Gujarat High Court
The Income Tax Officer vs Kevin Enterprise....Opponent(S) on 26 November, 2014
Author: Ks Jhaveri
Bench: Ks Jhaveri, K.J.Thaker
O/TAXAP/966/2007 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 966 of 2007
With
TAX APPEAL NO. 1302 of 2008
With
TAX APPEAL NO. 1292 of 2008
With
TAX APPEAL NO. 1290 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
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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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THE INCOME TAX OFFICER, WARD 5(1), BARODA....Appellant(s)
Versus
KEVIN ENTERPRISE....Opponent(s)
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Appearance:
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O/TAXAP/966/2007 JUDGMENT
MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1
MR SN SOPARKAR SR. ADVOCATE FOR MRS SWATI SOPARKAR,
ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
Date : 26/11/2014
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
1. These Tax Appeals involve common questions on law and facts and hence, they are decided by this common judgment. For the sake of convenience, Tax Appeal No.966/2007 is taken as the lead matter.
2. Briefly stated, the facts are that the assessee firm is engaged in the manufature of Tower Packing called Mars Transfer Equipments. The produce of the assessee-firm is used in mega projects like petroleum, chemicals, pharma, etc. The assessee is extending 12 months' guarantee on its products.
3. The assessee-firm filed the return of income for the Assessment Year 1993-94 declaring total income of Rs.3,94,970/-. Assessment scrutiny was undertaken by the Assessing Officer and vide order dated 25.03.1996, the total income was determined at Rs.7,02,930/- after making disallowance of various expenses. Interest Page 2 of 6 O/TAXAP/966/2007 JUDGMENT payment was also disallowed u/s.36(1)(iii) of the Income-tax Act, 1961.
4. Being aggrieved by the order passed by the Assessing Officer, the assessee preferred appeal before the CIT(A). The CIT(A) disposed of the appeal vide order dated 12.06.1996 and the total income of the assessee was reduced to Rs.4,13,250/- after giving effect to the order of the CIT(A).
5. In the meantime, on verification of the case records, it was found from the Manufacturing, Trading and Profit & Loss Accounts that an amount of Rs.5,54,292.30 is deducted from the total receipts of the accounting period relevant to the Assessment Year towards provision for Warranties. Since the deduction claimed by the assessee was not allowable, the assessment was reopened by issuing Notice u/s.148 of the Act. Ultimately, vide order dated 31.01.2003, the A.O disallowed the warranties.
6. Being aggrieved by the order of the Assessing Officer, appeals were preferred before the CIT(A). After appreciating the records of the case, the CIT(A) partly allowed the appeals vide order dated 09.05.2013 by concluding that the income had escaped assessment for two years.
Page 3 of 6O/TAXAP/966/2007 JUDGMENT Against the above order, appeals were preferred by the Revenue before the Income Tax Appellate Tribunal. The Appellate Tribunal dismissed the appeal vide judgment and order dated 20.10.2006, which is under challenge in the present proceedings.
7. The question of law framed in these appeals is the same. It reads as under;
"Whether the ITAT was right in law and on facts in deleting the addition of RS.5,54,292/- made under the head provision made on account of warranty which is in the nature of contingent liability?"
8. We have heard learned counsel for both the sides and perused the record of the case. The issue involved in these appeals 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 Page 4 of 6 O/TAXAP/966/2007 JUDGMENT 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.
9. 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 appeals and accordingly, answer the question raised in these appeals in favour of the assessee and against the Revenue.
10. The appeals stand disposed of accordingly.
(K.S.JHAVERI, J.)
(K.J.THAKER, J)
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O/TAXAP/966/2007 JUDGMENT
Pravin/*
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