M/s. Integra Engineering India Ltd., Panchmahal V. The ACIT., Circle-1(1)(2), , Vadodara

ITA 806/AHD/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2189 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-09-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 31-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIRAT BHAVSAR
• Keywords: Business income
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 806/AHD/2017 (ASSESSMENT YEAR: 2013-14) INTEGRA ENGINEERING INDIA LTD. P.O. BOX NO. 55, CHANDRAPURA VILLAGE, HALOL, PANCHMAHAL-389350 V/S ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1)(2), VADODARA (APPELLANT) (RESPONDENT) PAN: AABCS 8347Q APPELLANT BY : SHRI VIRAT BHAVSAR, AR RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. ( )/ ORDER DATE OF HEARING : 05 -09-201 9 DATE OF PRONOUNCEMENT : 28 -11-2019 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-1, VADODARA DATED 05.01.2017 PERTAINING TO A .Y. 2013-14 AND ASSESSEE HAS TAKEN SOLITARY GROUND: ITA NO. 806/ AHD/2017 . A.Y. 2013-1 4 2 1. THE LEARNED COMMISSIONER OF INCOME TAX, (APPEALS) - 1, VADODARA ('THE CIT(A)') ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(2), VADODAR A ('THE AO') IN DISALLOWING PROVISION FOR WARRANTY AMOUNTING TO RS. 11,65,000 C LAIMED U/S 37(1) OF THE INCOME TAX ACT, 1961 ('THE ACT'). 2. BRIEF FACTS AS EMANATED FROM THE ASSESSMENT ORDER: 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT W AS NOTICED THAT ASSESSEE HAS SHOWN PROVISIONS FOR WARRANTY IN SECHDULES.9 TO BALANCE SHEET OF RS. 11,65,000/-. THEREFORE, VIDE SHOW CAUSE NOTICE DATE D 20.01.2016, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE PROVISIONS SH OULD NOT 'BE DISALLOWED AND ADDED TO THE TOTAL INCOME. IN RESPONSE, THE ASSESSE E'S AUTHORIZED REPRESENTATIVE VIDES SUBMISSION DATED 25.01.2016 HAS SUBMITTED ITS REPLIES AS UNDER: WITH RESPECT TO THE SAME, WE SUBMIT THAT THE WARRA NTY PROVISION HAS BEEN MADE WITH RESPECT TO THE PRODUCTS PROVIDED SUCH AS RELAY S AS A PART OF THE COMPANY'S POLICIES AND PAST EXPERIENCE. FURTHER, WE SUBMIT TH AT THE ASSESSEE COMPANY HAD EXPERIENCED CASES INVOLVING WARRANTY EXPENDITURE IN THE PAST YEARS ON THE PRODUCTS; WE INVITE YOUR KIND ATTENTION THAT THE AS SESSEE: COMPANY FOLLOWS THE POLICY OF REVERSING THE OPENING PROVISION ALONG WIT H THE QUARTERLY PROVISION, IF ANY. EVENTUALLY, THE PROVISION FOR THE YEAR UNDER CONSID ERATION IS PROVIDED AFTER REVERSAL OF THE EARLIER PROVISIONS. THUS, THE P&L A CCOUNT IS CREDITED/DEBITED WITH THE DECREMENT OR INCREMENT AMOUNT AS THE CASE MAY B E. WE WOULD LIKE TO DRAW YOUR ATTENTION TO THE FACT THAT AGAINST THE SALES O F PRODUCT OF RS.11,69,97,105/- THE WARRANTY PROVISION OF RS.11,69,971/- HAS BEEN P ROVIDED FOR DURING THE YEAR UNDER CONSIDERATION, LOOKING TO THE NATURE OF WORK EXECUTED BY THE ASSESSEE COMPANY WITH THE GOVERNMENT DEPARTMENT, THE ASSESSE E HAS MADE PROVISION FOR WARRANTY AS PER THE INDUSTRY AVERAGE AT 1% OF TOTAL SALES WHICH IS REASONABLE AND THEREFORE WE SUBMIT THAT NO ADVERSE VIEW SHOULD BE TAKEN. THE SUBMISSION OF THE ASSESSEE IS CONSIDERED BUT FO UND NOT ACCEPTABLE. IN GENERAL WARRANTY IS DEFINED AS 'A TYPE OF GUARANTEE THAT A MANUFACTURER OR SIMILAR PARTY MAKES REGARDING THE CONDITION OF ITS PRODUCT. IT ALSO REFERS TO THE ITA NO. 806/ AHD/2017 . A.Y. 2013-1 4 3 TERMS AND SITUATIONS IN WHICH REPAIRS OR EXCHANGES WILL BE MADE IN THE EVENT THAT THE PRODUCTS DO NOT FUNCTION AS ORIGINALLY DESCRIBE D OR INTENDED'. 4.2 THUS FROM THE ABOVE, IT IS CLEAR THAT THE WARRA NTY IS GIVEN ONLY ON TERMS SITUATION IN WHICH REPAIRS OR EXCHANGES WILL BE MAD E IN THE EVENT THAT THE PRODUCTS DOES NOT FUNCTION, ASSESSEE HAS SIMPLY SUB MITTED THAT COMPANY HAS MADE PROVISION OF RS. 11,65,000/-. IT IS ALSO PERTI NENT TO NOTE THAT ON WHAT BASIS THE ASSESSEE HAS MADE THE PROVISIONS OF RS, 11,65,0 00/- IS NOT KNOWN. THE WORKING OF THE FIGURES OR QUANTUM OF THE PREVISIONS FOR WARRANTY HAS TO BE RATIONAL AND SCIENTIFIC. THE AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE CONTENDED THAT THE COMPANY IS EXPECTING CLAIMS ON THE PRODUCTS SOLD AN D THEREFORE CREATED PROVISION. THEREFORE, IT IS TO BE CONTINGENT LIABIL ITY. 4.3 THE SUBMISSION MADE IS CONSIDERED BUT FOUND NOT TENABLE. NO BASIS OF VALUATION AS HOW THE FIGURE OF RS, 11,65,000/- WAS ARRIVED FOR PROVISION. THERE SHOULD BE TERMS AND CONDITIONS OF WARRANTY. NO DETA ILS OF THE PRODUCTS AND THEIR WARRANTY WITH TERMS AND CONDITIONS WERE SUBMITTED, THE ASSESSEE HYPOTHETICALLY CLAIMS THE FIGURE OF RS, 11,65,000/- WITHOUT ANY CO NCRETE BASIS, MOREOVER, ONLY ASCERTAINED LIABILITY CAN BE CLAIMED AS PROVISION. THE CLAIM OF THE ASSESSEE THAT IN FUTURE RS, 11,65,000/- WILL ARISE WITHOUT ANY BA SIS IS NOT ACCEPTABLE. AS MENTIONED SUPRA, IT DEPENDS ON THE TERMS AND CONDIT IONS AND THAT TO IF CERTAIN EVENTS TAKE PLACE, IN VIEW OF THE ABOVE, AND CONSID ERING THE FACTS IN THE CASE OF ASSESSEE, THE AMOUNT OF RS, 11,65,000/- IS DISALLOW ED U/S 37(1) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. THEREAFTER AGAINST THE ADDITION OF RS. 11,65,000/-, ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO CONFIRME D THE ACTION OF THE LD. A.O. 4. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. ASSESSEE IS A PRIVATE LIMITED COMPANY AND HAS SHOWN PROVISIONS FO R WARRANTY IN SCHEDULES, 9 TO BALANCE SHEET OF RS. 11,65,000/- . AND ASSESS EE CONTENTION IS THAT COMPANYS EXPECTING CLAIMS ON THE PRODUCT SOLD AND THEREFORE CREDIT PROVISIONS ITA NO. 806/ AHD/2017 . A.Y. 2013-1 4 4 FOR ITS CONTINGENT LIABILITY AND DETAILS HAVE BEEN SUBMITTED AT PAGE NO. 29 OF THE PAPER BOOK WHEREIN IT IS MENTIONED THAT WARRANTY CO ST ARE ESTIMATED BY THE MANAGEMENT ON THE BASIS OF TECHNICAL EVALUATION AND PAST EXPERIENCE PROVISIONS MADE FOR ESTIMATED LIABILITY IN RESPECT OF WARRANTY COST IN THE YEAR OF RECOGNITION OF REVENUE. 5. IN SUPPORT OF ITS CONTENTION, ASSESSEE HAS CITED DE CISION OF ROTORK CONTROLS INDIA (P.) LTD. (SUPRA) WHEREIN IT IS HELD THAT PRO VISION IS LIABILITY WHICH CAN BE MEASURED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTI MATION. TAKING NOTE OF THE NATURE OF THE BUSINESS, THE NATURE OF SALES THE NAT URE OF PRODUCT MANUFACTURED AND SOLD AND SCIENTIFIC METHOD OF ACCOUNTING ADOPTE D BY THE ASSESSEE AND HONBLE COURT HELD THAT ASSESSEE WOULD BE ENTITLED U/S 37 OF THE ACT FOR THE PROVISIONS MADE FOR WARRANTY. AS ASSESSEE IS BEFOR E US IS ENGAGED MANUFACTURING OF MACHINERIES AND COMPONENTS AND WAR RANTY PROVISIONS ARE INTEGRAL PART OF THE BUSINESS. 6. RESPECTFULLY FOLLOWING THE ABOVE SAID HONBLE APEX COURT JUDGMENT, WE ALLOW THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28 - 11- 2019 SD/- SD/- (PRADIP KUMAR KEDIA) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 28 /11/2019 RAJESH COPY OF THE ORDER FORWARDED TO: -