DCIT CIR 2, KALYAN V. MEDIRAYS CORPORATION, THANE

ITA 4157/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3972 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 06-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: DR P DANIEL
• Section: 37(1)

Judgement Text

P A G E | 1 ITA NO. 4157/MUM/2017 A.Y 2013 - 14 THE DY. COMMISSIONER OF INCOME TAX VS. M/S MEDIRAYS CORPORATION IN THE INCOME TAX APPELLATE TRIBUNAL ' D ' BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 4157/MUM/2017 (ASSESSMENT YEAR: 2013 - 14 ) THE DY. COMMISSIONER OF INCOME TAX, CIRCLE - 2, KALYAN, 2 ND FLOOR, MOHAN PLAZA, KHADAKPADA, WAYALE NAGAR, KALYAN (W), 421301 VS. M/S MEDIRAYS CORPORATION, B - 9, RUKMA UDYOG NAGAR, MUMBAI NASHIK ROAD, NH - 3, OPP. ASANGOAN, TALUKA, SHAHPUR, DIST. THANE PAN AAGFM2401F APPELLANT RESPONDENT APPELLANT BY: SHRI CHAITANYA ANJARI A, D .R RESPONDENT BY: D R . P . D A N I E L , A . R DATE OF HEARING: 25 .10.2018 DATE OF PRONOUNCEMENT: 3 1 . 10.2018 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE REVENUES IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 3, MUMBAI, DATED 31.03.2017, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC.143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT), DATED 31.03.2016 FOR A.Y. 2013 - 14. THE REVENUE ASSAILING THE ORDER OF THE CIT(A ) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) - 3, THANE ERRED IN DELETING THE ADDITION OF RS . 1,81,67,595/ - MADE ON ACCOUNT OF PROVISION FOR WARRANTY WITHOUT APPRECIATING THE FACT THAT THE PROVISIONS WERE MADE ARBITRARILY AND CONSIDERING THE PAST EXPERIENCE AND AS PER THE GUIDELINES OF AS - 29 OF THE ICAI. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) - 3, THANE, MAY BE SET - ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER OR ALTER ANY GROUND/GROUNDS, WHICH MAY BE NECESSARY. P A G E | 2 ITA NO. 4157/MUM/2017 A.Y 2013 - 14 THE DY. COMMISSIONER OF INCOME TAX VS. M/S MEDIRAYS CORPORATION 2. BRIEFLY STATED, THE ASSESSEE FIRM WHICH IS ENGAGED IN THE BUSINESS OF R EPAIRING, R EFURBISHING, S ALE AND I NSTALLATION OF MEDICAL EQUIPMENT S HAD E - FILED ITS RETURN OF INCOME FOR A.Y. 2013 - 14 ON 26.09.2013 DECLARING INCOME AT RS.2,04,26,250. THE RETURN OF INC OME FILED BY THE ASSESSEE FIRM WAS PROCESSED AS SUCH UNDER SEC.143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC.143(2). 3. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE A.O THA T THE ASSESSEE HAD MADE PROVISION FOR WARRANTIES TO THE TUNE OF RS.1,81,67,595/ - . THE A.O NOTICED , THAT THE PROVISION SO MADE BY THE ASSESSEE WORKED OUT TO ABOUT 10% OF THE SALE PRI C E OF MACHINES. FURTHER, IT WAS OBSERVED BY HIM THAT THE ASSESSEE HAD NOT F ULLY USED THE PROVISION AMOUNT IN THE EARLIER YEARS, AND HAD BEEN REVERSING MAJOR PORTION OF THE PROVISION MADE IN THE EARLIER YEARS AFTER THE EXPIRY OF THE WARRANTY PERIOD. IT WAS OBSERVED BY THE A.O , THAT IN THE BACKDROP OF THE RECORDS OF THE ASSESSEE FO R THE PAST 9 FINANCIAL YEAR S , IT STOOD REVEALED THAT WHILE FOR THE ASSESSEE HAD PROVIDE D FOR AN AMOUNT OF RS.5,07,36,653/ - TOWARDS PROVISION FOR WARRANTIES IN ITS BOOKS OF ACCOUNT, HOWEVER , AS AGAINST THE SAME AN AMOUNT OF RS.3,18,73,720/ - I.E 62.82% OF TH E TOTAL PROVISIONS WHICH WAS NOT UTILISED HAD BEEN WRITTEN BACK. ON THE BASIS OF HIS AFORESAID OBSERVATIONS, IT WAS GATHERED BY THE A.O THAT AS THE ASSESSEE HAD UTILISED ONLY 37.18% OF THE ACTUAL PROVISIONS DURING THE PAST 9 FINANCIAL YEAR, HENCE IT COULD SAFELY BE GATHERED THAT FOR PROVISIONING OF 10% OF SALES BY THE ASSESSEE BEING EXCESSIVE, UNREALISTIC AND ARBITRARY COULD NOT BE ALLOWED AS AN EXPENSE UNDER SEC. 37(1) OF THE ACT. IT WAS FURTHER OBSERVED BY THE A.O , THAT NOT ONLY THE FACTS AS REGARDS THE REVERSAL OF THE SUBSTANTIAL AMOUNT OF PROVISIONS BY THE ASSESSEE WAS UNREALISTIC AND EXCESSIVE, BUT EVEN OTHERWISE THE SAME WAS NOT IN ACCORDANCE WITH POSSIBLE ESTIMATE PRESCRIBED UNDER THE ACCOUNTING STANDARD - 29 ISS UED BY THE INSTITUTE OF CHARTERED ACCOUNTANT S OF INDIA. THUS, THE A.O ON THE BASIS OF HIS AFORESAID OBSERVATIONS WAS O F A STRONG CONVICTION THAT THE PROVISIONS FOR WARRANTY WAS CLEARLY EXCESSIVE AND DISPROPORTIONATE TO THE ACTUAL PRESENT OBLIGATION OF THE ASSESSEE, AS COULD BE SAFELY GATHERED FROM ITS PAST RESULTS. FURTHER , THE A.O OBSERVED THAT THE P A G E | 3 ITA NO. 4157/MUM/2017 A.Y 2013 - 14 THE DY. COMMISSIONER OF INCOME TAX VS. M/S MEDIRAYS CORPORATION JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT (2000) (245 ITR 428) (SC) AND ROTORK CONTROLS INDIA OVT LTD. VS. CIT (314 ITR 6 2) (SC), RELIED UPON BY THE ASSESSEE TO BUTTRESS HIS AFORESAID CLAIM WERE DISTINGUISHABLE ON FACTS. ON THE BASIS OF HIS AFORESAID DELIBERATIONS THE A.O DISALLOWED THE ASSESSEES CLAIM OF PROVISION OF RS.1,81,67,595/ - FOR WARRANTY EXPENSES. BEFORE PARTING, I T WAS ALSO OBSERVED BY THE A.O THAT THOUGH A SIMILAR DISALLOWANCE OF PROVISIONS FOR WARRANTIES MADE BY THE A.O IN THE CASE OF THE ASSESSEE FOR A.Y 2011 - 12 HAD BEEN DELETED BY THE CIT(A) - 3, THANE, HOWEVER THE SAID ORDER HAD BEEN ASSAILED BY THE REVENUE BEFO RE THE TRIBUNAL, AND WAS PENDING DISPOSAL AS ON DATE . 4 . AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS ADVANCED BY THE ASSESSEE WAS PERSUADED TO SUBSCRIBE TO THE SAME. IT WAS OBSER VED BY THE CIT(A) , THAT AS WARRANTY WAS AN INTEGRAL PART OF THE SALE PRI C E, THEREFORE, THE ASSESSEE WHO HAD INCURRED A LIABILITY TOWARDS THE SAME DURING THE YEAR , WAS THUS ENTITLED FOR DEDUCTION UNDER SEC.37 OF THE ACT, AS REGARDS THE SAME. FURTHER , THE CI T(A) NOTICED THAT A SIMILAR CLAIM OF THE ASSESSEE WAS EARLIER ALLOWED BY HIM WHILE DISPOSING OF ITS APPEAL FOR A.Y. 2011 - 12. THE CIT(A) OBSERVED THAT HIS ORDER PASSED IN THE ASSESSES OWN CASE FOR A.Y 2011 - 12, THEREIN ALLOWING THE PROVISION FOR WARRANTY EXP ENSES HAD BEEN UPHELD BY THE TRIBUNAL VIZ. ITAT B BENCH, MUMBAI IN ITA NO. 190/MUM/2016, DATED 22.03.2017. ON THE BASIS OF HIS AFORESAID OBSERVATIONS, THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. 5 . THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE C IT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) AT THE VERY OUTSET OF THE HEARING OF THE APPEAL SUBMITTED THAT THE ISSUE WAS COVERED BY THE ORDE R OF THE TRIBUNAL IN THE ASSESS ES OWN CASE FOR A.Y. 2011 - 1 2 I.E ACIT - CIRCLE - 2 VS. M/S MEDIRAYS CORPORATION, THANE, [ITA NO. 190/MUM/2016; DATED 22.03.2017] (COPY PLACED ON RECORD). FURTHER, THE LD. A.R SUBMITTED THAT THE AFORESAID ORDER FOR A.Y 2011 - 12 WAS THEREAFTER P A G E | 4 ITA NO. 4157/MUM/2017 A.Y 2013 - 14 THE DY. COMMISSIONER OF INCOME TAX VS. M/S MEDIRAYS CORPORATION FOLLOWED BY A COORDINATE BENCH OF THE TRIBUNAL I.E. ITAT I BENCH MUMBAI IN THE ASSESSES OWN CASE FOR A.Y S 2008 - 09 TO 2010 - 11 IN DCIT, CIRCLE - 2 VS. M/S MEDIRAYS CORPORATION, THANE [ ITA NO. 6218 TO 6220/MUM/2016; DATED 23.05.2018 ] (COPY PLACED ON RECORD) . ON THE BASIS OF THE AFORESAID CONTENTIONS, IT WAS AVERRED BY THE LD. A.R THAT THE MATTER INVOLVED IN THE PRESENT APPEAL WAS SQUARELY COVERED BY THE AFOREMENTIONED ORDERS OF THE COORDINATE BENCHES OF THE TRIBUNAL. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVES (FOR SHORT D.R) THOUGH RELIED ON THE O RDER OF THE A.O, BUT DID NOT CONTROVERT THE FACT THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL WAS SQUARELY COVERED BY THE AFORESAID ORDERS. 6 . WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ONLY ISSUE INVOLVED IN THE PRESENT APPEAL PERTAINS TO THE ALLOWABILITY OF THE ASSESSES CLAI M OF DEDUCTION TOWARDS PROVISION FOR WARRANTIES. WE HAVE PERUSED THE ORDER OF THE TRIBUNAL PASSED IN THE ASSESSEES OWN CASE FOR A.Y. 2011 - 12 I.E. ACIT, CIRCLE - 2 VS. M/S MEDIRAYS CORPORATION, THANE [ITA NO. 190/MUM/2016; DATED 22.03.2017] AND FIND THAT THE ISSUE INVOLVED HEREIN IS SQUARELY COVERED BY THE AFORESAID ORDER. WE FIND THAT THE TRIBUNAL AFTER DELIBER ATING AT LENGTH ON THE ISSUE AS REGARDS THE ALLOWABILITY OF THE ASSESSES CLAIM OF DEDUCTION TOWARDS PROVISION FOR WARRANT I ES, HAD OBSERVED AS UNDER : 9. ON A CAREFUL PERUSAL OF THE ORDER PASSED BY LD. CIT(A), WE NOTICE THAT THE FIRST APPELLATE AUTHORITY HAS EXAMINED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE PRINCIPLES LAID DOWN BY HON BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS (INDIA) LTD (SUPRA) AND HAS FURTHER NOTICED THAT THE ASSESSEE HAS SPENT A SUM OF RS.85,28,300/ - IN THE SUCCEEDING YEARS OUT OF THE WARRANTY AMOUNT PROVIDED FOR DURING THE INSTANT YEAR. THE LD.CI T( A) HAS ALSO TAKEN INTO ACCOUNT THE FACT THAT THE MACHINERY SOLD BY THE ASSESSEE ARE IMPORTED SECOND HAND MACHINES AND HENCE THEY MAY REQUIRE FREQUENT ATTENDANCE/REPAIRS. SINCE THE ASSESSEE HAS BEEN DECLARING PROFITS AT A HIGHER LEVEL YEAR AFTER YEAR, THE LD. CIT(A) HAS ALSO OBSERVED THAT THE CREATION OF PROVISION AND REVERSAL OF THE SAME ARE REVENUE NEUTRAL. IN ANY CASE, A BUSINESS MAN WOULD PROVIDE FOR SUCH WARRANTY CLAIMS ON ESTIMATED BASIS FOR POSSIBLE CLAIMS ONLY AND IT IS NOT NECESSARY THAT THE PROVISION SO MADE SHOULD HE FULLY SPENT. THE ACTUAL E XPENDITURE WOULD DEPEND UPON THE WARRANTY CLAIMS ACTUALLY LODGED BY THE CUSTO MERS, WHICH MAY VARY YEAR AFTER YEAR. IN THE INSTANT CASE, IT IS NOT THE CASE OF THE AO P A G E | 5 ITA NO. 4157/MUM/2017 A.Y 2013 - 14 THE DY. COMMISSIONER OF INCOME TAX VS. M/S MEDIRAYS CORPORATION THAT THE ASSESSEE HAS PROVIDED FOR AMOUNT AT AN EXCESSIVE FIGURE IN ORDER TO SUPPRESS THE PROFITS. HENCE, IN OUR CONSIDERED VIEW , THE LD. CIT(A) HAS TAKEN JUDICIOUS VIEW OF THE MATTER AND THE SAME DOES NOT CALL FOR ANY INTERFERENCE ACC ORDINGLY, WE UPHOLD THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE. WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL BEFORE US REMAINS THE SAME , AS WAS THERE BEFORE THE TRIBUNAL IN THE ASSESSES OWN CASE FOR THE AFOREMENTIONED A.Y. 2011 - 12. WE THUS, FINDING OURSELVES AS BEING IN AGREEMENT WITH THE VIEW THEREIN TAKEN BY THE AFORESAID COORDINATE BENC H OF THE TRIBUNAL IN THE ASSESSE S OWN CASE, RESPECTFULLY FOLLOW THE SAME. IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 3 1 . 10.201 8 S D / - S D / - ( SHAMIM YAHYA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 31 .10.2018 PS. ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 6 ITA NO. 4157/MUM/2017 A.Y 2013 - 14 THE DY. COMMISSIONER OF INCOME TAX VS. M/S MEDIRAYS CORPORATION