THE COMMISSIONER OF INCOME TAX V. M/S. KIRLOSKAR ELECTRIC CO LTD

ITA/121/2009

AI Insights

The case revolves around an appeal by the Commissioner of Income Tax and the Assistant Commissioner of Income Tax against M/s. Kirloskar Electric Co Ltd concerning the assessment year 2002-2003. The dispute was centered on the provision made by the assessee for warranty claims, which the revenue challenged. The tribunal and the appellate authority had previously upheld the assessee's claim, leading to the revenue's appeal to the High Court. The High Court, referencing the Supreme Court's decision in ROTORK CONTROLS INDIA P.LTD, affirmed the lower authorities' decisions, allowing the warranty provision deduction.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 728935 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 27-10-2014
• Assessment Year: misc
• Other Referred Cases: ROTORK CONTROLS INDIA P.LTD vs COMMISSIONER OF INCOME TAX
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K P KUMAR
• Assessee Lawyers: K V ARAVIND
• Keywords: Accounting Standards; Income Tax; Provision for warranty; Warranty Claims; Deduction from gross receipts
• Section: 37; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 27th DAY OF OCTOBER 2014 PRESENT THE HON’BLE MR JUSTICE N. KUMAR AND THE HON’BLE MR JUSTICE B. MANOHAR ITA NO.121/2009 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX C R BUILDING QUEENS ROAD, BANGALORE 2. THE ASST COMMISSIONER OF INCOME TAX CIRCLE-11(5), BANGALORE ..APPELLANTS (By Sri K V ARAVIND, ADV.) AND M/S. KIRLOSKAR ELECTRIC CO LTD P B NO 5555, MALLESHWARAM WEST BANGALORE-55 ..RESPONDENT (By Sri K P Kumar, Sr. Adv. For M/S. KING & PARTRIDGE) This appeal is filed u/S.260-A of I.T.Act, 1961 arising out of Order dated 17-10-2008 passed in ITA No.1179/BNG/2007, for the Assessment Year 2002- 2003, praying that this Hon'ble Court may be pleased to 2 formulate the substantial questions of law stated therein and allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.1179/BNG/2007,dated 17-10-2008, confirming the order of the Appellate Commissioner and confirm the order passed by the Assistant Commissioner of Income Tax, Circle-11(5), Bangalore in the interest of justice and equity. This appeal coming on for hearing this day, N Kumar J., delivered the following: JUDGMENT The revenue has preferred this appeal against the order passed by the tribunal which has upheld the order passed by the appellate authority which has upheld the warranty claim of the assessee. The appellate authority in its order has stated as under: “I have gone through the submissions made by the appellant and I am convinced with the arguments put forward in this regard. Basing its judgment on the past experience, the appellant has made a provision of 0.05% of it sales for warranty claims. In support of this claim, the appellant has furnished a chart showing the actual warranty claims made during the past two years. The immediately preceding two years actual warranty claims as seen from the chart above indicate that they are at around 0.25% of the sales the provision for warranty claims made during the year under appeal is @ 0.05% of the sales made which is much below the actual for earlier two years. The provision, having been made in 3 accordance with the accounting standards prescribed by the institute of Chartered Accountants of India and based on the past experience, is required to be allowed”. 2. The Supreme Court of India in the case of ROTORK CONTROLS INIDA P.LTD vs COMMISSIONER OF INCOME TAX ((2009) 314 ITR 62 (SC)) has held as under: “The principle which emerges from this decision is that if the historical trend indicates that a large number of sophisticated goods were being manufactured in the past and the facts show that defects existed in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts under Section 37 of the 1961 Act. It would all depend on the data systematically maintained by the assessee”. 3. The said judgment squarely applies to the facts of the case as set-out above. Therefore, the tribunal was justified in dismissing the appeal of the revenue upholding the order of the appellate authority. Therefore, the substantial question of law framed in this 4 case is answered in favour of the assessee and against the revenue. Appeal is dismissed. sd/- JUDGE sd/- JUDGE brn "