DCIT 8(2), MUMBAI V. MAQUET MEDICALS INDIA (P) LTD, MUMBAI

ITA 5145/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3397 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G N MAKWANA
• Assessee Lawyers: K K VED
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER. ITA. NO. 5145/MUM/2011 (ASSESSMENT YEAR:2006-07) THE D.C.I.T. 8(2), MUMBAI-400 020 APPELLANT VS. M/S. MAQUET MEDICAL INDIA PVT. LTD., MEHTA TRADE CENTRE, 2 ND FLOOR, SIR M. V. ROAD, ANDHERI (EAST), MUMBAI-400 099 RESPONDENT PAN: AADCM8545J /BY APPELLANT : SHRI G. N. MAKWANA, D.R. /BY RESPONDENT : SHRI K. K. VED, A.R. /DATE OF HEARING : 16.08.2016 /DATE OF PRONOUNCEMENT : 26.08.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY REVENUE AGAINST THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-17, MUMBAI, DA TED 15 TH MARCH, 2011 FOR A.Y. 2006-07 ON FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANC E RELATED TO PROVISION OF WARRANTY OF RS.1,24,46,994/- WITHOUT APPRECIATING THE FACTS OF THE CASE. ITA NO.5145/MUM/11 A.Y. 06-07 [DCIT VS. M/S. MAQUET MEDICALS INDIA PVT. LTD.) PAGE 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN APPLYING THE RATIO OF THE DECISION IN THE CASE OF M/S. ROTORK CONTROLS INDIA LTD. VS. CIT (314 ITR 62)(SC), EVEN THOUGH THE FACTS OF THE ASSESSEES CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE ABOVE CITED CASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE ASSESSEE HAD FAILED TO MAINTAIN SYSTEMATIC DATA IN SUPP ORT OF ITS CLAIM FOR PROVISION OF WARRANTY. 2. ASSESSEE COMPANY IS ENGAGED IN BUSINESS OF TRADI NG AND SERVICING OF MEDICAL EQUIPMENTS. ASSESSING OFFICER ON PERUSAL OF ANNEXURE F TO TAX AUDIT REPORT OBSERVED THAT ASS ESSEE HAD DEBITED AN AMOUNT OF RS.1,66,07,319/ IN P&L ACCOUNT AS PROVISIONS OF WARRANTY. HE NOTED THAT WHEN WARRANT Y CLAIMED BY CUSTOMERS THEN ASSESSEE BECAME LIABLE TO INCUR S UCH EXPENSES AND IF NOT THERE WAS NO LIABILITY ON ASSES SEE. ACCOUNTS WERE MAINTAINED ON MERCANTILE BASIS ON THE PRESUMPTION OF GOING CONCERN. HOWEVER, IT WAS UNCE RTAIN WHETHER THE SAME SHALL BE CLAIMED BY CUSTOMERS IN F UTURE. IT WAS HELD THAT ASSESSEE HAD NOT PROVIDED SUBSTANTIAT ING EVIDENCE OR BASIS FOR WORKING OF PROVISION. IN VIE W OF FACT THAT WARRANTY PROVIDED BY ASSESSEE WAS NOT CLAIMED BY AL L THESE PARTIES, BEING COVERED ONLY ON CERTAIN PARTS AND TH AT TOO IF PARTY HAD NOT VIOLATED TERMS AND CONDITIONS OF WARR ANTY AND USAGE OF EQUIPMENTS BY THE PARTY. IF THERE IS ANY VIOLATION BY PARTY, THE WARRANTY BECOMES VOID. ASSESSING OFFICE R OBSERVED THAT HAVING MADE A PROVISION FOR WARRANTY OF RS.1,6 6,07,319/- A SUM OF RS.41,60,325/- HAD BEEN UTILIZED. THUS, T HE PROVISION WAS ONLY A CONTINGENT LIABILITY. SO, ASS ESSING OFFICER MADE ADDITION TO THE EXTENT OF RS.1,24,46,994/-. ITA NO.5145/MUM/11 A.Y. 06-07 [DCIT VS. M/S. MAQUET MEDICALS INDIA PVT. LTD.) PAGE 3 2.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF O F ASSESSEE AND HAVING CONSIDERED THE SAME, CIT(A) GRANTED RELI EF TO ASSESSEE. 2.2 SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF RE VENUE INTER ALIA SUBMITTED THAT CIT(A) GRANTED RELIEF TO ASSESSEE ON DISALLOWANCE RELATED TO PROVISION OF WARRANTY OF RS. 1,24,46,994/- ACCORDINGLY, ORDER OF CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. ON THE OTHER HAND , LD. AUTHORIZED REPRESENTATIVE SUPPORTED THE ORDER OF CI T(A). 2.3 AFTER GOING THROUGH RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD, WE FIND THAT SUCH PROVISION FOR WARRANTY IN THE BUSINESS OF ASSESSEE OF TRADING AND SERVICING O F SPECIALIZED MEDICAL EQUIPMENT. ASSESSEES CONTENTION THAT SUCH WARRANTY WAS NECESSARY AND WAS PART OF CONTRACT OF SALE WAS RIGHTLY ACCEPTED. AS PER ACCOUNTING SYSTEM REGULARLY FOLLOW ED BY ASSESSEE, SUCH PROVISION WAS MADE @ 2% OF SALES AND WOULD WRITTEN BACK IF IN EXCESS AT THE EXPIRY OF WARRANTY PERIOD. IN THIS BACKGROUND, CIT(A) OBSERVED THAT ASSESSEES CA SE IS SQUARELY COVERED BY THE DECISION OF M/S. ROTORK CON TROL INDIA PVT. LTD. VS. CIT [2009] 314 ITR 62 (SC), WHEREIN I T WAS OBSERVED THAT THE VALVE ACTUATORS MANUFACTURED BY T HE ASSESSEE, WERE SOPHISTICATED GOODS AND STATISTICAL DATA INDICATED THAT EVERY YEAR SOME OF THESE WERE FOUND DEFECTIVE; THAT VALVE ACTUATORS BEING A SOPHISTICATED ITEMS, N O CUSTOMER WAS PREPARED TO BUY A VALVE ACTUATOR WITHOUT A WARR ANTY. THEREFORE THE WARRANTY BECAME AN INTEGRAL PART OF T HE SALE ITA NO.5145/MUM/11 A.Y. 06-07 [DCIT VS. M/S. MAQUET MEDICALS INDIA PVT. LTD.) PAGE 4 PRICE; IN WORDS THE WARRANTY WAS ATTACHED TO THE SA LE PRICE OF THE PRODUCT. IN THIS CASE THE WARRANTY PROVISION H AD TO BE RECOGNIZED BECAUSE THE ASSESSEE HAD A PRESENT OBLIG ATION AS A RESULT OF PAST EVENT RESULTING IN OUTFLOW OF RESOUR CES AND RELIABLE ESTIMATE COULD BE MADE OF THE AMOUNT OF OB LIGATION. THEREFORE THE ASSESSEE HAD INCURRED A LIABILITY DUR ING THE ASSESSMENT YEAR WHICH WAS ENTITLED TO DEDUCTION U/S 37 OF THE IT ACT. FACTS BEING SIMILAR, SO, FOLLOWING SAME RE ASONING, CIT(A) WAS JUSTIFIED IN GRANTING RELIEF TO ASSESSEE . THIS REASONED FACTUAL FINDING OF CIT(A) NEEDS NO INTERFE RENCE FROM OUR SIDE. WE UPHOLD THE SAME. 3. IN THE RESULT, THE APPEAL FILED BY REVENUE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 26 TH DAY OF AUGUST, 2016. SD/- SD/- ( RAJESH KUMAR ) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R MUMBAI: DATED 26/08/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. %&%'( ) / CONCERNED CIT 4. )- / CIT (A) 5.-./00'(, '( , %& / DR, ITAT, MUMBAI 6./4567 / GUARD FILE. 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