Gujarat High Court
Ito vs Kevin Enterprises....Opponent(S) on 12 January, 2015
Author: Jayant Patel
Bench: Jayant Patel, S.H.Vora
O/TAXAP/1291/2008 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 1291 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE JAYANT PATEL
and
HONOURABLE MR.JUSTICE S.H.VORA
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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ITO, WARD 5(1), 5TH FLOOR....Appellant(s)
Versus
KEVIN ENTERPRISES....Opponent(s)
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Appearance:
MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1
RULE UNSERVED for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE JAYANT PATEL
and
HONOURABLE MR.JUSTICE S.H.VORA
Page 1 of 5
O/TAXAP/1291/2008 JUDGMENT
Date : 12/01/2015
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE JAYANT PATEL)
1. The following substantial question of law has been formulated:-
"Whether the Income Tax Appellate Tribunal was right in law and on facts in deleting addition of Rs.9,68,740/- made under the head provisions made on account of warranty which is in the nature of contingent liability?"
2. It further appears that at the time of admission, it was ordered that this appeal be heard with Tax Appeal No.1302 of 2008.
3. The learned counsel appearing for both the sides brought to our notice decision dated 26.11.2014 in Tax Appeal No.1302 of 2008 together with the cognate appeal being Tax Appeal No.966 of 2007 and allied matters whereby, the said appeal is disposed of. Hence, as the said Tax Appeal No.1302 of 2008 is already disposed of, it may not be required to be heard with the present matter.
4. We have heard Mr.Parikh, learned counsel appearing for the appellant - Revenue and Mr.B.S. Soparkar, learned counsel appearing for the respondent - Assessee. As such, the facts on record show that the A.O. did not allow the amount of Rs.9,68,740/- made under the head of provisions made for warranties. The matter was carried in appeal before C.I.T. (Appeals) and C.I.T. (Appeals) vide order dated 05.07.2002, Page 2 of 5 O/TAXAP/1291/2008 JUDGMENT allowed the relief for amount of Rs.9,68,740/- in favour of the Assessee. The matter was further carried in appeal by the Revenue before the Tribunal and the Tribunal confirmed the view taken by the C.I.T. (Appeals). Under the circumstances, the present appeal before this Court.
5. The learned counsel appearing for both the sides have brought to our notice that not only the question was answered in affirmative in favour of Assessee in Tax Appeal No.1302 of 2008 with which, the present appeal was to be heard but subsequently also, in Tax Appeal No.235 of 2007, the Court vide order dated 22.12.2014, has reiterated the same view. We may record that this Court in Tax Appeal No.235 of 2007 had observed thus:-
"1. Being aggrieved and dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as 'the Tribunal') dated 28.04.2006 in ITA Nos. 762/Ahd/2001 for the Assessment Year 1997-98, the revenue has preferred the present Tax Appeal.
1.1 This appeal was admitted by this Court for consideration of the following substantial question of law:
"Whether the ITAT was right in law and on facts in deleting the addition of Rs. 42,21,368/- made under the head provision made on account of warranty which is in the nature of contingent liability?"
2. The assessee had made provision of Rs. 42,21,368/- on account of warranty and reduced this figure from the total sales recorded in the books of account. During the course of assessment proceedings the Assessing Officer held that the assessee having consistently followed mercantile system of accounting provision for contingent or unaccrued liability is not allowable as deduction as the expenditure allowable Page 3 of 5 O/TAXAP/1291/2008 JUDGMENT should be one which pertains to an actual and existing liability.
2.1 Being aggrieved by the same, the assessee filed appeal before CIT(A). The CIT(A) deleted the addition made by the Assessing Officer. The revenue therefore preferred appeal before the Tribunal. The Tribunal confirmed the findings of CIT(A) and dismissed the appeal. Being aggrieved by the said order, the present appeal is preferred.
3. We have heard learned counsel for both the sides and perused the record of the case. The issue involved in this appeal is already concluded by a judgment of the Apex Court in the case of Rotork Controls India Pvt. Ltd. v. Commissioner of Income Tax, [2009] 314 ITR 62 (SC). In that case, the assessee was engaged in the business of manufacture of valve actuators, which were sophisticated goods. The statistical data indicated that every year some of these were found defective. The valve actuator, being a sophisticated item, no customer was prepared to buy it 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. It was held that warranty provisions had to be recognized because the assessee therein had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of the obligation. Therefore, the assessee therein had incurred a liability during the assessment year which was entitled to deduction u/s.37 of the Income-tax Act, 1961.
3.1 In Tax Appeal No. 966 of 2007 and allied matters, similar facts and question of law were raised and this Court vide judgement and order dated 26.11.2014 in the case of The Income Tax Officer, Baroda vs. Kevin Enterprise has already answered the question in favour of assessee relying upon the decision of the Apex Court in the case of Rotork Controls India Pvt. Ltd. (supra).
4. Mr. K.M. Parikh, learned counsel appearing for the Revenue was not in a position to dispute the above proposition of law. Since the issue is already concluded as aforesaid, we are not assigning elaborate reasons while disposing of the present appeal and accordingly, answer the question raised in this appeal Page 4 of 5 O/TAXAP/1291/2008 JUDGMENT in favour of the assessee and against the Revenue. The Tribunal is justified in deleting the addition of Rs. 42,21,368/- made under the head provision made on account of warranty which is in the nature of contingent liability?"
5. The impugned order passed by the Tribunal is confirmed. The appeal stands dismissed accordingly."
6. The learned counsel appearing for Revenue is not in a position to show any distinguishing circumstances including that of the proposition of law held by this Court in the abovereferred decision, would require further reconsideration.
7. Under the circumstances, the question has necessarily to be answered in affirmative in favour of the Assessee. Hence, answered accordingly.
8. The appeal shall stand disposed of accordingly.
(JAYANT PATEL, J.) (S.H.VORA, J.) Hitesh Page 5 of 5