR WARRA NTIES FOR THE IMPUGNED AY WHILE FRAMING SCRUTINY ASSESSMENT , AS ALSO IT IS OBSERVED THAT IT WAS A RECURRING ISSUE FOR AO WHICH IS ARISING EVERY YEAR AFTER YEAR AS IT FRAMED SCRUTINY ASSESSMENT AGAINST ASSESSEE FOR PRECEDING AYS ALSO FOR AY: 2010-11 TO 2012-13 AND IN THOSE YEARS ALSO THE ASSE SSEE MADE CLAIM FOR DEDUCTION TOWARDS PROVISION FOR WARRANTIES WHICH WA S ALLOWED BY THE AO IN SCRUTINY ASSESSMENT AND REVENUE FINALLY ACCEPTED TH OSE ORDERS SO FAR AS CLAIM FOR DEDUCTION TOWARDS PROVISION FOR WARRANTIE S IS CONCERNED AND IT COULD NOT BE SHOWN THAT THESE ORDERS FOR AY: 2010-1 1 TO 2012-13 WERE INTERFERED BY REVENUE BY INVOKING PROVISIONS OF SEC TION 147 OR SECTION 263 OR ANY OTHER PROVISIONS OF THE 1961 ACT. IT IS SETTLED PROPOSITION NOW THAT CLAIM FOR DEDUCTION TOWARDS PROVISIONS FOR WAR RANTIES MADE ON THE BASIS OF PAST EXPERIENCE BASED ON STATISTICAL DATA BY ADOPTING SCIENTIFIC ITA NO.1692/CHNY/2019 :- 23 -: METHOD TO FULFILL CONTRACTUAL OBLIGATION ARISING O UT OF CONCLUDED CONTRACTS OF SALE/SERVICES IS AN ASCERTAINED LIABILITY . REFE RENCE IS DRAWN TO DECISION OF HONBLE SUPREME COURT IN THE CASE OF ROTORK CONT ROLS INDIA PRIVATE LIMITED V. CIT REPORTED IN (2009) 314 ITR 62(SC). UNDER THESE CIRCUMSTANCES BASED ON TOTALITY OF FACTS AND CIRCUM STANCES OF THE INSTANT CASE BEFORE US, WE ARE INCLINED TO QUASH THE REVISI ONARY ORDER DATED 30.03.2019 PASSED BY LEARNED PCIT U/S.263 OF THE AC T AND HOLD THAT THE ASSESSMENT ORDER DATED 27.02.2017 PASSED BY AO WAS NOT ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. W E ORDER ACCORDINGLY. 6. IN THE RESULT, THE APPEAL FILED BY ASSESSEE IN I TA NO.1692/CHNY/2019 FOR AY: 2013-14 IS ALLOWED. ORDER PRONOUNCED ON THE 10 TH DAY OF FEBRUARY, 2020 IN CHENNAI. SD/- SD/- ( $ % . . ' ) (DUVVURU R.L.REDDY) * /JUDICIAL MEMBER ( ) (RAMIT KOCHAR) /ACCOUNTANT MEMBER /CHENNAI, 6 /DATED: 10 TH FEBRUARY, 2020. TLN 2 0*7 87 /COPY TO: 1. / /APPELLANT 4. 9 /CIT 2. 01/ /RESPONDENT 5. 7 0** /DR 3. 9 ( ) /CIT(A) 6. , /GF