GMM Pfaulder Ltd., Ahmedabad V. The Jt. CIT.,Range-4, Ahmedabad

MA 116/AHD/2014

• Counselvise Citation: [2014] 124 COUNSELVISE.COM (IT) 2455 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 15-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-09-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 21-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rectification of order
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER MA NO.116/AHD/2014 - AY 2005-06 (IN ./ IN I.T.A. NO.2923/AHD/2008 AY 2005-06) GMM PFAUDLER LTD. 34D FLOOR B- JADAV CHAMBERS ASHRAM ROAD AHMEDABAD (ORIGINAL RESPONDENT) / VS. THE JT.CIT RANGE-4 AHMEDABAD (ORIGINAL APPELLANT) ./ ./ PAN/GIR NO. : AABCG 0563 A ( APPLICANT ) .. ( #$ % / RESPONDENT ) ASSESSEE B Y : MS. URVASHI SHODHAN, W ITH SHRI P ARIN SHAH A.R S . REVENUE B Y : SHRI V.K. SINGH, SR.D.R. &'() / DATE OF HEARING : 19/09/2014 *+,-() / DATE OF PRONOUNCEMENT : 15/10/2014 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS MISCELLANEOUS APPLICATION HAS BEEN FILED BY TH E ASSESSEE ON 21.7.2014 (IN ITA NO.2923/AHD/2008 FOR AY 2005-06-R EVENUES APPEAL) OUT OF THE ORDER DATED 28/01/2013 PASSED BY THE ITAT A BENCH, AHMEDABAD. 2. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HERE IS AN ERROR APPARENT FROM THE RECORD AND SUBMITTED THAT THE SAM E REQUIRES RECTIFICATION. SHE REITERATED THE SUBMISSIONS AS W ERE MADE IN THE APPLICATION. MA NO.116/AHD/2014 (IN ITA NO.2923/AHD/2008) GMM PFAUDLER LTD. VS. JT.CIT ASST.YEAR 2005-06 - 2 - 2.1. ON THE CONTRARY, THE LD.SR.DR SHRI V.K.SINGH VEHEMENTLY OPPOSED THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE AND SUBMITTED THAT THERE IS NO MISTAKE APPARENT FROM TH E RECORD. HE SUBMITTED THAT THE ASSESSEE IS TRYING TO GET THE TR IBUNALS ORDER REVIEWED UNDER THE GARB OF RECTIFICATION OF MISTAKE. HE SUB MITTED THAT THIS IS NOT PERMISSIBLE UNDER THE LAW. HE FURTHER SUBMITTED TH AT THIS TRIBUNAL (ITAT A AHMEDABAD) IN ITA NO.12/AHD/2008-REVENUES APP EAL FOR AY 2004-05 VIDE ORDER DATED 11/02/2011 IN ASSESSEES O WN CASE HAD RESTORED THE IDENTICAL ISSUE TO THE FILE OF AO FOR FRESH DEC ISION IN THE LIGHT OF THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE C ASE OF ROTORK CONTROLS INDIA P.LTD. VS. CIT (2009) 314 ITR 62 ( SC). 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF THE ASSESS EE IN ITS APPLICATION ARE AS UNDER:- 4. THEREFORE IT IS SUBMITTED THAT DISALLOWANCE MAD E BY AO OF PROVISION FOR WARRANTY EXPENSES TOTALING TO RS.68,61,000/- HA S TWO PARTS:- (I) PROVISION FOR WARRANTY EXPENSES OF RS.21,74,000/- FOR THE CURRENT YEAR LD. AR AT THE TIME OF HEARING POINTED OUT DIFFERENC E IN FACTS OF AY 2004-05 WHEREIN OUT OF TOTAL PROVISION FOR WARRA NTY EXPENSES OF RS.25,70,000/- ONLY PROVISION OF RS.6,43,000/- W AS DISALLOWED BY AO ON PROPORTIONATE BASIS FOR THREE MONTHS AS PE RTAINING TO SUBSEQUENT YEAR ALLOWING PROVISION MADE FOR THE CUR RENT YEAR. THE HONBLE ITAT SET ASIDE THIS DISALLOWANCE FOR VE RIFICATION FOR WANT OF PROPER CALCULATION. WHEREAS IN AY 2005-06 A PPELLANT HAS SUBMITTED DETAILED WORKING OF THE CALCULATION O F PROVISION FOR WARRANTY EXPENSES FOR CURRENT YEAR ONLY BASED ON HI STORICAL DATA MA NO.116/AHD/2014 (IN ITA NO.2923/AHD/2008) GMM PFAUDLER LTD. VS. JT.CIT ASST.YEAR 2005-06 - 3 - SUBMITTED BEFORE HONBLE ITAT (PAGE NO.113 OF PAPER BOOK) CONSIDERING WHICH LD. CIT(A) ALLOWED THE CLAIM OF T HE APPELLANT. THEREFORE PROVISION OF WARRANTY EXPENSES PERTAINING TO CURRENT YEAR IN ANY CASE IS ALLOWABLE SINCE AO AND AY 2004- 05 DISALLOWED PROVISION PERTAINING TO SUBSEQUENT YEAR ONLY. (II) REVERSAL OF PROVISIONS FOR WARRANTY EXPENSES OF RS. 46,87,000/- THE APPLICANT MOST RESPECTFULLY SUBMITS THAT DURING THE COURSE OF HEARING LD. AR BROUGHT TO THE ATTENTION OF THE HON BLE BENCH THAT APPELLANT BY MAKING INCREMENTAL PROVISION HAS OFFER ED PREVIOUS YEAR PROVISION AS INCOME FOR TAXATION. LD. CIT(A) A FTER OBSERVING THE SAME ALLOWED CONTENTION OF THE APPELLANT DELETI NG DISALLOWANCE (PAGE 12, PARA 7.2 OF LD. CIT(A) ORDER ). 5. IN VIEW OF THE ABOVE THERE IS AN ERROR APPAR ENT ON THE RECORD SINCE THE HONBLE BENCH HAS SET ASIDE ISSUE TO THE FILE O F AO TO VERIFY CLAIM OF THE APPELLANT TO MAINTAIN THE CONSISTENCY, HOWEVER HONBLE ITAT HAS ALLOWED PROVISION OF WARRANTY EXPENSES IN A.Y. 2004 -05 IN PRINCIPLE AND SET IT ASIDE TO AO FOR LIMITED PURPOSE TO VERIF Y THE EXPENSES FALLS IN SUBSEQUENT YEAR AND DIRECT TO ALLOW EXPENSES OF SUB SEQUENT YEAR IN THAT YEAR. IT IS RESPECTFULLY SUBMITTED THAT BY SETTING ASIDE THE SETTLED ISSUE TO THE FILE TO AO LEADS TO ONE MORE ROUND OF LITIGATIO N FOR THE APPELLANT. 4. WE FIND THAT THIS TRIBUNAL IN THE AY 2004-05 HAS RESTORED THE ISSUE TO THE FILE OF AO TO EXAMINE THE CLAIM OF THE ASSES SEE IN THE LIGHT OF THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE C ASE OF ROTORK CONTROLS INDIA P.LTD. VS. CIT (2009) 314 ITR 62 ( SC). IN THE PRESENT CASE ALSO, THE ASSESSEE HAS GIVEN CERTAIN WORKING E NCLOSED AT PAGE NOS.43 OF THE PAPER-BOOK WHICH REQUIRES TO BE EXAMINED BY THE AO IN THE LIGHT OF THE JUDGEMENT OF HONBLE APEX COURT RENDERED I N THE CASE OF ROTORK CONTROLS INDIA P.LTD. VS. CIT(SUPRA). IT IS NOTEWO RTHY TO MENTION HERE THAT THE HONBLE APEX COURT IN THE IN THE CASE OF ROTORK CONTROLS INDIA P.LTD. VS. CIT (2009) 314 ITR 62 (SC) HAS HELD AS UNDER:- MA NO.116/AHD/2014 (IN ITA NO.2923/AHD/2008) GMM PFAUDLER LTD. VS. JT.CIT ASST.YEAR 2005-06 - 4 - HELD, REVERSING THE DECISION OF THE HIGH COURT, THA T THE VALVE ACTUATORS, MANUFACTURED BY THE ASSESSEE, WERE SOPHISTICATED GO ODS AND STATISTICAL DATA INDICATED THAT EVERY YEAR SOME OF THESE WERE F OUND DEFECTIVE; THAT VALVE ACTUATOR BEING A SOPHISTICATED ITEM NO CUSTOM ER WAS PREPARED TO BUY A VALVE ACTUATOR WITHOUT A WARRANTY. THEREFORE , THE WARRANTY BECAME AN INTEGRAL PART OF THE SALE PRICE; IN OTHER WORDS, THE WARRANTY STOOD ATTACHED TO THE SALE PRICE OF THE PRODUCT. I N THIS CASE THE WARRANTY PROVISIONS HAD TO BE RECOGNIZED BECAUSE TH E ASSESSEE HAD A PRESENT OBLIGATION AS A RESULT OF PAST EVENTS RESUL TING IN AN OUTFLOW OF RESOURCES AND A RELIABLE ESTIMATE COULD BE MADE OF THE AMOUNT OF THE OBLIGATION. THEREFORE, THE ASSESSEE HAD INCURRED A LIABILITY DURING THE ASSESSMENT YEAR WHICH WAS ENTITLED TO DEDUCTION UND ER SECTION 37 OF THE INCOME-TAX ACT, 1961. THE PRESENT VALUE OF A CONTINGENT LIABILITY, LIKE T HE WARRANTY EXPENSE, IF PROPERLY ASCERTAINED AND DISCOUNTED ON ACCRUAL BASI S CAN BE AN ITEM OF DEDUCTION UNDER SECTION 37. THE PRINCIPLE OF ESTIM ATION OF THE CONTINGENT LIABILITY IS NOT THE NORMAL RULE. IT WO ULD DEPEND ON THE NATURE OF THE BUSINESS, THE NATURE OF SALES, THE NA TURE OF THE PRODUCT MANUFACTURED AND SOLD AND THE SCIENTIFIC METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. IT WOULD ALSO DEPEND UPON THE HIS TORICAL TREND AND UPON THE NUMBER OF ARTICLES PRODUCED. A PROVISION IS A LIABILITY WHICH CAN BE MEASURED ON LY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A PROVISION IS R ECOGNIZED WHEN : (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE RE QUIRED TO SETTLE THE OBLIGATION, AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIONS ARE NOT MET, NO PR OVISION CAN BE RECOGNIZED. THE PRINCIPLE IS THAT IF THE HISTORICAL TREND INDIC ATES THAT A LARGE NUMBER OF SOPHISTICATED GOODS WERE BEING MANUFACTURED IN T HE PAST AND THE FACTS SHOW THAT DEFECTS EXISTED IN SOME OF THE ITEM S MANUFACTURED AND SOLD, THEN PROVISION MADE FOR WARRANTY IN RESPECT O F SUCH SOPHISTICATED GOODS WOULD BE ENTITLED TO DEDUCTION FROM THE GROSS RECEIPTS UNDER SECTION 37. MA NO.116/AHD/2014 (IN ITA NO.2923/AHD/2008) GMM PFAUDLER LTD. VS. JT.CIT ASST.YEAR 2005-06 - 5 - 4.1. UNDER THESE FACTS, WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THERE IS ANY ERROR IN THE ORDER P ASSED BY THE TRIBUNAL IN ITA NO.12/AHD/2008-REVENUES APPEAL FOR AY 2004-05 VIDE ORDER DATED 11/02/2011 IN ASSESSEES OWN CASE. IF THE CONTENTI ON OF THE ASSESSEE IS ACCEPTED, THAT WILL TANTAMOUNT TO REVIEWING OF THE ORDER. MOREOVER, NO PREJUDICE IS CAUSED TO THE ASSESSEE IF THE ISSUE IS RESTORED BY THE TRIBUNAL TO THE FILE OF AO FOR VERIFICATION IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF ROTORK C ONTROLS INDIA P.LTD. VS. CIT (SUPRA). 5. IN THE RESULT, THE MISCELLANEOUS APPLICATION FIL ED BY ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 15 / 10 /2014 1)..,&.../ T.C. NAIR, SR. PS !'#$#%! / COPY OF THE ORDER FORWARDED TO : 1. % / THE APPLICANT. 2. #$ % / THE RESPONDENT. 3. 234 5 / CONCERNED CIT. 4. 5 ( ) / THE CIT(A)-VIII, AHMEDABAD 5. 6&7#34 , )34- , 2 / DR, ITAT, AHMEDABAD 6. 79:;' / GUARD FILE. / BY ORDER, $6# //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD