DCIT CIR 2, KALYAN V. MEDIRAYAS CORPORATION, THANE

ITA 6220/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6940 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 21-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR P DANIEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRIN.K. PRADHAN, ACCOUNTANT MEMBER ITA NOS.6218 TO 6220/MUM/2016 (ASSESSMENT YEARS:2008-09 TO 2010-11) DCIT, CIRCLE - 2 2ND FLOOR, MOHAN PLAZA KHADAKPADA, WAYALE NAGAR KALYAN (W) 421301 VS. M/S. MEDIRAYS CORPORATION B-9, RUKMA UDGOY NAGAR MUMBAI-NASHIK ROAD NH-3, OPP. ASANGAON TALUKA SHAHPUR, THANE PAN AAGFM2401F APPELLANT RESPONDENT APPELLANT BY: SHRI SAURABH KUMAR RAI RESPONDENT BY: DR. P. DANIEL DATE OF HEARING: 15.05.2018 DATE OF PRONOUNCEMENT: 23.05.2018 O R D E R PER BENCH THE AFORESAID APPEALS OF REVENUE ARE DIRECTED AGAIN ST THREE SEPARATE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-3, T HANE DATED 01.07.2016 PERTAINING TO ASSESSMENT YEARS 2008-09, 2009-10 AND 2010-11. 2. THE COMMON ISSUE ARISING FOR CONSIDERATION IN THE P RESENT APPEALS RELATES TO DELETION OF ADDITION MADE BY THE ASSESSI NG OFFICER (AO) ON ACCOUNT OF PROVISION OF WARRANTEE EXPENSES. 3. THE FACTS RELATING TO THE ISSUE IN DISPUTE IN THE I MPUGNED ASSESSMENT YEARS ARE MORE OR LESS IDENTICAL, EXCEPT , THE QUANTUM OF DISALLOWANCE. BRIEFLY STATED, ASSESSEE A COMPANY, I S ENGAGED IN THE BUSINESS OF REPAIRING, REFURBISHING, SALE AND INSTA LLATION OF MEDICAL EQUIPMENTS. DURING THE ASSESSMENT PROCEEDINGS THE A O NOTICING THAT THE ASSESSEE HAS REDUCED CERTAIN AMOUNT FROM THE SALES TURNOVER CLAIMING THEM TO BE PROVISION FOR WARRANTEE AND GUARANTEE CA LLED UPON THE ASSESSEE TO FURNISH NECESSARY DETAILS RELATING TO SUCH CLAIM . AFTER VERIFYING THE ITA NOS. 6218 TO 6220/MUM/2016 M/S. MEDIRAYS CORPORATION 2 DETAILS FURNISHED BY THE ASSESSEE HE FOUND THAT THE PROVISIONS MADE FOR WARRANTEE AND GUARANTEE WORKS OUT TO 10% OF THE TUR NOVER. HE ALSO WAS OF THE VIEW THAT THE DEDUCTIONS CLAIMED BY THE ASSESSE E ARE PURELY IN THE NATURE OF PROVISION. THEREFORE, HE CALLED UPON THE ASSESSEE TO JUSTIFY THE ALLOWABILITY OF DEDUCTION CLAIMED ON ACCOUNT OF PRO VISIONS FOR WARRANTY AND GUARANTEE. IN RESPONSE, IT WAS SUBMITTED BY THE ASS ESSEE THAT THE PROVISION FOR WARRANTEE IS CREATED ON ACCRUAL BASIS ON THE LAST DAY OF EACH YEAR AND IS ARRIVED AT ON THE BASIS OF THE EARLIER EXPERIENCE WITH THE CUSTOMERS. ACTUAL WARRANTY RELATED EXPENSES INCURRE D ARE ADJUSTED AGAINST THE PROVISIONS. THE PROVISION IS GENERALLY KEPT FOR TWO YEARS AND THEREAFTER THE BALANCE, IF ANY, IS WRITTEN BACK. THEREFORE, IT WAS SUBMITTED THAT THE PROVISION FOR WARRANTEE IS AN ACCRUED EXPENDITURE. THE AO HOWEVER, WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND BEING OF THE VIEW THAT THE DEDUCTION CLAIMED ON ACCOUNT OF WARRANTEE AND GUARANTEE IS IN THE NATURE OF A PROVISION IS NOT ALLOWABLE AND ADDE D BACK TO THE INCOME OF THE ASSESSEE. SIMILAR ADDITIONS WERE MADE IN THE OT HER ASSESSMENT YEARS ALSO. BEING AGGRIEVED OF SUCH ADDITIONS MADE BY THE AO ASSESSEE PREFERRED APPEALS BEFORE THE CIT(A). 4. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE IN THE CONTEXT OF THE FACTS AND MATERIAL ON RECORD AS WELL AS TAKING NOTE OF THE FACT THAT IDENTICAL CLAIM MADE BY THE ASSESSEE TOWARDS PROVISION FOR WARRANTEE EXPENSES WAS ALLOWED BY HIM IN ASSESSEES OWN CASE FOR A.Y. 2011-12, FOLLOWED THE SAME AND ALLOWED ASSESSEES C LAIM OF DEDUCTION IN ALL THESE YEARS. AGGRIEVED, REVENUE IS IN APPEAL BE FORE US. 5. WE HAVE HEARD THE PARTIES. AT THE VERY OUTSET LEARN ED COUNSELS APPEARING FOR BOTH THE PARTIES HAVE SUBMITTED BEFOR E US THAT WHILE DECIDING IDENTICAL ISSUE ARISING IN REVENUES APPEA L IN ASSESSEES OWN CASE FOR A.Y. 2011-12, THE TRIBUNAL HAS UPHELD THE ORDER OF THE CIT(A) IN ALLOWING ASSESSEES CLAIM OF DEDUCTION TOWARDS PROV ISION FOR WARRANTEE AND GUARANTEE. A COPY OF THE ORDER PASSED BY THE TRIBUN AL IN ITA NO. 190/MUM/2016 DATED 22.03.2017 WAS ALSO PLACED BEFOR E THE BENCH. ON A PERUSAL OF THE AFORESAID ORDER OF THE TRIBUNAL IT I S NOTED THAT WHILE DECIDING ITA NOS. 6218 TO 6220/MUM/2016 M/S. MEDIRAYS CORPORATION 3 IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR A.Y. 201 1-12 THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM OBSERVING 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 H ONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS (INDIA) LTD (S UPRA) 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 PROVIDE D FOR DURING THE INSTANT YEAR. THE LD CIT(A) HAS ALSO TAKEN INTO ACC OUNT THE FACT THAT THE MACHINERY SOLD BY THE ASSESSEE ARE IMPORTED SEC OND HAND MACHINES AND HENCE THEY MAY REQUIRE FREQUENT ATTEND ANCE/REPAIRS. SINCE THE ASSESSEE HAS BEEN DECLARING PROFITS AT A HIGHER LEVEL YEAR AFTER YEAR, THE LD CIT(A) HAS ALSO OBSERVED THAT TH E CREATION OF PROVISION AND REVERSAL OF THE SAME ARE REVENUE NEUT RAL. IN ANY CASE, A BUSINESS MAN WOULD PROVIDE FOR SUCH WARRANTY CLAIMS ON ESTIMATED BASIS FOR POSSIBLE CLAIMS ONLY AND IT IS NOT NECESS ARY THAT THE PROVISION SO MADE SHOULD BE FULLY SPENT. THE ACTUAL EXPENDITURE WOULD DEPEND UPON THE WARRANTY CLAIMS ACTUALLY LODG ED BY THE CUSTOMERS, WHICH MAY VARY YEAR AFTER YEAR. IN THE I NSTANT CASE, IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS PROVID ED FOR AMOUNT AT AN EXCESSIVE FIGURE IN ORDER TO SUPPRESS THE PROFIT S. 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. AC CORDINGLY WE UPHOLD THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 6. IT HAS ALSO BEEN SUBMITTED BEFORE US BY THE LEARNED COUNSELS APPEARING FOR THE PARTIES THAT THERE IS NO FACTUAL DIFFERENCE BETWEEN A.Y. 2011-12 AND THE IMPUGNED ASSESSMENT YEARS. THAT BEI NG THE CASE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E COORDINATE BENCH IN ASSESSEES OWN CASE, WE UPHOLD THE ORDER OF THE LEA RNED CIT(A) BY DISMISSING THE GROUNDS RAISED IN ALL THESE APPEALS. 7. IN THE RESULT, THE APPEALS FILED BY REVENUE ARE DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MAY, 2018. SD/ - SD / - (N.K. PRADHAN) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 23 RD MAY, 2018 ITA NOS. 6218 TO 6220/MUM/2016 M/S. MEDIRAYS CORPORATION 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -3, THANE 4. THE PR. CIT- III, THANE 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.