D.C.I.T. RG.8(3), MUMBAI V. SULZER INDIA LIMITED, PUNE

ITA 6740/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9023 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Opportunity of being heard
• Section: 143(3); 260A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI N.K. BILLAIYA (A.M.) ITA NO. 6740/MUM /2011 ASSESSMENT YEAR : 2007-08 THE ASSTT. COMMISSIONER OF INCOME-TAX- 8(3), ROOM NO. 217, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI 400 020. VS. M/S SULZER INDIA LIMITED, GATE NO. 304, AT KONDHAPURI, SHIRUR, PUNE 421 209. PAN AABCV1069Q (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI V. KRISHNAMOORTHY ASSESSEE BY : SHRI RONAK G. DOSHI DATE OF HEARING 06-9-2012 DATE OF PRONOUNCEMENT 14.09.2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DTD. 5-7-2011PASSED BY THE LD. CIT(A) 18,MUMBAI F OR THE A.Y. 2007-08. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING HITECH ENG INEERING EQUIPMENT AND COMPONENTS THEREOF. THE RETURN WAS FILED DECLA RING TOTAL INCOME OF RS. 17,25,10,100/- AND BOOK PROFIT AT RS. 12,97,22, 815/-. HOWEVER THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 18,25, 36,140/- UNDER THE NORMAL PROVISIONS OF THE ACT INCLUDING THE DISALLOW ANCE OF PROVISION FOR ITA NO. 6740/MUM/2011 2 WARRANTY EXPENSES OF RS. 88,57,343 AND PROVISION FO R LEGAL AND PROFESSIONAL FEES RS. 11,68,698/- VIDE ORDER DTD. 2 2-11-2010 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON AP PEAL THE LD. CIT(A) WHILE DELETING THE ABOVE DISALLOWANCES, PARTLY ALLO WED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL :- O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 88,57,343/- O N ACCOUNT OF PROVISION OF WARRANTY. O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) ERRED IN NOT APPRECIATING THAT THE PROVISION IS NOT CRYSTALISED AND HENCE IS IN THE NATURE OF CONTINGENT LIABILITY AND CONSEQ UENTLY NOT ALLOWABLE. O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) ERRED IN DIRECTING THE A.O. TO EXCLUDE PROVISION OF WARRANTY OF RS. 88,57,343/- AND PROVISION FOR LEGAL AND PROFESSIONA L EXPENDITURE OF RS. 11,68,698/- FOR COMPUTING BOO PROFIT U/S 115JB. 4. BRIEF FACTS IN RESPECT OF DISALLOWANCE OF PROVISION FOR WARRANTY RS. 88,57,343/- ARE THAT IT HAS BEEN OBSERVED BY THE A. O. THAT THE ASSESSEE COMPANY HAS DEBITED THE SAID EXPENSES TO ITS P&L AC COUNT. THE A.O. FURTHER OBSERVED THAT THE SAID ISSUE HAS BEEN DISCU SSED AT LENGTH IN THE ASSESSMENT ORDER FOR THE A.Y. 2006-07 WHEREIN THE P ROVISION FOR WARRANTY WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. HE FURTHER OBSERVED THAT FOR THE A.Y. 1998-99 AND 1999 -2000 SUCH DISALLOWANCE WAS DULLY CONFIRMED BY THE LD. CIT(A). ON APPEAL, HOWEVER, THE TRIBUNAL ALLOWED THE ASSESSEES APPEAL BUT THE REVENUE HAS FILED APPEAL U/S 260A OF THE INCOME TAX ACT, 1961 (THE AC T) BEFORE THE HONBLE ITA NO. 6740/MUM/2011 3 JURISDICTIONAL HIGH COURT WHICH WAS DISMISSED ON TE CHNICAL GROUNDS OF DELAY. HE FURTHER OBSERVED THAT THE DEPARTMENT HAS FILED APPEAL FOR A.Y. 2004-05 AGAINST THE ORDER OF THE LD. CIT(A) ON THE SAME ISSUE WHICH IS PENDING BEFORE THE LD. CIT(A). IN THIS BACK GROUND THE A.O. ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY PROVISIONS FOR PRO DUCT WARRANTIES MADE DURING THE RELEVANT PREVIOUS YEAR SHOULD NOT B E DISALLOWED AS IN THE ASSESSMENT ORDERS FOR THE EARLIER ASSESSMENT YE ARS. IN RESPONSE, THE ASSESSEE FILED ITS REPLY DTD. 12-11-2010 WHICH HAS BEEN REPRODUCED BY THE A.O. AT PAGE 3 TO 6 OF THE ASSESSMENT ORDER WHE REIN IT HAS BEEN INTER ALIA SUBMITTED BY THE ASSESSEE THAT THE LIABILITY T O CARRY OUT REPAIRS/REPLACEMENT OR MAKE GOOD FOR SHORT SUPPLIES ACCRUES ON THE DATE WHEN THE SALES IS EFFECTED AND HENCE IT IS AN INBUI LT LIABILITY ACCRUED IN RESPECT OF WARRANTY SERVICES AND SUCH LIABILITY IS DEFINITE ASCERTAINABLE ONE AND CANNOT BE IN THE NATURE OF A CONTINGENT LIA BILITY. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE SUPREME COURT IN ROTORK CONTROLS INDIA (P) LIMITED VS. CIT (2009) 314 ITR 62 (SC) AND OTHER DECISIONS OF THE TRIBUNAL INCLUDING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE. HOWEVER, THE A.O. IN THE ABSE NCE OF ANY SPECIFIC DETAILS TO JUSTIFY THE CLAIM OF PROVISION MADE FOR WARRANTY AND KEEPING IN VIEW THE STAND TAKEN BY THE DEPARTMENT IN EARLIER Y EARS, DISALLOWED THE PROVISION FOR WARRANTIES RS. 88,57,343/- AND ADDED TO THE TOTAL BOOK PROFIT OF THE ASSESSEE COMPANY UNDER NORMAL PROVISI ONS OF THE ACT AND U/S 115 JB OF THE ACT. ITA NO. 6740/MUM/2011 4 5. AS REGARDS THE CLAIM OF PROVISION FOR LEGAL AND PROFESSIONAL FEES, THE A.O. OBSERVED THAT THE ASSESSEE COMPANY HAS CLA IMED A SUM OF RS. 66,75,609/- ON ACCOUNT OF LEGAL AND PROFESSIONAL FE ES INCURRED DURING THE YEAR. THE A.O. FURTHER OBSERVED THAT THE SAID EXPENSES INCLUDES A SUM OF RS. 11,68,698/- WHICH IS NOTHING BUT PROVISI ON MADE BY THE ASSESSEE COMPANY. THE A.O. FURTHER OBSERVED THAT I N VIEW OF THE ESTABLISHED PRINCIPLE OF LAW, THE AFORESAID PROVISI ON IS NOT ALLOWABLE AND ACCORDINGLY HE DISALLOWED THE SAME AND ADDED BACK T O THE TOTAL INCOME OF THE ASSESSEE COMPANY UNDER NORMAL PROVISIONS OF THE ACT AND U/S 115JB OF THE ACT. 6. ON APPEAL, THE LD. CIT(A) WHILE RELYING ON THE D ECISION OF THE HONBLE SUPREME COURT IN ROTORK CONTROLS INDIA (P) LIMITED (SUPRA) AND THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, D ELETED THE DISALLOWANCE OF WARRANTY EXPENDITURE OF RS. 88,57,343/-. THE LD . CIT(A) ALSO DELETED THE DISALLOWANCE OF ADDITION OF LEGAL AND PROFESSIO NAL FEES RS. 11,68,698/- ON THE GROUND THAT PROVISION WAS MADE O N BEST ESTIMATE BASIS AND AN ASCERTAINED LIABILITY AS THE SERVICES HAVE ALREADY BEEN RENDERED. 7. AT THE TIME OF HEARING THE LD. D.R. ON BOTH THE ISSUES SUPPORTS THE ORDER OF THE A.O. 8. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITS THAT THE DIS ALLOWANCE OF PROVISION ITA NO. 6740/MUM/2011 5 FOR WARRANTY RS. 88,57,343/- IS COVERED IN FAVOUR O F THE ASSESSEE BY THE FOLLOWING DECISIONS:- - ROTORK CONTROLS INDIA (P) LTD. V. CIT (2009) 314 I TR 62 [SC] - HADEN INTERNATIONAL GROUP INDIA PVT. LTD. (20 SO T 305) (MUM) ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE:- A.Y . ITA NO. ORDER DT. RELEVANT PARA NO. 1998-99 2790/M/03 1-09-2006 PARA 5 PAGE NO.2 1999-10 5047/M/03 6-11-2006 PARA 2 PAGE NO. 1 2000-01 3677/M/04 28-11-2008 PARA 22 PAGE NO. 7 & & & 2001-02 8219/M/04 PARA 36 PAGE NO. 10 HE FURTHER SUBMITS THAT IN A.Y. 2002-03 THE PROVISI ON FOR WARRANTY MADE BY THE ASSESSEE WAS ALLOWED BY THE A.O. IN THE ASSE SSMENT ITSELF AND ACCORDINGLY THERE WAS NO DISALLOWANCE IN A.Y. 2002- 03 IN RESPECT OF THE SAME. 9. ON THE ADDITION OF THE SAME AMOUNT TO THE BOOK P ROFIT, THE LD. COUNSEL FOR THE ASSESSEE WHILE RELYING ON THE ABOVE DECISIONS ALSO RELIED ON THE FOLLOWING DECISIONS:- - APOLLO TYRES V. CIT (255 ITR 273)(SC) AND - CIT VS. LUK INDIA PVT. LTD. (20 TAXMANN.COM 556)( MAD). 10. AS REGARDS THE DELETION OF ADDITION OF RS.11,68 ,698/- ON ACCOUNT OF PROVISIONS MADE FOR LEGAL AND PROFESSIONAL FEES, TH E LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE PARTIES NAMES WERE KNOWN TO THE ASSESSEE AND ITA NO. 6740/MUM/2011 6 THE NATURE OF SERVICES TO BE RENDERED BY THE M WERE ALSO DETERMINED. THE SAID SERVICES PERTAINS TO THE ASSESSMENT YEAR 2 007-08 AS PER THE DETAILS APPEARING AT PAGE 4 OF THE ASSESSEES PAPER BOOK. HE, THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) IN DELETING THE DISALLOWANCE BE UPHELD. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE F IND MERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE OF PROVISION OF WARRANTY IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE. THE TRIBUNAL VIDE COMBINED ORDER DTD. 28-11-2008 (SUPRA) HAS OBSERVED AND HELD AS UNDER:- AT THE OUTSET IT WAS SUBMITTED THAT THE ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE BY THE HONBLE ITAT FOR ASSESSMENT YEARS 1998-99 AND 1999-2000. THE ORDER OF THE HON BLE ITAT IN ITA NO. 2790/MUM/2003 FOR ASSESSMENT YEAR 1998-99 IS AS UND ER:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PER USED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE CONT ENTION OF THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY CAN DEB IT THE EXPENDITURE RELATING TO THE SALES WARRANTY DIRECTLY TO THE P&L ACCOUNT IS NOT ACCEPTABLE WHEN THE ASSESSEE IS ESTI MATING THE WARRANTY LIABILITIES ON THE BASIS OF SOME SCIENTIFI C METHOD AND THE SAME SYSTEM IS FOLLOWING SINCE SEVERAL YEARS. THE ASSESSING OFFICER IS NOT JUSTIFIED TO ADD THE PROVISIONS MADE DURING YEAR UNDER DISPUTE. IT IS FURTHER OBSERVED THAT THE ASS ESSEE IS CREDITING EXCESS PROVISION TO THE PROFIT AND LOSS ACCOUNT AS AND WHEN THE PROVISIONS IS EXISTED THAT THE REQUIRED. UNDER THES E CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHICH IS IN ACCORDANCE WITH THE VARIOUS TRIBUNAL DE CISIONS. THIS GROUND OF THE REVENUE THEREFORE, FAILS. RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISIO N WE REJECT THE GROUND OF THE REVENUE. ITA NO. 6740/MUM/2011 7 IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGH T ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE CONSISTENT V IEW OF THE TRIBUNAL, DECLINE TO INTERFERE WITH THE ORDER PASSED BY THE L D. CIT(A) ON THIS ACCOUNT AND ACCORDINGLY THE GROUNDS TAKEN BY THE RE VENUE IN THIS REGARD ARE REJECTED. 12. AS REGARDS THE DELETION OF ADDITION OF RS. 11,6 8,698/- ON ACCOUNT OF PROVISION MADE FOR LEGAL AND PROFESSIONAL FEES, WE FIND THAT THE ASSESSEE WHILE MAKING THE CLAIM OF THE PROVISION OF SUCH EXPENSES HAS NOT PLACED ON RECORD ANY SUPPORTING MATERIAL EXCEPT A CHART APPEARING AT PAGE 4 OF THE ASSESSEES PAPER BOOK. IN THE ABSENC E OF ANY SUCH DOCUMENTARY EVIDENCE WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE, THE MATTER SHOULD GO BACK TO THE FILE OF THE A.O. A ND ACCORDINGLY, WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF THE A.O. TO DEC IDE THE SAME AFRESH IN THE LIGHT OF OUR OBSERVATIONS HEREINABOVE AND ACCOR DING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN BY THE REVENUE IN THIS REGARD ARE, TH EREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 6740/MUM/2011 8 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 14.09.2012 SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED : 14.09.2012 RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 18, MUMBA I 4. COMMISSIONER OF INCOME TAX 8 MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH E, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI