ZINSER TEXTILE SYSTEMS P.LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 5666/MUM/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8027 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 20-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANISH KUMAR SINGH LD
• Assessee Lawyers: PRAVIN KUMAR; J DARAK LD ARS
• Keywords: Tax effect
• Section: 143(3)

Judgement Text

1 M/S ZINSER TEXTILE SYSTEMS PRIVATE LIMITED ASSESSMENT YEAR-2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI , , BEFORE HONBLE SHRI SAKTIJIT DEY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.5666/MUM/2016 ( / ASSESSMENT YEAR: 2010-11) M/S. ZINSER TEXTILE SYSTEMS PVT. LTD. 1002, PENINSULA TOWER-I 10 TH FLOOR, PENINSULA CORPORATE PARK GANPATRAO KADAM MARG LOWER PAREL (W), MUMBAI-400 013 / VS. DY . COMMISSIONER OF IN COME TAX - 8(3) AAYKAR BHAVAN M.K. ROAD MUMBAI-400 020. !' ./ ./PAN/GIR NO. AAACZ-1594-R ( /APPELLANT ) : ( / RESPONDENT ) & ./ I.T.A. NO.5841/MUM/2016 ( / ASSESSMENT YEAR: 2010-11) DY . COMMISSIONER OF IN COME TAX - 8(3) AAYKAR BHAVAN M.K. ROAD MUMBAI-400 020. / VS. M/S. ZINSER TEXTILE SYSTEMS PVT. LTD. 1002, PENINSULA TOWER-I 10 TH FLOOR, PENINSULA CORPORATE PARK GANPATRAO KADAM MARG LOWER PAREL (W), MUMBAI-400 013 !' ./ ./PAN/GIR NO. AAACZ-1594-R ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : PRAVIN KUMAR & J. DARAK- LD. ARS / RESPONDENT BY : MANISH KUMAR SINGH - LD. DR / DATE OF HEARING : 20/12/2018 / DATE OF PRONOUNCEMENT : 02/01/2019 / O R D E R 2 M/S ZINSER TEXTILE SYSTEMS PRIVATE LIMITED ASSESSMENT YEAR-2010-11 PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. THESE CROSS APPEALS FOR ASSESSMENT YEAR [AY] 201 0-11 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-5 8, MUMBAI [CIT(A)] DATED 03/06/2016 ON DIFFERENT GROUNDS OF APPEAL. SO FAR AS THE REVENUES APPEAL IS CONCERNED, THE LD. AUTHORIZED REPRESENTAT IVE FOR ASSESSEE [AR], AT THE OUTSET, DREW OUR ATTENTION TO THE FACT THAT TAX EFFECT OF THE ADDITIONS BEING CONTESTED BY THE REVENUE IN THEIR APPEAL IS B ELOW THE PRESCRIBED MONETARY LIMIT OF RS. 20 LAKHS AND THEREFORE THE SA ME WAS LIABLE TO BE DISMISSED IN TERMS OF RECENTLY ISSUED LOW TAX EFFECT CIRCULAR NO.03/2018 DATED 11/07/2018 ISSUED BY CENTRAL BOARD OF DIRECT TAXES [CBDT]. THE LD. DR HAS CONTROVERTED THE SAME BY SUBMITTING THAT NEC ESSARY INSTRUCTIONS / CERTIFICATE, IN THIS REGARD, WOULD BE REQUIRED FROM HIGHER AUTHORITIES. 2. WE HAVE GONE THROUGH THE CIRCULAR AND FIND THAT THE TAX EFFECT OF QUANTUM IN DISPUTE IN REVENUES APPEAL IS BELOW PRE SCRIBED LIMIT OF RS.20 LACS AND THEREFORE THE SAME WAS LIABLE TO BE DISMIS SED IN TERMS OF CITED CIRCULAR OF CBDT. SO FAR AS THE CONTENTIONS RAISED BY LD. DR IS CONCERNED, WE FIND THAT AFORESAID CIRCULAR DOES NOT ENVISAGE O BTAINING OF ANY CERTIFICATE FROM ANY AUTHORITIES, IN ANY MANNER. NEVERTHELESS, THE REVENUE IS FREE TO MOVE APPROPRIATE APPLICATION TO RECALL THIS ORDER, IF AT A LATER STAGE, IT IS FOUND THAT THE MATTER IS COVERED BY ANY EXCEPTIONS PROVIDED IN THE AFORESAID CIRCULAR OR IN CASE THE TAX EFFECT OF THE QUANTUM A DDITIONS AS AGITATED BY REVENUE EXCEEDS THE PRESCRIBED MONETARY LIMIT. ACCO RDINGLY, THE REVENUES APPEAL STANDS DISMISSED. 3 M/S ZINSER TEXTILE SYSTEMS PRIVATE LIMITED ASSESSMENT YEAR-2010-11 3.1 THE ASSESSEE, IN ITS APPEAL, IS AGGRIEVED BY CO NFIRMATION OF DISALLOWANCE OF RS. 3.29 LAKHS, BEING PROVISION FOR WARRANTY EXPENSES. BRIEFLY STATED, THE ASSESSEE BEING RESIDENT CORPORA TE ENTITY ENGAGED IN MANUFACTURING AND SALE OF TEXTILE MACHINERY AND SPA RE PARTS WAS ASSESSED IN SCRUTINY ASSESSMENT U/S 143(3) READ WITH SECTION 144C(5) BY LD. DEPUTY COMMISSIONER OF INCOME TAX-8(3), MUMBAI [AO] ON 25/ 04/2014 WHEREIN THE INCOME OF THE ASSESSEE WAS ASSESSED AT RS.15.24 LAKHS AFTER CERTAIN ADDITIONS/DISALLOWANCES AS AGAINST RETURNED LOSS OF RS.30.48 LACS E-FILED BY THE ASSESSEE ON 15/10/2010. DURING ASSESSMENT PROCE EDINGS, THE ASSESSEE WAS SADDLED WITH DISALLOWANCE OF RS.8.94 L ACS, BEING PROVISION FOR WARRANTY EXPENSES FOR WANT OF PROPER EXPLANATIO N AND REQUISITE DETAILS. 3.2 BEFORE FIRST APPELLATE AUTHORITY, THE ASSESSEE SUBMITTED THAT IT PROVIDES AFTER SALES WARRANTY WHICH IS AVAILABLE TO CUSTOMER S FOR 6 MONTHS FROM THE DATE OF ERECTION OF MACHINERY / 8 MONTHS FROM THE D ATE OF INVOICE OF MACHINES SOLD BY THE ASSESSEE. DURING THE SUBSISTEN CE OF WARRANTY PERIOD, IF ANY OF THE MACHINE SOLD BY THE ASSESSEE CAUSES A NY PROBLEM, THE ASSESSEE WAS REQUIRED TO REPAIR / REPLACE THE PARTS ETC. FREE OF COST. AT THE END OF EVERY YEAR, THE ASSESSEE REVIEWS POSITION AN D PROVIDES FOR EXPENSES ON ACCOUNT OF WARRANTY AT A RATE BASED ON PAST EXPE RIENCE ON SALES EFFECTED DURING AUGUST, 2009 TO MARCH, 2010 ON PRO-RATA BASIS FOR UNEXPIRED MONTHS UNDER WARRANTY. SINCE IN RESPECT O F SALES MADE DURING APRIL, 2009 TO JULY, 2009, THE WARRANTY PERIOD EXPI RED BEFORE 31/03/2010, THE PROVISION AGAINST THE SAME WAS NOT REQUIRED. TH E ATTENTION WAS DRAWN TO THE FACT THAT THE ASSESSEE MADE A PROVISION @1.2 5% OF SALES AFFECTED 4 M/S ZINSER TEXTILE SYSTEMS PRIVATE LIMITED ASSESSMENT YEAR-2010-11 DURING AUGUST, 2009 TO MARCH 2010 FOR WHICH WARRANT Y PERIOD DID NOT EXPIRE AS AT BALANCE SHEET DATE. THE ATTENTION WAS ALSO DR AWN TO THE FACT THE SIMILAR DISALLOWANCE MADE BY LD. AO FOR AYS 2007-08 & 2008-09 WAS DELETED BY LD. CIT(A) AND UPON REVENUES FURTHER AP PEAL TO TRIBUNAL, THE MATTER FOR 2007-08 WAS SET ASIDE TO THE FILE OF LD. AO WITH CERTAIN DIRECTIONS. HOWEVER, IN SET ASIDE PROCEEDINGS, THE DISALLOWANCE WAS AGAIN MADE BY LD. AO. IT WAS FURTHER SUBMITTED THAT NO DISALLOWAN CE WAS MADE BY ASSESSING OFFICER IN ASSESSMENTS MADE U/S 143(3) FO R AYS 2009-10, 2011- 12 TO 2013-14. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT RENDERED IN ROTORK CONTROLS INDIA (P) LTD. VS CIT [223 CTR 425] . THE LD. CIT(A), AFTER DUE CONSIDERATION OF FACTUAL MATR IX, WHILE AGREEING WITH THE CLAIM OF THE ASSESSEE RESTRICTED THE PROVISIONS TO 0.79% OF TURNOVER AND CONFIRMED THE BALANCE DISALLOWANCE. THE RATE OF 0.7 9% WAS NOTHING BUT AVERAGE RATE OF WARRANTY EXPENDITURE ACTUALLY INCUR RED BY THE ASSESSEE IN 3 YEARS PRECEDING IMPUGNED AY. AGGRIEVED, THE ASSESSE E IS IN FURTHER APPEAL BEFORE US. 4. THE LD. AR DREW OUR ATTENTION TO THE FACT THAT T HE CLAIM FOR AY 2007- 08 HAS FINALLY BEEN ALLOWED BY THE FIRST APPELLATE AUTHORITY VIDE ORDER DATED 28/02/2017 BY OBSERVING THAT TRIPLE TEST AS LAID DO WN BY HONBLE APEX COURT IN THE CITED DECISION WAS SATISFIED BY THE ASSESSEE . A COPY OF THE ORDER HAS BEEN PLACED ON RECORD. THE LD. DR SUBMITTED THAT TH E STAND OF FIRST APPELLATE AUTHORITY WAS FAIR & REASONABLE. 5. UPON DUE CONSIDERATION, WE FIND THE DISPUTE TO B E IN A VERY COMPASS. UPON DUE CONSIDERATION, WE FIND THAT IT IS UNDISPUT ED FACT THAT ASSESSEES 5 M/S ZINSER TEXTILE SYSTEMS PRIVATE LIMITED ASSESSMENT YEAR-2010-11 NATURE OF BUSINESS REQUIRES PROVISION OF WARRANTY A GAINST THE PRODUCT BEING SOLD / SUPPLIED BY IT. IT IS ALSO UNDISPUTED FACT T HAT EVERY YEAR, THE ASSESSEE HAS TO INCUR CERTAIN ACTUAL EXPENDITURE AGAINST THE SAME WHICH MAY BE MORE OR LESS THAN THE ESTIMATED PROVISIONS. IT IS A LSO UNDISPUTED FACT THAT THE ASSESSEE, IN A VERY SCIENTIFIC MANNER, ESTIMATE THE PROVISIONS BY CONSIDERING THE TURNOVER FOR THOSE MONTHS AGAINST W HICH WARRANTIES REMAIN OUTSTANDING AT BALANCE SHEET DATE ON PRO-RATA BASIS FOR THE UNEXPIRED PERIOD OF WARRANTY. IN OUR OPINION, NOTHING MORE CO ULD BE ASKED FROM ASSESSEE, IN THIS REGARD. THE TRIPLE TEST VIZ. THER E WAS AN OBLIGATION ON ASSESSEE TO INCUR SUCH EXPENDITURE, ACTUAL EXPENDIT URE WAS BEING INCURRED BY THE ASSESSEE ON YEAR-TO-YEAR BASIS AND LASTLY RE LIABLE ESTIMATE OF THE SAME COULD BE MADE BY THE ASSESSEE, WAS DULY SATISF IED BY THE ASSESSEE. FURTHER, THE ASSESSEE WAS FOLLOWING CONSISTENT METH OD OF ACCOUNTING TO ESTIMATE THE SAME. IN OUR OPINION, AN ACCURATE ESTI MATION OF FUTURE LIABILITY COULD NEVER BE MADE BY THE ASSESSEE AND THEREFORE, THE STAND OF LD. CIT(A) IN RESTRICTING THE SAME TO 0.79% COULD NOT B E SUSTAINED. WE HOLD SO. 6. RESULTANTLY, THE ASSESSEES APPEAL STANDS ALLOWE D IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 02 ND JANUARY, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 02/01/2019 SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 6 M/S ZINSER TEXTILE SYSTEMS PRIVATE LIMITED ASSESSMENT YEAR-2010-11 1. '& / THE APPELLANT 2. '('& / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. ) *' + , + , / DR, ITAT, MUMBAI 6. * -./ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.