ACIT, Mysore V. M/s Prasadhini Enterprises Pvt. Ltd., Mysore

ITA 267/BANG/2011

• Counselvise Citation: 26721114 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 14-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: S VENKATARAMAN
• Section: 143(3)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SMT P. MADHAVI DEVI, JUDICIAL MEMBER I.T.A. NO.511(BANG.)/2011 (ASSESSMENT YEAR : 2007-08) THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), MYSORE APPELLANT VS M/S RAMAN BOARDS LTD., M/S ABB GLOBAL INDUSTRIES & SERVICES LTD., MYSORE OOTY ROAD, THANDAVAPURA, MYSORE PAN NO.AAACR9495F RESPONDENT REVENUE BY : SMT. SUSAN THOMAS JOSE, JCIT ASSESSEE BY : SHRI S. VENKATARAMAN, CA DATE OF HEARING : 26-04-2012 DATE OF PRONOUNCEMENT : 26-04-20 12 O R D E R PER SMT. P. MADHAVI DEVI, JM; THIS APPEAL BY THE REVENUE RELATES TO ASSESSMENT YE AR 2007-08. 2. IN THIS APPEAL, THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A)IN ALLOWING THE ASSESSEES CLAIM OF PROVI SION OF WARRANTY EXPENSES BY FOLLOWING THE DECISION OF THE APEX COUR T IN THE CASE OF M/S ROTORK CONTROLS INDIA, REPORTED IN 314 ITR 62 W ITHOUT ITA NO.511(B)/2011 2 APPRECIATING THE FACTS INVOLVED IN THE ASSESSEES C ASE WHICH IS TOTALLY DIFFERENT FROM THE CASE LAW RELIED UPON BY THE CIT(A). 2.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A COMPANY WHICH IS ENGAGED IN THE MANUFACTURE OF ELEC TRICAL INSULATION BOARDS USED IN THE ELECTRICAL TRANSFORME RS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE RELEVAN T ASSESSMENT YEAR DECLARING A TOTAL INCOME OF RS.3,25,70,700/-. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE IT ACT, 19 61, THE AO OBSERVED THAT THE ASSESSEE HAD ADDED SCHEDULE-M TO THE PROFIT & LOSS ACCOUNT WHEREIN A CLAIM FOR WARRANTIES TO AN E XTENT OF RS.20.00 LAKHS HAS BEEN MADE UNDER THE HEAD MANUFA CTURING AND OTHER EXPENSES. IT WAS ALSO OBSERVED THAT THE ASSESSEE COMPANY HAD CHANGED ITS POLICIES WITH REGARD TO PRO VISION FOR WARRANTY FOR THE ASSESSMENT YEAR : 2007-08 AND THAT IN THE PREVIOUS YEARS, THE CLAIM WAS MADE ON ACTUAL PAYMEN T WHILE DURING THE RELEVANT FINANCIAL YEAR. THE ASSESSEE H AD MADE A PROVISION FOR WARRANTY HOLDING THAT THERE IS NO CON SISTENCY IN THE METHOD FOLLOWED BY THE ASSESSEE. THE AO HELD THAT THE PROVISION FOR WARRANTY IS A CONTINGENT LIABILITY AND IS NOT A CCEPTABLE IN THE ABSENCE OF ANY SCIENTIFIC OR REALISTIC EVALUATION/M ETHOD. ACCORDINGLY, HE DISALLOWED THE PROVISION OF WARRANT Y OF RS.20.00 LAKHS. ITA NO.511(B)/2011 3 2.2 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A) MAKING ELABORATE SUBMISSIONS AND ALSO PLACED RELIANCE UPON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF M/S ROTORK CONTROLS INDIA REPORTED IN 314 ITR 62. 2.3 AFTER REPRODUCING THE SUBMISSIONS OF THE ASSESS EEE AND ALSO THE RELEVANT PARAGRAPHS OF THE APEX COURTS OR DER IN THE CASE OF M/S ROTORK CONTROLS INDIA, CITED SUPRA, THE CIT( A) CONSIDERED THAT THE PROVISION FOR WARRANTY MADE BY THE ASSESSE E WAS LESS THAN THE ACTUAL WARRANTY EXPENSES. HE ACCORDINGLY, ALLOWED THE ASSESSEES APPEAL. AGGRIEVED THE REVENUE IS IN AP PEAL BEFORE US. 3. THE LEARNED DR SMT. SUSAN THOMAS JOSE, WHILE SUPPORTING THE ORDER OF THE AO SUBMITTED THAT THE F ACTS OF THE CASE BEFORE THE APEX COURT IN THE CASE OF M/S ROTOR K CONTROLS INDIA ARE DISTINGUISHABLE FROM THE FACTS OF THE CAS E BEFORE US. SHE SUBMITTED THAT IN THE CASE OF M/S ROTORK CONTROLS I NDIA, THE ASSESSEE THEREIN WAS DEALING WITH SOPHISTICATED GOO DS AND THEREFORE, THE HONBLE APEX COURT HELD THAT THE PRO VISION OF WARRANTY IS SUPPORTED BY THE HISTORICAL TREND NAMEL Y, THE DEFECTS BEING DETECTED IN SOME OF THE ITEMS. SHE SUBMITTED THAT THE CASE BEFORE US, THE ASSESSEE WAS DEALING WITH THE MANUFA CTURE OF ELECTRICAL INSULATION BOARDS AND MOLDED COMPONENTS WHICH CANNOT BE SAID TO BE SOPHISTICATED GOODS. SHE ALS O STATED THAT ITA NO.511(B)/2011 4 THE ASSESSEE HAS NOWHERE STATED THE REASONS FOR CHA NGE IN THE ACCOUNTING METHOD DURING THE RELEVANT ASSESSMENT YE AR AND THEREFORE, MAKING PROVISION ON AN ESTIMATE BASIS IS NOT PERMISSIBLE. ACCORDING TO HER, THE ASSESSEE HAS NOT FURNISHED ANY BASIS FOR MAKING SUCH PROVISION OF WARRANTY. SHE THUS, SUBMITTED THAT THE CIT(A) HAS ERRED IN APPLYING THE DECISION OF THE APEX COURT IN THE CASE OF M/S ROTORK CONTROLS INDIA , TO THE CASE BEFORE US WITHOUT APPRECIATING THE FACTS OF THE CAS E BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND, SUPPORTED THE ORDER OF THE CIT(A) AND DREW OUR ATTE NTION TO THE HONBLE APEX COURTS DECISION WHEREIN THE APEX COUR T HAS LAID DOWN THE PARAMETERS FOR ALLOWING A PROVISION OF WAR RANTY. HE SUBMITTED THAT THE ASSESSEE HAS FURNISHED ALL THE D ATA BEFORE THE CIT(A) AND THE CIT(A) HAS REPRODUCED THE ACTUAL WAR RANTY EXPENSES INCURRED BY THE ASSESSEE FOR THE FINANCIAL YEARS 2003-04 TO 2005-06 ALSO FOR THE ASSESSMENT YEARS 2006-07 TO 2009-10 TO COME TO THE CONCLUSION THAT THE WARRANTY PROVISION MADE BY THE ASSESSEE IS INFACT FOR A LESSER AMOUNT THEN THE ACT UAL EXPENSES. HE SUBMITTED THAT THE CIT(A) HAS RIGHTLY ALLOWED TH E PROVISION OF WARRANTY. 5. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT THERE IS NO DISPUTE AS REGARDS THE ITA NO.511(B)/2011 5 LIABILITY OR OBLIGATION OF THE ASSESSEE TOWARDS WAR RANTY PROVIDED WITH THE SALE OF ITS GOODS. IN THE PREVIOUS YEARS, THE ASSESSEE HAD BEEN CLAIMING THE ACTUAL WARRANTY EXPENSES, WHEREAS DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAS STARTED M AKING THE PROVISION FOR WARRANTY. THE ASSESSEE HAD EXPLAINED BEFORE THE AO AS WELL AS THE CIT(A) THAT THE ASSESSEE HAD BEEN TA KEN OVER BY THE ABB GLOBAL INDUSTRIES & SERVICES LTD., DURING THE R ELEVANT FINANCIAL YEAR AND FOLLOWING THE POLICIES FOLLOWED BY THE ABB GLOBAL INDUSTRIES & SERVICES LTD., THE ASSESSEE HAD CHANGED THE METHOD OF ACCOUNTING. FURTHER, IT IS ALSO SEEN TH AT THE ACTUAL EXPENSES INCURRED FOR WARRANTY DURING THE FINANCIAL YEARS 2003- 04 TO 2009-2010 ARE MUCH MORE THAN THE PROVISION MA DE FOR THE RELEVANT ASSESSMENT YEAR I.E. OF RS.20.00 LAKHS. H OWEVER, WE FIND THAT THE CIT(A) HAS NOT REPRODUCED ANY PARTICU LARS OF THE SUBMISSIONS OF THE ASSESSEE, WHEREIN THE ASSESSEEE ALLEGES TO HAVE EXPLAINED THE BASIS FOR MAKING SUCH A WARRANTY . THEREFORE, IT CANNOT BE SAID THAT THE CIT(A) HAS APPLIED HIS M IND TO SUCH MATERIAL BEFORE HIM. AS HELD BY THE HONBLE SUPREM E COURT, THE ASSESSEE NOT ONLY HAS TO SATISFY THE PROVISIONS OF ACCOUNTING METHODS AND HAVING LIABILITY OR OBLIGATION FOR MAKI NG PROVISIONS FOR WARRANTY, BUT IT ALSO HAS TO BE ESTABLISH THE HISTORICAL TREND AND THE SCIENTIFIC METHOD OR BASIS FOR MAKING THE P ROVISIONS. IN ITA NO.511(B)/2011 6 VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMA ND THE ISSUE TO THE FILE OF THE AO TO RECONSIDER THE ISSUE IN THE L IGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F M/S ROTORK CONTROLS INDIA. HOWEVER, WE WOULD LIKE TO MAKE IT CLEAR, THAT IF THE PROVISION OF WARRANTY MADE BY THE ASSESSEE IS A ROUNDED OFF FIGURE WHICH IS A LITTLE LESS OR MORE THAN THE ACTU AL QUANTIFICATION FIGURE ARRIVED AT ON THE BASIS ADOPTED BY THE ASSES SEE, THE AO SHALL NOT DENY THE CLAIM OF WARRANTY OF PROVISION O N THE GROUND THAT IT IS NOT CORRECT QUANTIFICATION OF THE WARRAN TY, AS PER THE BASIS ADOPTED BY THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 26 AP RIL, 2012. SD/- SD/- ( N.K. SAINI) ( SMT. P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDIC IAL MEMBER PLACE: BANGALORE DATED: 26-04-2012 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT ITA NO.511(B)/2011 7 5. DR 6. GF(BLORE) BY ORDER AR, ITAT, BANGALORE