LG Electronics India (P) Ltd., New Delhi V. Pr. CIT, Noida

ITA 3307/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1772 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 25-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Business income; Earning of tax free income; Capital receipt; Revised return
• Section: 143(3); 37(1); 80G; 10B; 144C; 263

Judgement Text

1 ITA NO. 3307/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 3307/DEL/20 17 (A.Y 2010-11) (THROUGH VIDEO CON FERENCING) L G ELECTRONICS INDIA (P) LTD. A- WING (3 RD FLOOR), D-3, DISTRICT CENTRE SAKET NEW DELHI AAACL1745Q (APPELLANT) VS PR. CIT AAYAKAR BHAWAN 2D BLOCK-A, SECTOR-24 NOIDA (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 29/3/2017 PASSED BY PRINCIPAL COMMISSIONER OF INCOME TAX, NOI DA U/S 263 OF THE INCOME TAX ACT, 1961 FOR ASSESSMENT YEAR 2010-11. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- GROUNDS OF APPEAL 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER DATED 29.03.2017 PASSED BY THE LD. PRINCIPAL COMMISSIONER OF INCOME- APPELLANT BY SH. AJAY VOHRA, SR. ADV, SH. ADITYA VOHRA, ADV, SH. NEERAJ JAIN, ADV & SH. ARPIT GOYAL, CA RESPONDENT BY SH. V. K. MISHRA, CIT(DR) DATE OF HEARING 29.10.2020 DATE OF PRONOUNCEMENT 09.12.2020 2 ITA NO. 3307/DEL/2017 TAX, NOIDA (PR. CIT), UNDER SECTION 263 OF THE INCO ME-TAX ACT, 1961 (THE ACT) IS WITHOUT JURISDICTION, ILLEGAL AND BAD IN LAW. 2. THAT THE LD. PR. CIT ERRED ON FACTS AND IN LAW IN H OLDING THAT THE ASSESSMENT ORDER DATED 12.01.2015 PASSED BY THE ASS ESSING OFFICER UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT WA S ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE IN AS M UCH AS THE ASSESSING OFFICER DID NOT EXAMINE THE DEDUCTION CLAIMED FOR PROVISION OF SERVICE WARRANTY EXPENDITURE. 2.1 THAT THE LD. PR. CIT ERRED ON FACTS AND IN LAW IN HOLDING THAT THE ASSESSMENT ORDER WAS ERRONEOUS SINCE NEITHER ANY QU ERY WAS RAISED NOR ANY DISCUSSION WAS MADE IN THE ASSESSMENT ORDER ON THE AFORESAID ISSUE. THAT THE LD. PR. CIT ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THE VIEW TAKEN BY THE ASSESSING OFFICER THAT THE PROVISION F OR SERVICE WARRANTY WAS ALLOWABLE EXPENDITURE WAS A PLAUSIBLE VIEW, OUSTING THE JURISDICTION OF LD. PR. CIT UNDER SECTION 263 OF THE ACT. 3. THAT THE LD. PR. CIT ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT SINCE THE DEDUCTION FOR PROVISION OF SERVICE WARRANTY EXP ENDITURE WAS IN ACCORDANCE WITH THE APPELLATE DECISIONS IN THE APPE LLANTS OWN CASES FOR EARLIER ASSESSMENT YEARS, THE ASSESSMENT ORDER CANN OT BE REGARDED AS ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE RE VENUE, WARRANTING EXERCISE OF REVISIONARY JURISDICTION UNDER SECTION 263 OF THE A CT. 3.1 THAT THE LD. PR. CIT ERRED ON FACTS AND IN LAW IN S ETTING ASIDE THE ASSESSMENT ORDER, WHILE EXERCISING JURISDICTION UND ER SECTION 263 OF THE ACT, WITHOUT RECORDING ANY PRIMA FACIE FINDING ON THE ME RITS QUA ALLOWABILITY OF DEDUCTION FOR PROVISION OF SERVICE WARRANTY EXPENDI TURE CLAIMED BY THE APPELLANT, THEREBY NOT DEMONSTRATING AS TO HOW AND WHY THE ORIGINAL ASSESSMENT ORDER WAS PREJUDICIAL TO THE INTERESTS O F THE REVENUE. 4. WITHOUT PREJUDICE, THAT THE LD. PR.CIT ERRED ON FAC TS AND IN LAW IN NOT APPRECIATING THAT THE PROVISION FOR SERVICE WARRANT Y AMOUNTING TO RS. 42 CRORES, WAS ALLOWABLE U/S 37(1) OF THE ACT. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN MANUFACTURING 3 ITA NO. 3307/DEL/2017 AND TRADING OF ELECTRONICS, HOME APPLIANCES, IT PRO DUCTS. THE ASSESSEE FILED RETURN ONLINE ON 29/09/2010 DECLARING TOTAL INCOME OF RS. 405,68,98,702/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 1 43(2) DATED 6/9/2011 WAS ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE FILED REVISED RETURN ONLINE ON 28/3/2012 DECLARING TOTAL INCOME OF RS. 383,53,4 8,016/-. DURING THE YEAR, THE ASSESSEE DISCLOSED TOTAL SALES OF RS. 104,504 M ILLION EXCLUDING THE EXCISE DUTY AND TRADE DISCOUNTS ETC. BESIDES THIS, ASSESS EE ALSO DISCLOSED OTHER INCOME OF RS. 2,407 MILLION. ASSESSEE DISCLOSED NE T PROFIT OF RS. 4,721 MILLION IN THE PROFIT AND LOSS ACCOUNT. IN COMPUTATION OF TOTAL INCOME, THE ASSESSEE CLAIMED EXEMPT INCOME OF RS. 31,03,82,304/- U/S 10B OF THE INCOME TAX ACT AND DEDUCTION OF RS. 1,37,44,966/- AND RS. 1,04,500 /- U/S 80JJAA AND 80G OF THE INCOME TAX ACT. THE ASSESSEE REVERT OUT THE TOTAL INCOME IN THE REVISED RETURN AT RS. 383,53,48,016/- AFTER CLAIMING THE RE CEIPT OF RS. 25,42,18,072/- BEING UP SALES TAX SUBSIDY AS CAPITAL RECEIPTS, ADD ITIONAL DISALLOWANCE OF PROVISION OF EXPENSES OF RS. 6,08,66,231/- AND ALLO WANCE OF PROVISION OF EXPENSES OF RS. 2,81,98,845/-. THE TRANSFER PRICIN G OFFICER PROPOSED TO MAKE AN ADJUSTMENT OF RS.11,97,49,20,511/-. HENCE AN ADD ITION OF RS.11,97,49,20,511/- WAS PROPOSED TO MADE TO THE IN COME OF THE ASSESSEE IN THE DRAFT ASSESSMENT ORDER DATED 31.03.2014. AGGRI EVED BY THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTION BEFO RE THE DRP AND THE DRP ISSUED DIRECTION ON 30/12/2014 REJECTING THE OBJECT IONS OF THE ASSESSEE. THE ASSESSMENT ORDER WAS PASSED ON 12.01.2015. THE NOTI CE U/S 263 WAS ISSUED ON 8/6/2016. THE ASSESSEE FILED REPLY DATED 28/7/2 016. THE PR. CIT PASSED AN ORDER DATED 29/3/2017 U/S 263 OF THE INCOME TAX ACT, 1961. THEREBY CANCELLING THE ASSESSMENT ORDER AND RESTORING THE M ATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO MAKE FRESH VER IFICATION ON THE POINTS MENTIONED IN THE SAID ORDER. 4. BEING AGGRIEVED BY THE ORDER UNDER SECTION 263, THE ASSESSEE FILED APPEAL BEFORE US. 4 ITA NO. 3307/DEL/2017 5. THE LD. AR SUBMITTED THAT THERE WAS NO ERROR IN THE ASSESSMENT ORDER IN ALLOWING THE CLAIM OF THE ASSESSEE REGARDING PROVIS IONS FOR SERVICE WARRANTY AMOUNTING TO RS. 420 MILLION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHED THE AUDITED FINANCIAL STATEM ENTS FOR THE YEAR ENDING 31/3/2010 WHEREIN THE AMOUNT OF PROVISION FOR SERVI CE WARRANTY AMOUNTING TO RS. 420 MILLION WAS DISCLOSED UNDER SCHEDULE N ADMINISTRATION AND SELLING EXPENSES FORMING PART OF PROFIT AND LOSS ACCOUNT. THE LD. AR FURTHER SUBMITTED THAT IN ASSESSEES OWN CASE FOR ASSESSMEN T YEAR 2002-03, 2003-04, 2004-05, THE TRIBUNAL HAS ALLOWED PROVISION FOR SER VICE WARRANTY AS ALLOWABLE EXPENDITURE. IN LIGHT OF THE ABOVE, THE ASSESSMENT ORDER CANNOT BE LABELED AS ERRONEOUS ON THE GROUND THAT THE CLAIM OF PROVISION FOR SERVICE WARRANTY ESCAPED THE ASSESSING OFFICERS ATTENTION AND WAS A LLOWED WITHOUT DUE APPLICATION OF MIND, NOTWITHSTANDING THAT THE ABOVE ISSUE WAS NOT DISCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. TH E LD. AR FURTHER SUBMITTED THAT MERELY BECAUSE THE ASSESSMENT ORDER IS SILENT ABOUT THE ISSUE IN WORD WILL NOT IPSO FACTO MEAN THAT IT WAS PASSED WITHOUT NECE SSARY ENQUIRY AS REGARDS SUCH ISSUE AND CONFER JURISDICTION ON CIT(A) TO REV ISE THE ASSESSMENT ORDER U/S 263 OF THE ACT. WHEN THE ASSESSING OFFICER WAS AWA RE OF NATURE OF CLAIM OF THE ASSESSEE AND THEREAFTER THE ASSESSMENT ORDER WAS PA SSED. THE ORDER SOUGHT TO BE REVISED WAS PASSED AFTER DUE APPLICATION OF MIND BY THE ASSESSING OFFICER AND CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF REVENUE ON GROUNDS OF LACK OF ENQUIRY SO AS TO BE SUBJECTED REVISION U/S 263 OF THE ACT. THE LD. AR FURTHER SUBMITTED THAT WITHOUT PREJUDICE TO THE AFORESAID IN REGARDS TO THE MERITS OF THE CASE, DURING THE YEAR THE ASSE SSEE HAS ACCOUNTED PROVISION FOR SERVICE WARRANTY AMOUNTING TO RS 420 MILLION. THE ASSESSEE IS GENERALLY PROVIDING ONE YEAR WARRANTY ON SALE OF ITS PRODUCT. AS PER ITS ACCOUNTING POLICY, THE SERVICE WARRANTY EXPENSES ARE PROVIDED IN THE BOOKS OF ACCOUNT BASED UPON WELL ESTABLISHED SCIENTIFIC AND REALISTI C METHODS. THE ASSESSEE HAS THE PROVISIONS OF WARRANTY LIABILITY HAVING REGARD TO THE PAST FACTOR OF ACTUAL EXPENSES INCURRED BY THE ASSESSEE TOWARDS WARRANTY LIABILITY. THE ASSESSEE HAS WORKED OUT THE AMOUNT OF LIABILITY BY APPLYING THE MULTIPLYING FACTOR ON THE 5 ITA NO. 3307/DEL/2017 TOTAL SALE MADE DURING THE YEAR ON THE BASIS OF PAS T RESULT AND EXPERIENCE GAIN BY THE ASSESSEE IN PRECEDING YEARS. FURTHER, SALES PRICE INCLUDED THE COMPONENT OF SERVICE WARRANTY. THE INCOME STANDS I NCREASED BY THIS ELEMENT OF SERVICE WARRANTY BEING INCOME EMBEDDED IN THE SA LES PRICE ACCORDINGLY AS A MATCHING CONCEPT PROVISION FOR SERVICE WARRANT EXPE NSES OF RS. 42,06,31,88/- SHOULD BE ALLOWED AS EXPENSES ON AN APPROVAL BASIS, AS THE SAME IS EMBEDDED, SALES CREDIBILITY TO PROFIT AND LOSS ACCOUNT. THE ISSUE REGARDING DEDUCTIBILITY OF PROVISION FOR WARRANTY CLAIM IS A WELL SETTLED POSI TION. THE SAME IS ALLOWABLE AS A DEDUCTABLE EXPENSES FOR TAX PURPOSES AS THE PROVI SIONS FOR WARRANTY IS AN ACCRUED LIABILITY. THE LD. AR RELIED UPON THE DECI SION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 VID E ORDER DATED 8/12/2014 WHICH WAS DECIDED IN FAVOUR OF ASSESSEE AND DELETED THE ADDITION RELATING TO PROVISION FOR SERVICE WARRANTY. 6. THE LD. DR SUBMITTED THAT THE PR. CIT HAS RIGHTL Y HELD THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE OF ALLOWABILITY OF PROVISION FOR SERVICE WARRANTY. WHETHER THE METHOD OF CALCULATING THE PR OVISIONS IS TRULY SCIENTIFIC OR NOT AND WHETHER THERE IS AN ELEMENT OF ASSUMPTIO N REQUIRED TO BE PROPERLY EXAMINED. THE ASSESSING OFFICER ALLOWED THE CLAIM OF EXPENSES OF THE ASSESSEE WITHOUT ANY VERIFICATION OR ENQUIRY. THEREFORE, THI S IS A CASE OF NO ENQUIRY IN RESPECT OF AN EXPENSE OF PROVISIONAL NATURE. IN RE SPECT OF EXPENSES, EVERY YEAR IS DIFFERENT AND SPECIFIC FACTS OF THE CASE MEANS E XAMINATION OF THE SAME IN EACH YEAR. PARTICULARLY IN THE CASE OF A PROVISIONS ONLY BECAUSE THE EXPENDITURE OF SIMILAR NATURE WAS ALLOWED BY THE TRIBUNAL IN TH E EARLIER YEAR DOES NOT PRECLUDE THE REVENUE FROM EXAMINING THE FACTS OF TH E CASES IN THE INSTANT YEAR. ONCE THE EXPENSE IS CLAIM ON PROVISION BASIS, IT NE EDS TO BE EXAMINED WHETHER THE CLAIM HAS BEEN MADE ON A SCIENTIFIC BASIS OR NO T. IN PROCEEDINGS U/S 263, THE ISSUE IS WHETHER THE ASSESSING OFFICER ALLOWED AND EXPENSE CLAIM BY THE ASSESSEE WITHOUT MAKING ANY ENQUIRY. BY MAKING NO ENQUIRY/QUERY, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING ON THE MATTER AND IN THE PROCEEDINGS HAS ALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE AND THEREFORE, 6 ITA NO. 3307/DEL/2017 HAS PASSED AN ORDER WHICH IS ERRONEOUS AS WELL AS P REJUDICIAL TO THE INTEREST OF REVENUE. THE LD. DR RELIED UPON THE DECISION OF HO N'BLE SUPREME COURT IN CASE OF DANIAL MERCHANTS PVT. LTD. VS. ITO (APPEAL NO. 2396/2017 DATED 29/11/2017). THE LD. DR SUBMITTED THAT PR. CIT IS ENTITLE TO REVISE THE ASSESSMENT ORDER U/S 263 ON THE GROUND THAT THE ASS ESSING OFFICER DID NOT MAKE ANY PROPER ENQUIRY WHILE ACCEPTING THE EXPLANA TION OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER/TPO AT THE TIME OF A LLOWING EXPENSES HAS NOT LOOKED INTO EACH AND EVERY EXPENSES/PROVISIONS WHIC H WAS SHOWN IN THE RETURN AND AUDITED ACCOUNTS OF THE ASSESSEE DURING THE AS SESSMENT PROCEEDINGS. DURING THE HEARING, THE LD. AR HAS SUBMITTED THAT T HE AUDITED FINANCIAL STATEMENTS WAS FILED AND THESE FACTS WERE BROUGHT O N RECORD VIDE REPLY DATED 28/07/2016 TO THE SHOW CAUSE NOTICE U/S 263. BUT N OWHERE, THE LD. AR HAS SHOWN THAT THE ASSESSING OFFICER/TPO HAS SPECIFICAL LY ASKED THE DETAILS AND BIFURCATIONS OF THE EXPENSES CLAIM BY THE ASSESSEE INCLUDING THE PROVISIONS OF SERVICE WARRANTY. THE ASPECT OF PROVISION FOR SERV ICE WARRANTY HAS TO BE LOOKED INTO YEAR TO YEAR BASIS AND IT CANNOT BE SAID THAT SINCE THE SAID PROVISION HAS BEEN ALLOWED IN PRIOR YEARS BY THE TRIBUNAL, GIVES THE PERMISSION TO THE ASSESSING OFFICER/TPO NOT TO LOOK INTO THE YEAR UND ER SCRUTINY IN WHICH THE ACTUAL EXPENSES OR PROVISIONS WAS MADE BY THE ASSES SEE. IN FACT, THE ASSESSING OFFICER/TPO NEVER RAISED ANY QUERY AS RELATES TO PR OVISIONS FOR SERVICE WARRANTY AT THE TIME OF ASSESSMENT PROCEEDINGS/ TP PROCEEDIN GS. THERE IS NO EXPLANATION ASKED BY THE ASSESSING OFFICER/ TPO TO VERIFY THE ACTUAL CLAIM OF THE PROVISIONS FOR SERVICE WARRANTY IN THE PRESENT ASSESSMENT YEAR. THUS, THE INVOCATION OF SECTION 263 PROVISIONS WAS RIGHTLY CA LLED FOR BY THE PR. CIT. IN CASE OF DANIEL MERCHANTS PVT. LTD. (SUPRA), THE ASS ESSING OFFICER HAS NOT MADE PROPER INQUIRY AND THE HONBLE APEX COURT HAS HELD THE ORDER UNDER SECTION 263 AS PROPER ORDER. IN THE PRESENT CASE THE ASSESS ING OFFICER/TPO HAS NOT AT FIRST INSTANCE, RAISED ANY QUERY RELATED TO PROVISI ONS FOR SERVICE WARRANTY. MERELY STATING THAT THE MERIT OF SERVICE WARRANTY I S AS PER THE VARIOUS DECISIONS 7 ITA NO. 3307/DEL/2017 OF THE TRIBUNAL AND HIGH COURT, DOES NOT MAKE AN ER RONEOUS ASSESSMENT ORDER, JUST AND PROPER. THE ASSESSING OFFICER/TPO S HOULD HAVE BEEN VERIFIED THE SAID ISSUE ON MERIT AT THE TIME OF ASSESSMENT P ROCEEDINGS, WHICH THE ASSESSING OFFICER/TPO FAILED TO DO SO. THEREFORE, P R. CIT WHILE INVOKING SECTION 263 HAS CLEARLY SET OUT THAT THE ASSESSMENT ORDER I S ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE PR. CIT HAS TH E POWER TO INVOKE SECTION 263 FOR FURTHER ENQUIRY OF ESCAPEMENT OF INCOME. IN TH E PRESENT CASE, THE ASSESSING OFFICER HAS NOT LOOKED INTO THIS ASPECT, THEREOF, THE PRI. CIT HAS RIGHTLY PASSED THE ORDER U/S 263. HENCE, THE APPEAL OF THE ASSESSEE IS DISMISSED. 8. IN RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH DAY OF DECEMBER, 2020 SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 09/12/2020 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 8 ITA NO. 3307/DEL/2017