DCIT, Bangalore V. M/s Amco Batteries Limited, Bangalore

ITA 378/BANG/2011

• Counselvise Citation: 37821114 RSA 2011
• Duration Of Justice: 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 06-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.378/BANG/2011 ASSESSMENT YEAR : 2007-08 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. PAN : AABCA 1726F VS. M/S. AMCO BATTERIES LTD., 3 RD FLOOR, UNITY BUILDING, N.R. SQUARE, BANGALORE 560 002. APPELLANT RESPONDENT C.O. NO.26/BANG/2011 (IN ITA NO.378/BANG/2011) ASSESSMENT YEAR : 2007-08 M/S. AMCO BATTERIES LTD., 3 RD FLOOR, UNITY BUILDING, N.R. SQUARE, BANGALORE 560 002. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. PAN : AABCA 1726F CROSS OBJECTOR RESPONDENT REVENUE BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(D R) ASSESSEE BY : SMT. SHEETAL BORKAR, ADVOCATE DATE OF HEARING : 31.01.2012 DATE OF PRONOUNCEMENT : 31.01.2012 ITA NO.378/BANG/11 & CO 26/BANG/11 PAGE 2 OF 7 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THE APPEAL BY THE DEPARTMENT AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 11.01.2011 OF THE CIT(APPEALS)-I, BANGALORE. 2. FIRST WE WILL DEAL WITH THE DEPARTMENTAL APPEAL, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT (A) HAS ERRED IN DELETING THE A DDITION AMOUNTING TO RS.1,42,01,453-00 MADE ON ACCOUNT OF DISALLOWANCE OF PROVISION OF WARRANTY DEBITED TO P & L ACCOUNT, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES UN DER WHICH THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER. 3. THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE RE LIEF BASED ON THE SUBMISSIONS/DETAILS FILED BY THE ASSESSEE DU RING THE COURSE OF APPELLATE PROCEEDINGS WITHOUT GIVING AN OPPORTUN ITY TO THE ASSESSING OFFICER TO VERIFY THE GENUINENESS OF THE SAME. 4. THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE RELYING ON THE JUDICIAL DECISION CITED BY THE ASSESSEE, HOLDING THAT THE PROVISION FOR WARRANTY HAS BEEN CR EATED IN A SCIENTIFIC MANNER BASED ON PAST EXPERIENCE, WITHOUT APPRECIATING THAT THE EXTENT OF PROVISION MADE DURING THE RELEVA NT PREVIOUS YEAR ENDED ON 31.3.2007 WAS HIGHER THAN THE PROVISI ON MADE IN THE PRECEDING ASSESSMENT YEARS. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT (A) BE REVERSED IN SO FAR AS THE ABOVE MENTIONED ISSUE IS CONCERNED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. ITA NO.378/BANG/11 & CO 26/BANG/11 PAGE 3 OF 7 3. FROM THE ABOVE GROUNDS, IT IS GATHERED THAT THE ONLY GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION AMOU NTING TO RS.1,42,01,453 MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROVIS ION OF WARRANTY DEBITED TO PROFIT & LOSS ACCOUNT. 4. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THA T THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE AND TRADING OF BATTERIES AND FILED RETURN OF INCOME ON 30.10.2007 DISCLOSING INCOME AT NIL. THE SAME WAS PROCESSED U/S. 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTE R REFERRED TO AS THE ACT IN SHORT] ON 20.03.09. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED WARRANTY PROVISION TO THE TUNE OF RS.1,42,01,453. THE AO ASKED THE ASSESSEE TO FILE ITS OBJECTION, IF ANY, FOR DISALLOWING THE SAME. THE ASSESSEE SUBMITTED AS UNDER: AS EXPLAINED TO YOU THE INSTITUTE OF CHARTERED ACC OUNTANTS OF INDIA HAVE PRESCRIBED A NEW ACCOUNTING STANDARD (AS 29) BY WHICH THE WARRANTY LIABILITY HAS TO BE RECOGNISED AT THE TIME OF SALE AND PROVISION HAS TO BE MADE AT THE YEAR END O N THE SALE AFFECTED DURING THAT YEAR BASED ON THE PAST TREND. BASED ON THAT YEAR SALE, THE WARRANTY PROVISION @ 4 % HAS TO BE MADE. AFTER ADJUSTING THE SETTLEMENT THE DIFFERENC E BETWEEN THE PROVISION AND SETTLEMENT, THE PROVISION IN THAT YEA R AGGREGATING TO RS.1,42,01,453/- HAS TO BE MADE. TO SUBSTANTIATE OUR CLAIM WE ENCLOSE THE STATEMENT OF WARRANTY SETTLEMENT DURING THE SUBSEQUENT PERIOD I.E 2007-08 WHICH IS MUCH ABOVE THIS PROVISION FIGURE OF RS.L,42,01,453/ -. HENCE PROVISION IS ON CONSERVATIVE BASIS AND IS IN COMPLI ANCE WITH ACCOUNTING STANDARD 29. ITA NO.378/BANG/11 & CO 26/BANG/11 PAGE 4 OF 7 5. THE AO DID NOT FIND MERIT IN THE ABOVE SUBMISSIO N OF THE ASSESSEE AND DISALLOWED A SUM OF RS.1,42,01,453 BY OBSERVING IN PARA 3 OF THE ASSESSMENT ORDER DATED 18.12.09 AS UNDER: 3. I HAVE GONE THROUGH THE ASSESSEES SUBMISSIONS . IT IS FURTHER SEEN THAT WARRANTY PROVISION BEING DEBITED IS BASED ON PAST EXPERIENCE AND THERE IS NO SCIENTIFIC BASIS OR METHOD BEING FOLLOWED AS CLAIMED BY IT. UNDER THE CIRCUMSTANCES , ANY PROVISION NOT BEING AN ALLOWABLE EXPENDITURE UNDER THE PROVISIONS OF THE INCOME-TAX ACT, A SUM OF RS.1,42, 01,453/- HAS TO BE DISALLOWED. 6. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A PPEALS) AND FURNISHED THE WRITTEN SUBMISSIONS AND THE FOLLOWING DETAILED CALCULATION OF WARRANTY CLAIM: PARTICULARS AMOUNT IN RS . WARRANTY SETTLED DURING 2006 - 07 3,66,81,758/- LESS AVAILABLE PROVISIONFOR WARRANTY AS 01 - 04 - 200 57,49 , 584/ - 3,09,32,174/- ADD PENDING CLAIMS AS ON 31 - 03 - 2007 SETTLED SUBSEQUENTLY 92,66, 7 48/- 4,01,98,922/- ACCOUNTING STANDARD 29 - PROVISIONS FOR WARRANTY AS ON 31 - 03 - 2007 1,42,01,453/- WARRANTY EXPENDITURE FOR THE YEAR 5,44,00,375/- BREAK - UP MANUFACTURING 2,51,90,875/- TRADING 1,16,04,994/- IMPORTS 1,76,04,506/- TOTAL 5,44,00,375/- 7. THE LD. CIT(APPEALS) DELETED THE ADDITION MADE B Y THE AO BY FOLLOWING HIS EARLIER ORDER DATED 01.12.2009 FOR TH E A.Y. 2005-06. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) AS MENTIONE D IN PARA 6 OF THE IMPUGNED ORDER READS AS UNDER: ITA NO.378/BANG/11 & CO 26/BANG/11 PAGE 5 OF 7 6. THE CITED CASE LAWS AS WELL AS THE FACTS SUPPL IED ARE EXAMINED. I FIND THESE CASE LAWS HAVE NOT GIVEN A V ERDICT THAT PROVISIONS FOR WARRANTY AS SUCH APPEARING IN THE P & L A/C BE ALLOWED AS A DEDUCTION. IT HAS BEEN ENUNCIATED IN T HESE CASE LAWS THAT PROVISION MEANS A CONTINGENT PRESENT LIABILITY FOR INCURRING FUTURE EXPENSES. THEREFORE, IN ORDER TO GET THE STA TUS OF DEDUCTION, IT HAS TO PASS THROUGH A RIGOROUS TEST. SUCH TEST M UST BE BASED ON PAST EXPERIENCE, HISTORICAL DATA AND SCIENTIFIC PRO CEDURE. IN TOTO, IT IS AN ANALYSIS AND RESEARCH ON THE FACTS OF EACH CA SE TO ARRIVE AT A FAIR DEGREE OF ESTIMATION TO ACHIEVE THE STATUS OF ASCERTAINED LIABILITY AND THEREFORE DEPENDS ON THE NATURE OF BU SINESS ALSO. SO FAR ROTORK IS CONCERNED, IT IS A SOPHISTICATED MACH INE AND HAS EVERY CHANCE OF GETTING DEFECTS AND THEREFORE LIABI LITY IS SURE. SECONDLY, IT HAD ONLY ONE CUSTOMER I.E., BHEL AND T HE BEHAVIOR PATTERN IS WELL KNOWN AND THEREFORE EASY TO ASCERTA IN THE LIABILITY. IN THIS CASE, THE PRODUCE SOLD IS BATTERY NOT A COM PLICATED MACHINE AND ALSO THE PURCHASERS ARE MANY HAVING VAR IED BEHAVIOR PATTERN AND THEREFORE HAVING LESS CHANCE OF GETTING ASCERTAINED. HENCE, ON LAW, THE PROVISION IS ALSO NOT ALLOWABLE BECAUSE EVEN A HIGH DEGREE OF ESTIMATION CANNOT EVOLVE A SCIENTIFI C PROCEDURE TO ASCERTAIN THE PROVISION FOR WARRANTY. THUS INHERENT LY THE APPELLANT IS NOT IN A POSITION TO CALCULATE THE PRO VISION FOR LIABILITY ON A SCIENTIFIC BASIS BUT IN A.Y. 2005-06 SOMEHOW I T GOT A BASIS WHICH IMPELLED THE CIT(A) TO ALLOW THE DESCRIED REL IEF. THE RELEVANT PORTION OF THAT APPEAL ORDER VIDE., ITA.NO . 265/ AC- 11(1)/A-I/07-08, DATED 01-12-2009. IN THIS YEAR ALS O THE STATISTICS SHOW THAT THE TOTAL WARRANTY PROVISION MADE WAS ONL Y RS.4,0L,98,922/ - ON A SALE OF RS.L,13,85,67,554/- I.E., 3.5% BUT THE ACTUAL EXPENDITURE I.E., RS.5,44,00,375/- WAS M ORE THAN THE PROVISION MADE AND HENCE THE CLAIM OF RS.1,42,01,55 3/- MADE IN THE P/L A/C. IN FACT IT IS NOT A PROVISION AT ALL . IT IS ACTUAL CLAIM OF EXPENDITURE AND HENCE ALLOWABLE. ADDITION IS DELETE D. 8. NOW THE DEPARTMENT IS IN APPEAL. DURING THE COU RSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STA TED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE E ARLIER DECISION OF THE ITAT, BANGALORE BENCH A IN THE ASSESSEES OWN CAS E IN ITA NO.142/BANG/2010 FOR THE A.Y. 2005-06 VIDE ORDER DA TED 21.03.2011. COPY OF THE SAID ORDER WAS FURNISHED. ITA NO.378/BANG/11 & CO 26/BANG/11 PAGE 6 OF 7 9. IN HER RIVAL SUBMISSIONS, THE LD. DR ALTHOUGH SU PPORTED THE ORDER OF THE AO, BUT COULD NOT CONTROVERT THE AFORESAID CONT ENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 10. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND MATERIAL AVAILABLE ON RECORD, IT IS NOTICED THAT THE LD. CIT (A) WHILE DELETING THE ADDITION FOR THE YEAR UNDER CONSIDERATION HAS FOLLO WED HIS EARLIER ORDER FOR THE A.Y. 2005-06 WHICH WAS SUBJECT MATTER OF THE DE PARTMENTAL APPEAL BEFORE THE ITAT BANGALORE BENCH A IN ITA NO.142/B ANG/2010 AND HAS BEEN DECIDED VIDE ORDER DATED 21.03.2011. IT IS AL SO RELEVANT TO POINT OUT THAT ONE OF US (JUDICIAL MEMBER) IS SIGNATORY TO TH E SAID ORDER DATED 21.03.2011, WHEREIN THE ISSUE HAS BEEN DECIDED IN F AVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT, THE RELEVANT FINDINGS H AS BEEN GIVEN IN PARA 8 OF THE SAID ORDER, WHICH READ AS UNDER:- 8. AS REGARDS THE PROVISION FOR WARRANTY IS CONCE RNED, WE FIND THAT AS ON 1/4/2004 THE AVAILABLE PROVISION WA S RS.19,24,354/- AND THE WARRANTY EXPENSES INCURRED I N 2004-05 WERE RS.1,15,50,719/- AND THE WARRANTY FOR THE YEAR IS RS.96,26,365/- AND THE DIFFERENCE BETWEEN THESE TWO IS RS.19,24,354/-. THE ASSESSEE HAS MADE A PROVISION O F RS.27,20,647/- DURING THE RELEVANT ASST. YEAR FOR T HE CLAIMS ACCEPTED BUT NOT SETTLED AS ON 31.3.2005. AS HELD BY THE CIT(A), THE ANALYSIS OF THIS FACT DEMONSTRATES THAT A SCIEN TIFIC BASIS IS ADOPTED TO MEASURE THE FUTURE LIABILITY ON ACCOUNT OF WARRANTY AND THE EXPENSES ACTUALLY INCURRED IS CORRESPONDING TO THE PROVISION MADE. THEREFORE, WE CONFIRM THE ORDER OF THE CIT(A) THAT THE ESTIMATION IS FAIR AND REASONABLE AND NO I NTERFERENCE IN THE SAID ORDER IS CALLED FOR. 11. SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATIO N ARE SIMILAR TO THE FACTS INVOLVED IN THE EARLIER YEAR I.E., A.Y. 2005- 06 IN THE ASSESSEES OWN CASE, SO RESPECTFULLY FOLLOWING THE EARLIER ORDER O F THE TRIBUNAL DATED ITA NO.378/BANG/11 & CO 26/BANG/11 PAGE 7 OF 7 21.03.2011 IN THE ASSESSEES OWN CASE IN ITA NO.142 /BANG/2010 FOR THE A.Y. 2005-06, WE DO NOT SEE ANY MERIT IN THIS APPEA L OF THE DEPARTMENT. 12. AS REGARDS TO THE CROSS OBJECTION BY THE ASSESS EE IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE WAS FAIR ENOUGH TO ADM IT THAT NO SPECIFIC RELIEF IS SOUGHT IN THE SAID CROSS OBJECTION, BUT ONLY THE ORDER PASSED BY THE LD. CIT(A) HAS BEEN SUPPORTED. SINCE IN THE FORMER PAR T OF THIS ORDER, WE HAVE DISMISSED THE APPEAL OF THE DEPARTMENT AND THE VIEW EXPRESSED BY THE LD. CIT(A) HAS BEEN UPHELD, THEREFORE THIS CROSS OBJECT ION SUPPORTING THE ORDER OF THE LD. CIT(A) BECOMES INFRUCTUOUS. WE ORDER AC CORDINGLY. 13. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED AND THE CROSS OBJECTION BY THE ASSESSEE IS DISMISSED AS INF RUCTUOUS. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF JANUARY, 2012. SD/- SD/- ( SMT. P. MADHAVI DEVI ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 31 ST JANUARY, 2012. DS/- COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.