ACIT, New Delhi V. M/s. MIL India Ltd., New Delhi

ITA 4599/DEL/2013

• Counselvise Citation: 459920114 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 15-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJHA
• Assessee Lawyers: BHAVITA KUMAR ADVOC
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH E EE E : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND PRESIDENT AND PRESIDENT AND PRESIDENT AND SHRI SHRI SHRI SHRI CHANDRA MOHAN GARG CHANDRA MOHAN GARG CHANDRA MOHAN GARG CHANDRA MOHAN GARG, JUDICIAL , JUDICIAL , JUDICIAL , JUDICIAL MEMBER MEMBER MEMBER MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 5699/DEL/2011 5699/DEL/2011 5699/DEL/2011 5699/DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2007 2007 2007 2007 - -- - 08 0808 08 JOINT COMMISSIONER OF JOINT COMMISSIONER OF JOINT COMMISSIONER OF JOINT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -6(1), 6(1), 6(1), 6(1), NEW NEW NEW NEW DELHI. DELHI. DELHI. DELHI. VS. VS. VS. VS. M/S MIL INDIA LIMITED, M/S MIL INDIA LIMITED, M/S MIL INDIA LIMITED, M/S MIL INDIA LIMITED, UNIT NO.3F/307, UNIT NO.3F/307, UNIT NO.3F/307, UNIT NO.3F/307, MAMRAM EAST PLAZA, MAMRAM EAST PLAZA, MAMRAM EAST PLAZA, MAMRAM EAST PLAZA, PLOT NO.C1 & C2, LSC BLOCK G, PLOT NO.C1 & C2, LSC BLOCK G, PLOT NO.C1 & C2, LSC BLOCK G, PLOT NO.C1 & C2, LSC BLOCK G, KONDLI GHAROLI, MAYUR VIHAR, KONDLI GHAROLI, MAYUR VIHAR, KONDLI GHAROLI, MAYUR VIHAR, KONDLI GHAROLI, MAYUR VIHAR, PHASE PHASE PHASE PHASE- -- -III, III,III, III, DELHI DELHI DELHI DELHI 110 096. 110 096. 110 096. 110 096. PAN : AACCM4710E. PAN : AACCM4710E. PAN : AACCM4710E. PAN : AACCM4710E. (APPELLANT) (RESPONDENT) ITA NO ITA NO ITA NO ITA NO S.4598/DEL/2013, 4599/DEL/2013 & S.4598/DEL/2013, 4599/DEL/2013 & S.4598/DEL/2013, 4599/DEL/2013 & S.4598/DEL/2013, 4599/DEL/2013 & 4600/DEL/2013 4600/DEL/2013 4600/DEL/2013 4600/DEL/2013 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR S SS S : : : : 2005 2005 2005 2005 - -- - 06, 2009 06, 2009 06, 2009 06, 2009 - -- - 10 & 2010 10 & 2010 10 & 2010 10 & 2010 - -- - 11 1111 11 ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -6(1), 6(1), 6(1), 6(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S MIL INDIA LIMITED, M/S MIL INDIA LIMITED, M/S MIL INDIA LIMITED, M/S MIL INDIA LIMITED, UNIT NO.3F/307, UNIT NO.3F/307, UNIT NO.3F/307, UNIT NO.3F/307, MAMRAM MAMRAM MAMRAM MAMRAM EAST PLAZA, EAST PLAZA, EAST PLAZA, EAST PLAZA, PLOT NO.C1 & PLOT NO.C1 & PLOT NO.C1 & PLOT NO.C1 & C CC C2, LSC BLOCK G, 2, LSC BLOCK G, 2, LSC BLOCK G, 2, LSC BLOCK G, KONDLI GHAROLI, MAYUR VIHAR, KONDLI GHAROLI, MAYUR VIHAR, KONDLI GHAROLI, MAYUR VIHAR, KONDLI GHAROLI, MAYUR VIHAR, PHASE PHASE PHASE PHASE- -- -III, III,III, III, DELHI DELHI DELHI DELHI 110 096. 110 096. 110 096. 110 096. PAN : AACCM4710E. PAN : AACCM4710E. PAN : AACCM4710E. PAN : AACCM4710E. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P. DAM KANUNJHA, SR.DR. RESPONDENT BY : SHRI AJAY VOHRA, SR. ADVOCATE AND MS. BHAVITA KUMAR, ADVOCATE. ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: : THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-IX, NEW DELHI FOR THE AY 2007-08, 20 05-06, 2009-10 & 2010-11. ITA-5699/D/2011 & 3 OTHERS 2 2. IN ALL THESE APPEALS, THE ONLY GROUND RAISED BY THE REVENUE IS AGAINST THE DELETION OF 50% DISALLOWANCE OUT OF PRO VISION OF WARRANTY BY THE LEARNED CIT(A). 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE DERI VES INCOME FROM MANUFACTURING AND SALE OF ENGINEERING GOODS. THE A SSESSEE MADE THE PROVISION FOR WARRANTY IN RESPECT OF AFTER SALES SE RVICE YEAR AFTER YEAR. THE ASSESSING OFFICER DISALLOWED 50% OF SUCH PROVIS ION IN RESPECT OF AFTER SALES SERVICE WHICH IS DELETED BY THE LEARNED CIT(A) IN EACH YEAR FOLLOWING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA P.LTD. VS. CIT [2009] 314 ITR 62 (S C), OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VI NITEC CORPORATION PVT.LTD. [2005] 278 ITR 337 (DELHI) AND CIT VS. ER ICSSION COMMUNICATIONS P.LTD. [2009] 318 ITR 340 (DELHI). THE REVENUE, AGGRIEVED WITH THE ORDER OF LEARNED CIT(A), IS IN A PPEAL BEFORE US. 4. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFORE US. WE FIND THAT HONBLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA P.L TD. (SUPRA) HELD AS UNDER:- A PROVISION IS A LIABILITY WHICH CAN BE MEASURED O NLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A PROVIS ION IS RECOGNIZED WHEN : (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; (B) IT IS P ROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUIRED TO SE TTLE THE OBLIGATION, AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIO NS ARE NOT MET, NO PROVISION CAN BE RECOGNIZED. THE PRINCIPLE IS THAT IF THE HISTORICAL TREND INDIC ATES THAT A LARGE NUMBER OF SOPHISTICATED GOODS WERE BEING MANUFACTURED IN THE PAST AND THE FACTS SHOW THAT DEFECTS EXISTED IN SOME OF THE ITEMS MANUFACTURED A ND SOLD, THEN PROVISION MADE FOR WARRANTY IN RESPECT O F SUCH SOPHISTICATED GOODS WOULD BE ENTITLED TO DEDUC TION FROM THE GROSS RECEIPTS UNDER SECTION 37. ITA-5699/D/2011 & 3 OTHERS 3 5. THAT HON'BLE JURISDICTIONAL HIGH COURT IN THE CA SE OF VINITEC CORPORATION PVT.LTD. (SUPRA) HELD :- AFFIRMING THE DECISION OF THE TRIBUNAL, THAT THE WARRANTY CLAUSE WAS PART OF THE SALE DOCUMENT AND IMPOSED A LIABILITY UPON THE ASSESSEE TO DISCHARGE ITS OBLIGATION UNDER THAT CLAUSE FOR THE PERIOD OF WARR ANTY. IT WAS A LIABILITY, WHICH WAS CAPABLE OF BEING CONS TRUED IN DEFINITE TERMS, WHICH HAD ARISEN IN THE ACCOUNTI NG YEAR, ALTHOUGH ITS ACTUAL QUANTIFICATION AND DISCHA RGE MIGHT BE DEFERRED TO A FUTURE DATE. ONCE THE ASSES SEE IS MAINTAINING HIS ACCOUNTS ON THE MERCANTILE SYSTE M, A LIABILITY ACCRUED, THOUGH TO BE DISCHARGED A FUTURE DATE,, WOULD BE A PROPER DEDUCTION WHILE WORKING OUT THE PROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO THE ACCEPTED PRINCIPLES OF COMMERCIAL PRACTICE AND ACCOUNTANCY. TO SUBSTANTIATE ITS CLAIM FOR THE ASSESSMENT YEAR 2000-01, THE ASSESSEE HAD GIVEN THE FIGURES OF THE LAST FIVE YEARS OF WARRANT LIABILITY PROVIDED VIS-A-VIS THE EXPENDITURE INCURRED. THESE FIGURES CLEARLY EXHIBITED THAT THE ASSESSEE HAD INCURRED EXPENDITUR E RESULTING FROM THE WARRANTY CLAUSE TO THE EXTENT OF MORE THAN 2 PER CENT OF ITS TOTAL SALES IN THE PREV IOUS YEARS. THERE WAS DIRECT NEXUS BETWEEN THE CLAIM OF THE ASSESSEE AND ITS OBLIGATION ARISING FROM THE WARRAN TY. 6. SIMILARLY, HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ERICSSION COMMUNICATIONS P.LTD. (SUPRA) HELD :- DISMISSING THE APPEAL, THAT THE POLICY AND PRINCIP LES WITH RESPECT TO PROVISIONS FOR WARRANTIES WHICH WER E MADE BY THE ASSESSEE WAS NOT SIMPLY AN AD HOC METHOD WITHOUT ANY SCIENTIFIC BASIS. THE SCIENTIFI C BASIS WAS CONSISTENTLY APPLIED BY THE ASSESSEE FOR ITS BUSINESS THROUGHOUT THE WORLD. IT WAS NOT AS IF TH E ASSESSEE TOOK A HUGE BENEFIT YEAR AFTER YEAR BY MAK ING A HUGE PROVISION BECAUSE IN FACT IT WAS ONLY THE PROVISION WHICH WAS MADE IN THE FIRST YEAR WHICH WA S CARRIED FORWARD IN THE SUBSEQUENT YEARS IN WHICH TH E PROVISION WAS ONLY FOR THE ADDITIONAL DIFFERENCE ON ACCOUNT OF A HIGHER TURNOVER. IT WAS ONLY THIS DIF FERENCE OF NET AMOUNT WHICH WAS ADDITIONALLY DEBITED IN THE ITA-5699/D/2011 & 3 OTHERS 4 PROVISION ACCOUNT BECAUSE THE DIFFERENCE IN THE EAR LIER YEARS WAS CREDITED AND A REVERSAL ENTRY MADE TO THE PROFIT AND LOSS ACCOUNT BY THE NON-UTILIZED AMOUNT BEING OFFERED TO TAX AS INCOME. THE CONSISTENT APPLICATION OF THE POLICY OF PROVISION REMOVED ANY ISSUE OF MALA FIDES OR DISHONEST INTENTION ON THE PART OF AN ASSESSEE FOR DEFERRING ITS INCOME BECAUSE IT COULD BE THAT IN A PARTICULAR YEAR ACTUAL WARRANTY CLAIMS MA Y EXCEED THE PROVISION WHICH WAS MADE. THUS, THE PROVISION FOR THE WARRANTY CHARGES WAS A DEFINITE BUSINESS LIABILITY ALLOWABLE AS A DEDUCTION DURING THE YEARS UNDER CONSIDERATION. 7. THAT THE RATIO OF THE ABOVE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT AS WELL AS HONBLE APEX COURT WOULD BE S QUARELY APPLICABLE TO THE CASE UNDER APPEAL BEFORE US. ADMITTEDLY, TH E ASSESSEE IS MANUFACTURING SOPHISTICATED ENGINEERING GOODS AND I N EACH CONTRACT FOR THE SALE OF GOODS, THERE IS A WARRANTY CLAUSE F OR PROVIDING AFTER SALES SERVICE. THIS FINDING OF FACT RECORDED BY TH E LEARNED CIT(A) HAS NOT BEEN CONTROVERTED BEFORE US. MOREOVER, THE ASS ESSING OFFICER HIMSELF HAS ALLOWED THE 50% OF THE PROVISION FOR AF TER SALES SERVICE EXPENSES. THEREFORE, THE ASSESSING OFFICER HAS ALS O ACCEPTED THAT THE PROVISION PER SE IS JUSTIFIED BUT IT IS EXCESSIVE. HONBLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA P.LTD. (SUPRA) HA S ALSO HELD THAT A RELIABLE ESTIMATE IS TO BE MADE IN RESPECT OF WARRA NTY OBLIGATION. THEREFORE, THE QUESTION REMAINS WHETHER THE PROVISI ON FOR AFTER SALES SERVICE OBLIGATION ON ACCOUNT OF WARRANTY GIVEN BY THE ASSESSEE IS REASONABLE OR NOT. THE CIT(A) IN HIS ORDER FOR AY 2010-11 AT PAGE 4 OF HIS ORDER HAS GIVEN THE PROVISION MADE FOR POST SAL ES EXPENSES BY THE ASSESSEE AND THE ACTUAL EXPENDITURE INCURRED. THE SAME IS REPRODUCED BELOW FOR READY REFERENCE:- HISTORICAL TREND OF POST SALES EXPENSES BOOKED ON E STIMATE BASIS AND ACTUAL EXPENSES INCURRED (IN RUPEES) PROVISION MADE FOR POST SALE ACTUAL EXPENSES INCURRED AGAINST SHORTAGE/EXCESS TURNOVER OF YEAR ITA-5699/D/2011 & 3 OTHERS 5 EXPENSES PROVISION IN FUTURE YEARS (PROVIDE INFORMATION YEAR- WISE) FY 2001 - 02 7,75,000 8,25,750 - 50,750 11,57,70,881 FY 2002 - 03 34,99,650 34,96,605 3,045 17,87,90,298 FY 2003 - 04 19,99,749 20,01,525 - 1,776 15,14,70,832 FY 2004 - 05 31,34,420 32,70,870 - 1,36,450 20,23,46,463 FY 2006 - 07 26,350,000 26,592,843 - 242,843 NA FY 2007 - 08 30,300,000 32,104,403 - 1,804,403 NA FY 2008 - 09 24,600,000 24,470,158 +129,842 NA FY 2009 - 10 9,000,000 9,102,376 - 102,376 NA 8. IN THE ABOVE CHART, THE FIGURES FOR NINE YEARS H AVE BEEN GIVEN AND WE FIND THAT THE PROVISION WAS ALMOST EQUAL TO THE ACTUAL EXPENDITURE INCURRED IN THIS REGARD. IN MOST OF TH E YEARS, THE PROVISION MADE WAS LESS THAN THE EXPENDITURE INCURRED. ONLY IN TWO YEARS, IN FY 2002-03 & 2008-09, THE PROVISION MARGINALLY EXCEEDE D THE ACTUAL EXPENDITURE INCURRED. FROM THE ABOVE CHART, IT IS EVIDENT THAT THE PROVISION MADE BY THE ASSESSEE WAS A FAIR AND REASO NABLE ESTIMATE OF THE POST SALES EXPENSES TO BE INCURRED BY THE ASSES SEE IN RESPECT OF GOODS SUPPLIED BY IT. THEREFORE, ON THESE FACTS, T HE RATIO OF THE ABOVE DECISIONS OF HONBLE APEX COURT AND HON'BLE JURISDI CTIONAL HIGH COURT WOULD BE SQUARELY APPLICABLE. RESPECTFULLY FOLLOWI NG THE SAME, WE UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS THE APPEALS FILED BY THE REVENUE. 9. IN THE RESULT, ALL THE APPEALS OF THE REVENUE AR E DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY, 2015. SD/- SD/- ( (( ( CHANDRA MOHAN GARG CHANDRA MOHAN GARG CHANDRA MOHAN GARG CHANDRA MOHAN GARG ) )) ) (G.D. AGRAWAL (G.D. AGRAWAL (G.D. AGRAWAL (G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESI VICE PRESI VICE PRESI VICE PRESI DENT DENT DENT DENT DATED : 28.01.2015 VK. ITA-5699/D/2011 & 3 OTHERS 6 COPY FORWARDED TO: - 1. APPELLANT : ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -6(1), NEW DELHI. 6(1), NEW DELHI. 6(1), NEW DELHI. 6(1), NEW DELHI. 2. RESPONDENT : M/S MIL INDIA LIMITED, M/S MIL INDIA LIMITED, M/S MIL INDIA LIMITED, M/S MIL INDIA LIMITED, UNIT NO.3F/307, MAMRAM EAST PLAZA, UNIT NO.3F/307, MAMRAM EAST PLAZA, UNIT NO.3F/307, MAMRAM EAST PLAZA, UNIT NO.3F/307, MAMRAM EAST PLAZA, PLOT NO.C1 & C2, LSC BLOCK G, PLOT NO.C1 & C2, LSC BLOCK G, PLOT NO.C1 & C2, LSC BLOCK G, PLOT NO.C1 & C2, LSC BLOCK G, KONDL KONDL KONDL KONDLI GHAROLI, MAYUR VIHAR, PHASE I GHAROLI, MAYUR VIHAR, PHASE I GHAROLI, MAYUR VIHAR, PHASE I GHAROLI, MAYUR VIHAR, PHASE- -- -III, III,III, III, DELHI DELHI DELHI DELHI 110 096. 110 096. 110 096. 110 096. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR