Addl. CIT, Pune V. Kalyani Brakes Ltd., Pune

ITA 578/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3184 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 12-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A S SINGH
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Principle of natural justice; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 578 & 579/PN/09 (ASSTT. YEAR 2002-03 & 200 4-05) ADDL. CIT RANGE-1, PUNE .... APPELLANT VS. KALYANI BRAKES LTD. AURORA TOWERS, 4 TH FLOOR, 9, MOLEDINA ROAD, PUNE 411001 PAN NO. AAACK7312E . RESPONDENT APPELLANT BY : SHRI A.S. SINGH RESPONDENT BY : SHRI SUNIL PATHAK ORDER PER D. KARUNAKARA RAO AM THESE TWO APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-I PUNE, IDENTICALLY DATED 03/02/2009 FOR A.Y 2002-03 A ND 2004-05. GROUNDS ARE COMMON IN BOTH THE APPEALS AND THE GROUNDS RELATED TO THE A.Y 2002-03 ARE AS FOLLOWS:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(APPEALS) ERRED IN DELETING THE DISALLOWANCE MAD E ON ACCOUNT OF INCREMENTAL WARRANTY OF RS. 31,00,000/-. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(APPEALS) ERRED IN NOT CONSIDERING THE VIEW TAKE N BY THE ITAT, PUNE IN THE CASE OF THERMAX BABCOCK & WILCOX LTD. REPORTED IN 79 ITD 63 WHEREIN IT WAS HELD THAT SUCH PROVISION OF WARRANTY IS A CONTINGENT LIABILITY. 3) THE ORDER OF THE CIT(APPEALS), MAY BE VACATED AN D THAT OF THE A.O RESTORED. FROM THE ABOVE IT IS EVIDENT THAT THE ONLY EFFECT TO GROUND RELATES TO THE DELETION OF DISALLOWANCE MADE ON ACCOUNT OF INCREMENTAL WARRANT Y. 2. DURING THE PROCEEDINGS BEFORE US LD. COUNSEL FOR THE ASSESSEE FILED THE ORDER OF THE TRIBUNAL IN THE CASE OF KALYANI BRAKES LTD . FOR THE A.Y 2000-01 & ITA NO. 578 & 579/PN/09 A.Y: 2002-03 & 2004-05 PAGE 2 OF 4 2001-02 DATED 31/01/2008 VIDE ITA NO. 1018 & 1531/P N/2004 AND REFERRED TO PARA 8 AND 9 OF THE SAID ORDER FOR THE PROPOSITION THAT THE A.O MADE DISALLOWANCE RELYING ON PUNE BENCH DECISION OF THE T RIBUNAL IN THE CASE OF THERMAX BABCOCK & WILCOX LTD. 79 ITD 63 AND ISSUE WA S FINALLY SET ASIDE TO THE FILES OF THE A.O AS PER THE DISCUSSION GIVEN IN THE SAID PARAS. IT IS NOT KNOWN AS TO THE FATE OF THE DIRECTIONS OF THE TRIBUNAL VIDE TH E SAID ORDER. HOWEVER, THE ISSUE IS IDENTICAL IN THE YEARS UNDER CONSIDERATION. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE A.O. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEV ANT PARA IN THE ORDER FOR THE A.Y 2000-01 AND 2001-02 WHICH ARE AS FOLL OWS:- 8. THE NEXT ISSUE IS IN RESPECT OF PROVISION FOR WA RRANTY WHICH WAS RAISED IN GROUNDS NO. 4, 5 & 6 REPRODUCED BELOW:- IV) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ALLOWING PROVISIONS FOR WARRANT Y AMOUNTING TO RS. 13,00,000/- IGNORING THE FACT THAT ON THE SIMIL AR ISSUE, IN THE ASSESSEES OWN CASE FOR A.Y. 1998-2000, THE DISALLO WANCE MADE BY THE A.O WAS CONFIRMED BY THE CIT(A). V) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN NOT FOLLOWING THE ORDER OF HIS PRED ECESSOR ON THE SAME ISSUE FOR A.Y 1999-2000, WHILE THERE WAS NO MA TERIAL CHANGE IN THE FACTS OF THE CASE AND THE STAND TAKEN BY THE A.O THAT WARRANTY PROVISION IS A CONTINGENT LIABILITY, WAS C ONFIRMED BY HIM. VI) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NOT FOLLOWING THE DECISION OF PUNE ITAT IN THE CASE OF THERMAX BABCOCK & WILCOX LTD. (79 ITD 63), ON TH E SAME ISSUE WHEREIN IT WAS HELD THAT UNASCERTAINED LIABILITY IS NOT DEDUCTIBLE AS REVENUE EXPENDITURE. IN A BRIEF MANNER, THE A.O HAS MENTIONED THAT THE COM PANY HAS MADE AN INCREMENTAL PROVISION OF RS. 13,00,000/-, WHICH ACCORD ING TO HIM WAS A CONTINGENT LIABILITY TO BE DISALLOWED IN THE LIGHT OF AN ORDER OF THE PUNE TRIBUNAL VIZ., THERMAX BABCOCK & WILCOX LTD. 79 ITD 6 3. ACCORDINGLY, THE ADDITION WAS MADE WHICH WAS CHALLENGED. 9. BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS CONTES TED THAT THE PRODUCT WARRANTY COST WAS SCIENTIFICALLY DETERMINED BASED UPON THE PAST EXPERIENCE AS IT WAS PROVIDED IN THE YEAR OF SALE. BEF ORE LD CIT(A), THE BASIS HAS ALSO BEEN NARRATED THROUGH A COMPILATION. TH E LD. CIT(A) HAS CITED THE DECISION IN THE CASE OF VOLTAS LTD. 64 IT D 232 (BOM) WHICH WAS IN FAVOUR OF THE ASSESSEE. IT WAS ALSO POINTED OUR BY LD. CIT(A0 THAT THE DECISION OF THE RESPECT TRIBUNAL AS CITED BY THE A.O WAS ON THE SPECIFIC FACTS OF THAT CASE AND NOT APPLICABLE ON THE FACTS OF THE APPELLANT. WITH THESE REMARKS, THE CLAIM OF THE APPELLANT WAS ALLOWED . WITH THIS BRIEF BACKGROUND, WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES. IN ASSESSEES OWN CASE, ITAT B BENCH, PUNE, FOR A.Y 1 998-99 AND 2000-01, BEARING ITA NO. 719/PN/2001 AND 1044/PN/04 VIDE AND ORDER DATED 30 TH APRIL 2006 HAS CONSIDERED THIS ISSUE OF WARRANTY CLAIM IN PARA 2.2 TO 2.4, REPRODUCED BELOW:- ITA NO. 578 & 579/PN/09 A.Y: 2002-03 & 2004-05 PAGE 3 OF 4 2.2 WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE T HROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE AO HAS DISALL OWED THE WARRANTY PROVISION BY CONSIDERING THE SAME AS OF CO NTINGENCY IN NATURE, WHICH WAS UPHELD BY THE CIT(A) ON SIMILAR G ROUNDS. 2.3 IN THE COURSE OF HEARING BEFORE US, IT WAS POIN TED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE HONBLE ITAT, PUNE BENCH, PUNE IN TH E FOLLOWING CASES BY HOLDING THAT THE PROVISION FOR WARRANTY EX PENSES ARE TO BE ALLOWED AS DEDUCTION IN THE LINE OF GUIDELINES GIVE N BY THE TRIBUNAL IN ITS RESPECTIVE ORDERS:- 1) DCIT, CIRCLE 1(1), PUNE VS. KIRLOSKAR COPELAND L TD., PUNE, ITA NO. 1047/PN/03 FOR A.Y 1999-00, DATED 16.06.2006. 2) KIRLOSKAR COPELAND LTD. VS. DCIT, ITA NOS. 617 T O 619/PN/00 AND 1100/PN/01 FOR AY 19995-96 TO 1997-98 AND 1998-99, DATED 21.02.2006. 3. DCIT VS. KIRLOSKAR CUMMINS LTD. PUNE, ITA NO. 255/PN/93, FOR AY 1989-90, DATED 21.06.2005. THE WARRANTY PROVISION HAS ALSO BEEN ALLOWED AS DED UCTION AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. M/S. VINITEE CORPORATION P. LTD., 278 ITR 337 WHERE THE DECISION OF PRIVY COUNCIL IN THE CASE OF COMMISSIONERS OF INLAND REVE NUE VS. MITSUBISHI NEW ZEALAND LTD., [19960 222 ITR 697 (PC ) HAS BEEN REFERRED TO. 2.4 IN THE LIGHT OF THE AFORESAID DECISIONS, WE THE REFORE, RESTORE THIS MATTER TO THE FILE OF THE AO TO DETERMINE THE ACTUAL AMOUNT OF WARRANTY PROVISION THAT IS TO BE ALLOWED AS DEDUCTI ON BASED ON THE PAST EXPERIENCE OF WARRANTY EXPENSES IN THE CASE OF THE ASSESSEE. THE ASSESSEE SHALL SUBMIT THE RELEVANT DETAILS OF A CTUARIAL VALUATION OF WARRANTY PROVISION BASED ON PAST EXPERIENCE, WHI CH SHALL BE EXAMINED AND VERIFIED BY THE AO AND SHALL DETERMINE THE ACTUAL AMOUNT OF WARRANTY PROVISION TO BE ALLOWED AS DEDUC TION. WE HOLD ACCORDINGLY. AN ANOTHER DECISION OF ITAT A BENCH, PUNE, WAS ALS O CITED IN THE CASE OF KIRLOSKAR CUMMINS LTD., PUNE, ITA NO. 255/PN/93, A.Y 1989-90, ORDER DATED 21 ST JUNE 2005, WHEREIN VIDE PARA 9 AND 9.1, IT WAS HELD AS UNDER:- 9. WE FIND THAT IN THE CASE OF M/S. MAHARASHTRA SC OOTERS LTD., PUNE, IN ITA NO. 690/PN/1994 FOR AY 1989-90 DATED 2 3-2-2005 IT WAS HELD BY THE ITAT, PUNE THAT THE PROVISION MADE BY THE ASSESSEE FOR THE LIABILITY IN RESPECT OF THE WARRAN TY CLAIMS WAS NOT CONTINGENT IN NATURE AND WAS ALLOWABLE. THIS DECISI ON OF THE TRIBUNAL WAS BASED ON THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT (2000) 245 ITR 428(SC). 9.1 THEREFORE, FOLLOWING THE ABOVE MENTIONED DECISI ON OF THE ITAT PUNE, WHILE THE ASSESSEE MAY BE ALLOWED TO CHA NGE THE METHOD OF ACCOUNTING FROM CASH TO ACCRUAL IN RE SPECT OF THE CLAIM FOR WARRANTY EXPENSES FOR AND FROM AY 1989-90 THE Q UANTIFICATION OF THE LIABILITY HAS TO BE DONE ON THE FOLLOWING LI NES; ITA NO. 578 & 579/PN/09 A.Y: 2002-03 & 2004-05 PAGE 4 OF 4 I) THE ALLOWABLE LIABILITY FOR A PARTICULAR YEAR SH OULD BE ONLY IN RELATION THE SALES MADE IN THAT YEAR AND SHOULD BE ESTIMATED ON A REASONABLE BASIS TAKING INTO CONSIDERATION THE RELE VANT FIGURES RELATING TO THE CLAIMS SETTLED IN EARLIER YEARS; II) IF OUT OF THE PROVISION MADE IN A PARTICULAR YE AR IN RESPECT OF THE SALES MADE I THAT YEAR, ANY SURPLUS IS FOUND IN THE SUBSEQUENT YEA(S) THEN THAT SURPLUS WOULD BE OFFERED FOR TAX. SIMILARLY IF THERE IS A SHORTAGE IT WILL BE ALLOWED. III) THE SURPLUS OR SHORTAGE IN RELATION TO THE PRO VISION MADE IN A PARTICULAR YEAR WILL HAVE TO BE WORKED OUT ONLY W ITH REFERENCE TO THE SALES MADE IN THAT PARTICULAR YEAR AND THE ASSE SSEE WILL HAVE TO PRODUCE THE RELEVANT RECORDS BEFORE THE A.O FOR VER IFICATION. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE CO-ORDI NATE BENCHES, WE HEREBY DIRECT THE A.O TO EXAMINE AFRESH AND DETERMI NE THE ACCRUED LIABILITY IN RESPECT OF THE WARRANTY PROVIS ION ON THE BASIS OF THE GUIDELINES NARRATED ABOVE . NEEDLESS TO SAY AFTER PROVIDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE, SO THAT THE REQUISITE DETAILS CAN BE FURNISHED. THESE GROUNDS MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 4. CONSIDERING THE ABOVE, IN THE ABSENCE OF ANY FIND INGS OF THE A.O IN THOSE ASSESSMENT YEARS ON THE SAID DIRECTION OF THE TRIBUNAL FOR THOSE YEARS, WE ARE OF THE OPINION THAT INSTANT ISSUE OF BOTH THE YEARS SHO ULD ALSO BE SET ASIDE WITH IDENTICAL DIRECTION TO THE FILES OF THE A.O FOR FRESH EXAMINATION. IT IS NEED LESS TO SAY THAT THE ASSESSEE MUST BE GIVEN OPPORTUNITY OF B EING HEARD AS PER THE ESTABLISHED PRINCIPLES OF NATURAL JUSTICE. ACCORDINGL Y, GROUNDS IN BOTH THE APPEALS ARE SET ASIDE. 5. IN THE RESULT APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 12 TH NOVEMBER, 2010. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 12 TH NOVEMBER, 2010 R COPY OF THE ORDER IS FORWARDED TO : 1. ADDL. CIT, RANGE-1, PUNE 2. ASSESSEE 3 CIT(A)-I, PUNE 4 CIT-I, PUNE 5 D.R. ITAT B BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE