Amco Batteries Ltd., CHENNAI V. DCIT, CHENNAI

ITA 856/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9641 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 17-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.856/MDS/2015 ( / ASSESSMENT YEAR: 2010-11) M/S. AMCO BATTERIES LTD. ADDISON BUILDINGS, 803, ANNA SALAI, CHENNAI-600 002. VS THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1), CHENNAI-600 034. PAN:AABCA1726F ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.SAROJ KUMAR PARIDA, ADVOCATE /RESPONDENT BY : MR. A.B.KOLI, JCIT /DATE OF HEARING : 11 TH FEBRUARY, 2016 /DATE OF PRONOUNCEMENT : 12 TH APRIL, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS)- 1, CHENNAI, DATED 28.01.2015 IN ITA NO.170/13-14/A- I PASSED UNDER SECTION 143(3) R.W.S. 250 OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED ASS ESSING 2 ITA NO.856 /MDS/2015 OFFICER WITH RESPECT TO THE CLAIM OF THE PROVISION FOR WARRANTY AMOUNTING TO RS.5,69,81,000/- AS ALLOWABLE DEDUCTIO N. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G IN AUTOMOBILE BATTERIES FILED ITS RETURN OF INCOME ON 27.09.2010 FOR THE ASSESSMENT YEAR 2010-11 ADMITTING INCOME OF RS.8,83,28,381/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED PROVISION FOR WARRANTY AMOUNTI NG TO RS.10,59,00,000/- AS ALLOWABLE EXPENDITURE AND AT T HE SAME TIME CREDITED THAT ACCOUNT WITH RS.4,89,19,000/- B EING THE ACTUAL EXPENDITURE INCURRED DURING THE YEAR WITH RE SPECT TO WARRANTY. THUS, AN AMOUNT OF RS.5,69,81,000/- (RS.10,59,00,000 4,89,19,000) WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE LEARNED ASSESSING OFFICER FU RTHER OBSERVED THAT DURING THE RELEVANT YEAR THE RATIO BE TWEEN THE ACTUAL EXPENSES AND THE PROVISION CREATED WAS AT 4 6:100 WHEREAS THE RATIO IN THE PREVIOUS YEAR WAS AT 74:10 0. THEREFORE, THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT THIS PROVISION WAS NOT CREATED ON SCIENTIFIC BASIS AND SINCE NO 3 ITA NO.856 /MDS/2015 EXPENDITURE CAN BE ALLOWED IN THE NATURE OF MERE PR OVISION AND ACCORDINGLY DISALLOWED RS.5,69,81,000/-. ON APP EAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOLLOW ING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ROTORK CONTROLS INDIA PVT.LTD. (314 ITR 62) (SC) CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISIONS OF THE TRIBUN AL IN THE ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2005-0 6 BY THE BANGALORE BENCH OF THE TRIBUNAL IN ITA NO.142 & 352/BANG/2010 DATED 21.03.2011, FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO.378/BANG/2011 & C.O.NO.26/BANG/20 11 DATED 31.01.2012, FOR THE ASSESSMENT YEAR 2008-09 I N ITA NO.1166/BANG/2011 DATED 03.07.2012 AND BY THE DECIS ION OF THE CHENNAI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO.2270/MDS/ 2012 DATED 21.02.2013. IT WAS THEREFORE SUBMITTED THAT T HE APPEAL OF THE ASSESSEE MAY BE ALLOWED. 4 ITA NO.856 /MDS/2015 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED BY STATING THAT TH E ASSESSEE HAD NOT DEMONSTRATED WITH A SCIENTIFIC BAS IS JUSTIFYING THE PROVISION MADE FOR WARRANTY AND THER EFORE IT WAS PLEADED THAT THE ORDERS OF THE REVENUE MAY BE UPHEL D. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS AN ADMITTED FACT THAT TO ARRIVE AT THE CORRECT PROFIT OF THE AS SESSEE FOR THE RELEVANT ASSESSMENT YEAR PROVISION MADE FOR WARRANT Y FOR THE SUBSEQUENT YEARS HAS TO BE EXCLUDED FROM THE PROFIT . HOWEVER, IT HAS TO BE MADE ON A SCIENTIFIC BASIS SO THAT THE PROVISION MADE WILL BE JUSTIFIABLE. WHILE ARRIVING AT SCIENTIFIC BASIS VARIOUS FACTORS SUCH AS THE NUMBER OF YEARS F OR WHICH THE WARRANTY IS PROVIDED, HISTORIC DETAILS OF THE E XPENDITURE INCURRED TURNOVER OF THE ASSESSEE AND VARIOUS OTHER RELEVANT FACTORS HAVE TO BE TAKEN INTO CONSIDERATION. IT IS PERTINENT TO MENTION THAT THE FACTS WITH RESPECT TO THE COMPUTAT ION OF PROVISION FOR WARRANTY WILL DIFFER FROM YEAR TO YEA R BASED ON VARIOUS TECHNICAL, COST, TURNOVER AND VARIOUS OTHER FACTORS. IN THE PRESENT CASE BEFORE US, IT APPEARS FROM THE ORD ER OF THE 5 ITA NO.856 /MDS/2015 LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD NOT FURNISHED THE BASIS ON WHICH SUCH PROVISION IS MADE BEFORE THE REVENUE. FURTHER, THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) IN HIS ORDER HAS OBSERVED THAT THE PR OVISION CREATED DURING THE RELEVANT YEAR IS EXORBITANT COMP ARED WITH THE HISTORICAL TREND OF EXPENDITURE INCURRED TOWARD S WARRANTY IN THE PAST. HOWEVER THE ASSESSEE HAS ALSO CLAIME D BEFORE US THAT IT HAS BEEN FOLLOWING A SCIENTIFIC BASIS FO R MAKING PROVISION FOR WARRANTY BUT NO SUCH SCIENTIFIC METHO D IS EXPLAINED BEFORE US WITH COGENT EVIDENCE. IN THESE CIRCUMSTANCES, CONSIDERING THE PRAYER OF THE ASSESS EE, IN THE INTEREST OF JUSTICE, WE HEREBY REMIT BACK THE MATTE R TO THE FILE OF THE LEARNED ASSESSING OFFICER TO EXAMINE THE ISS UE AFRESH. THE ASSESSEE IS ALSO AT LIBERTY TO FILE ANY FRESH D OCUMENTS BEFORE THE LEARNED ASSESSING OFFICER IN ORDER TO JU STIFY ITS CLAIM WITH RESPECT TO THE DEDUCTION CLAIMED TOWARDS PROVISION FOR WARRANTY. 6 ITA NO.856 /MDS/2015 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12 TH APRIL, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 12 TH APRIL, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /