Income Tax Appellate Tribunal - Bangalore
M/S Raman Boards Ltd.,, Mysore vs Department Of Income Tax on 26 April, 2012
IN THE INCOME-TAX APPELLATE TRIBUNAL
BANGALORE BENCH 'B', BANGALORE
BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER
AND
SMT P. MADHAVI DEVI, JUDICIAL MEMBER
I.T.A. No.511(Bang.)/2011
(Assessment Year : 2007-08)
The Asst. Commissioner of Income-tax,
Circle-1(2), Mysore Appellant
Vs
M/s Raman Boards Ltd.,
M/s ABB Global Industries & Services Ltd.,
Mysore Ooty Road, Thandavapura,
Mysore
PAN No.AAACR9495F Respondent
Revenue by : Smt. Susan Thomas Jose, JCIT
Assessee by : Shri S. Venkataraman, CA
Date of hearing : 26-04-2012
Date of pronouncement : 26-04-2012
ORDER
PER SMT. P. MADHAVI DEVI, JM;
This appeal by the revenue relates to assessment year 2007-08.
2. In this appeal, the revenue is aggrieved by the order of the CIT(A)in allowing the assessee's claim of provision of warranty expenses by following the decision of the Apex Court in the case of M/s Rotork Controls India, reported in 314 ITR 62 without 2 ITA No.511(B)/2011 appreciating the facts involved in the assessee's case which is totally different from the case law relied upon by the CIT(A).
2.1 The brief facts of the case are that the assessee is a company which is engaged in the manufacture of Electrical Insulation Boards used in the Electrical Transformers. The assessee filed its return of income for the relevant assessment year declaring a total income of Rs.3,25,70,700/-. During the assessment proceedings u/s 143(3) of the IT Act, 1961, the AO observed that the assessee had added schedule-M to the Profit & Loss account wherein a claim for warranties to an extent of Rs.20.00 lakhs has been made under the head 'Manufacturing and Other Expenses'. It was also observed that the assessee company had changed its policies with regard to provision for warranty for the assessment year : 2007-08 and that in the previous years, the claim was made on actual payment while during the relevant financial year. The assessee had made a provision for warranty holding that there is no consistency in the method followed by the assessee. The AO held that the provision for warranty is a contingent liability and is not acceptable in the absence of any scientific or realistic evaluation/method. Accordingly, he disallowed the provision of warranty of Rs.20.00 lakhs.
3 ITA No.511(B)/2011
2.2 Aggrieved, the assessee preferred an appeal before the CIT(A) making elaborate submissions and also placed reliance upon the decision of the Hon'ble Supreme Court in the case of M/s Rotork Controls India reported in 314 ITR 62.
2.3 After reproducing the submissions of the assesseee and also the relevant paragraphs of the Apex Court's order in the case of M/s Rotork Controls India, cited supra, the CIT(A) considered that the provision for warranty made by the assessee was less than the actual warranty expenses. He accordingly, allowed the assessee's appeal. Aggrieved the revenue is in appeal before us.
3. The learned DR Smt. Susan Thomas Jose, while supporting the order of the AO submitted that the facts of the case before the Apex Court in the case of M/s Rotork Controls India are distinguishable from the facts of the case before us. She submitted that in the case of M/s Rotork Controls India, the assessee therein was dealing with sophisticated goods and therefore, the Hon'ble Apex Court held that the provision of warranty is supported by the historical trend namely, the defects being detected in some of the items. She submitted that the case before us, the assessee was dealing with the manufacture of electrical insulation boards and molded components which cannot be said to be sophisticated goods. She also stated that 4 ITA No.511(B)/2011 the assessee has nowhere stated the reasons for change in the accounting method during the relevant assessment year and therefore, making provision on an estimate basis is not permissible. According to her, the assessee has not furnished any basis for making such provision of warranty. She thus, submitted that the CIT(A) has erred in applying the decision of the Apex Court in the case of M/s Rotork Controls India, to the case before us without appreciating the facts of the case before us.
4. The learned counsel for the assessee on the other hand, supported the order of the CIT(A) and drew our attention to the Hon'ble Apex Court's decision wherein the Apex Court has laid down the parameters for allowing a provision of warranty. He submitted that the assessee has furnished all the data before the CIT(A) and the CIT(A) has reproduced the actual warranty expenses incurred by the assessee for the financial years 2003-04 to 2005-06 also for the assessment years 2006-07 to 2009-10 to come to the conclusion that the warranty provision made by the assessee is infact for a lesser amount then the actual expenses. He submitted that the CIT(A) has rightly allowed the provision of warranty.
5. Having heard both the parties and having considered the rival contentions, we find that there is no dispute as regards the 5 ITA No.511(B)/2011 liability or obligation of the assessee towards warranty provided with the sale of its goods. In the previous years, the assessee had been claiming the actual warranty expenses, whereas during the relevant assessment year the assessee has started making the provision for warranty. The assessee had explained before the AO as well as the CIT(A) that the assessee had been taken over by the ABB Global Industries & Services Ltd., during the relevant financial year and following the policies followed by the ABB Global Industries & Services Ltd., the assessee had changed the method of accounting. Further, it is also seen that the actual expenses incurred for warranty during the financial years 2003- 04 to 2009-2010 are much more than the provision made for the relevant assessment year i.e. of Rs.20.00 Lakhs. However, we find that the CIT(A) has not reproduced any particulars of the submissions of the assessee, wherein the assesseee alleges to have explained the basis for making such a warranty. Therefore, it cannot be said that the CIT(A) has applied his mind to such material before him. As held by the Hon'ble Supreme Court, the assessee not only has to satisfy the provisions of accounting methods and having liability or obligation for making provisions for warranty, but it also has to be establish the historical trend and the scientific method or basis for making the provisions. In 6 ITA No.511(B)/2011 view of the same, we deem it fit and proper to remand the issue to the file of the AO to reconsider the issue in the light of the decision of the Hon'ble Supreme Court in the case of M/s Rotork Controls India. However, we would like to make it clear, that if the provision of warranty made by the assessee is a rounded off figure which is a little less or more than the actual quantification figure arrived at on the basis adopted by the assessee, the AO shall not deny the claim of warranty of provision on the ground that it is not correct quantification of the warranty, as per the basis adopted by the assessee.
6. In the result, the appeal filed by the revenue is allowed for statistical purposes.
Order pronounced in the open court on the 26 April, 2012.
Sd/- Sd/-
(N.K. SAINI) (SMT. P. MADHAVI DEVI)
ACCOUNTANT MEMBER JUDICIAL
MEMBER
Place: Bangalore
Dated: 26-04-2012
am*
Copy to :
1. The Assessee
2. The Revenue
3. CIT(A)
4. CIT
7 ITA No.511(B)/2011
5. DR
6. GF(B'lore)
By Order
AR, ITAT, BANGALORE