The ACIT, Circle-8, Ahmedabad V. Zeppeline Mobile Systems Pvt.Ltd., Ahmedabad

ITA 2724/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94247 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Keywords: Commercial expediency; Revenue expenditure
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI RAJPAL YADAV, J.M. & SHRI ANIL CHATURV EDI, A.M.) I.T. A. NO.2724 /AHD/2011 (ASSESS MENT YEAR: 2008-09) ACIT, CIRCLE-8, AHMEDABAD V/S ZEPPELIN MOBILE SYSTEMS INDIA LTD. 7 TH FLOOR, ABHIJIT, MITHAKHALI SIX ROAD, ELLISBRIDGE, AHMEDABAD- 380006 (APPELLANT) (RESPONDENT) PAN: AAACZ0279K APPELLANT BY : SMT. VIBHA BHALLA, CIT/DR RESPONDENT BY : SHRI MILIN MEHTA ( )/ ORDER DATE OF HEARING : 10-08-2015 DATE OF PRONOUNCEMENT : 13 -08-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-XIV, AHMEDABAD DATED 04-08-2011 FOR A.Y. 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF CONSTRUCTING SHELTERS FOR MOBILE COMPANIES. ASSESSEE ELECTRONICA LLY FILED ITS RETURN OF ITA NO 2724/ AHD/2011 . A.Y. 2008-09 2 INCOME FOR A.Y. 2008-09 ON 30.09.2008 DECLARING TOT AL INCOME OF RS. 12,11,95,820/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE OR DER DATED 18.10.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS. 12,31,94 ,908/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFO RE LD. CIT(A) WHO VIDE ORDER DATED 04.08.2011 GRANTED SUBSTANTIAL RELIEF T O THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REVENUE IS NO W IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, A HMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.2,8 1,900/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ENTRANCE FEES U/S.37 OF THE A CT. 2. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, A HMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 13 ,00,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PROVISIONS FOR REPLACEMENT & WARRANTY CHARGES U/S. 37 OF THE ACT. 1 ST GROUND IS WITH RESPECT TO DELETION OF RS. 2,81,900 /- ON ACCOUNT OF ENTRANCE FEES 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS PAID RS. 2,81,900/- AS ENTRANCE FEES TO NOIDA GOLF COURSE SOCIETY TO OBTAIN CORPORATE MEMBERSHIP. A.O WAS OF THE VIEW THAT THE EXPENSE IS NOT ALLOWABLE U/S. 37 OF THE ACT AND ACCORDINGLY DISALL OWED THE SAME. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER :- 5.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R AND THE SUBMISSION FILED BY THE APPELLANT. THE APPELLANT HAS SUBMITTED THAT THE EXPENDITURE WAS FOR COMMERCIAL EXPEDIENCY AND, IS THEREFORE, FULLY ALLO WABLE AS REVENUE EXPENDITURE ITA NO 2724/ AHD/2011 . A.Y. 2008-09 3 U/S. 37 OF THE ACT. I AM INCLINED TO ACCEPT THE SUB MISSION MADE BY THE APPELLANT. THE PAYMENT MADE AS ENTRANCE FEE PAID FOR OBTAINING THE CORPORATE MEMBERSHIP OF NOIDA GOLF COURSE SOCIETY IS AN EXPENDITURE INCU RRED FOR THE PURPOSE OF BUSINESS. THIS IS AN EXPENDITURE IN THE NATURE OF W ELFARE EXPENDITURE INCURRED FOR THE RECREATION OF THE EMPLOYEES BY THE APPELLANT CO MPANY. IT IS FOR SMOOTH AND EFFICIENT RUNNING OF BUSINESS ENTERPRISE AND IT IS A COMMON PRACTICE ACROSS THE GLOBE TO PROVIDE SUCH FACILITIES TO THE SENIOR EMPL OYEES OF THE COMPANY. THEREFORE, THE ADMISSION FEE PAID TOWARDS CORPORATE MEMBERSHIP IS EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE ADDITION MADE BY THE A. O. IS ACCORDINGLY DELETED. 5. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND SUPPORTED THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT ALLOWABILITY OF ENTRANCE FEES TO CLUB AS REVENUE EXPENSES. WE FIND THAT LD. CIT(A) WHILE DEL ETING THE ADDITION HAS GIVEN A FINDING THAT THE PAYMENT OF ENTRANCE FEES T O THE CLUB WAS INCURRED FOR THE PURPOSE OF BUSINESS AND WAS FOR SMOOTH AND EFFI CIENT RUNNING OF BUSINESS ENTERPRISES AND THAT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. BEFORE US, REVENUE HAS NOT BRO UGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD. CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. ITA NO 2724/ AHD/2011 . A.Y. 2008-09 4 2 ND GROUND IS WITH RESPECT TO DELETION OF ADDITION ON ACCOUNT OF WARRANTY EXPENSES 8. A.O ON PERUSING THE PROFIT AND LOSS ACCOUNT NOTICED THAT ASSESSEE HAD MADE PROVISION TOWARDS REPLACEMENT AND WARRANTY CHA RGES AMOUNTING TO RS. 13,00,000/-. THE ASSESSEE WAS ASKED TO PROVIDE THE EVIDENCE AND JUSTIFICATION OF THE SAME TO WHICH ASSESSEE INTERAL IA SUBMITTED THAT IT HAS PROVIDED 0.10% FOR THE UNEXPIRED WARRANTY AGAINST T HE SHELTER SALE AND ADJUSTED IT IN THE NEXT YEAR AGAINST THE ACTUAL EXP ENSE FOR WARRANTY REPLACEMENT AND THAT THE PROVISION WAS BASED ON THE PAST EXPERIENCE OF THE ASSESSEE. THE SUBMISSION OF THE ASSESSEE WAS NOT FO UND ACCEPTABLE TO THE A.O AS HE WAS OF THE VIEW THAT THE PROVISION FOR WA RRANTY EXPENSES WAS OF CONTINGENT NATURE. HE ACCORDINGLY DENIED THE CLAIM OF DEDUCTION. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER B EFORE LD. CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER:- 6.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R AND THE SUBMISSION FILED BY THE APPELLANT. THE APPELLANT HAS SUBMITTED THAT THE WARRANTY PROVISIONS NEEDS TO BE RECOGNIZED AS THE APPELLANT IS AN ENTERPRISE HAV ING PRESENT OBLIGATION AS A RESULT OF PAST EVENTS RESULTING IN AN OUTFLOW OF RE SOURCES AND THE WARRANTY PROVISIONS HAVE BEEN MADE ON THE BASIS OF A RELIABL E ESTIMATE. I AM INCLINED TO ACCEPT THE SUBMISSION MADE BY THE APPELLANT. THE AP PELLANT HAS SUBMITTED DETAILS OF THE PROVISIONS MADE FOR THE LIABILITY. I T IS NOTED THAT THE PROVISION IS MADE @ 0.10% OF THE SALES MADE BY THE APPELLANT. TH E WARRANTY EXPENSES FORM AN INTEGRAL PART OF THE SALE OF SHELTERS. THE METHO D OF ACCOUNTING FOLLOWED BY THE APPELLANT IN RESPECT OF THE WARRANTY PROVISION IS A LSO CONSISTENT AND IS BASED ON DEFINITE SCIENTIFIC METHOD. THE APPELLANT MAKES A P ROVISION FOR THE WARRANTY ON ACCOUNT OF SALES AFFECTED DURING THE YEAR AND THE P ROVISION WHICH WAS MADE IN ITA NO 2724/ AHD/2011 . A.Y. 2008-09 5 THE LAST YEAR BUT PART OF WHICH WAS NOT UTILIZED AS THERE WAS NO CLAIM, IS REVERSED OR WRITTEN BACK IN THE COMPANY PROFIT & LOSS ACCOUN T. THEREFORE, THE PROVISION OF WARRANTY MADE BY THE APPELLANT IS NOT A CONTINGENT LIABILITY AS IT HAS BEEN MADE IN DIRECT PROPORTION TO THE SALE AMOUNT AND WAS, THERE FORE, INBUILT IN THE SALE PRICE. THE PROVISION WAS MADE ON RELIABLE ESTIMATE. THE EX PENDITURE, IS THEREFORE, ALLOWABLE U/S. 37 OF THE I. T. ACT. THE APPELLANT H AS ALSO RIGHTLY RELIED ON THE JUDGMENT OF ITAT, BANGALORE REPORTED IN 105 ITD 001 IN THE CASE OF IBM INDIA LIMITED VS. CIT. THE DISALLOWANCE MADE BY THE A. O. U/S. 37 FOR PROVISION FOR REPLACEMENT AND WARRANTY-CHARGES, IS THEREFORE, DELETED. 9. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND SUPPORTED THE ORDER OF LD. CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO ALLO WABILITY OF PROVISIONS FOR WARRANTY. WE FIND THAT WHILE DELETING THE ADDITION LD. CIT(A) HAS ACCEPTED THE CONTENTION OF THE ASSESSEE THAT IT WAS HAVING P RESENT OBLIGATION AS A RESULT OF PAST EVENTS RESULTING IN A OUTFLOW OF RES OURCES. LD. CIT(A) HAS FURTHER GIVEN A FINDING THAT THE METHOD OF ACCOUNTI NG FOLLOWED BY THE ASSESSEE IN RESPECT OF WARRANTY PROVISIONS IS CONSI STENT AND IS BASED ON DEFINITE SCIENTIFIC METHOD AND THAT THE PROVISION O F WARRANTY MADE BY THE ASSESSEE WAS NOT A CONTINGENT LIABILITY. BEFORE US, REVENUE COULD NOT CONTROVERT THE FINDINGS OF LD. CIT(A) AND WE THEREF ORE FIND NO REASON TO ITA NO 2724/ AHD/2011 . A.Y. 2008-09 6 INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 13 - 08 - 2015. SD/- SD/- (RAJPAL YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD