DCIT, New Delhi v. Tupperware India Pvt Ltd, New Delhi

ITA 4051/DEL/2009 | 2001-2002
Pronouncement Date: 23-04-2010 | Result: Dismissed

Appeal Details

RSA Number 405120114 RSA 2009
Bench Delhi
Appeal Number ITA 4051/DEL/2009
Duration Of Justice 6 month(s) 17 day(s)
Appellant DCIT, New Delhi
Respondent Tupperware India Pvt Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 23-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 23-04-2010
Date Of Final Hearing 20-04-2010
Next Hearing Date 20-04-2010
Assessment Year 2001-2002
Appeal Filed On 06-10-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : H NEW DELHI) BEFORE SHRI A.D. JAIN J UDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER ITA. NO.4051/DEL./2009 (ASSESSMENT YEAR : 2001-02) DCIT CIRCLE 16(1) VS. M/S TUPPERWARE INDIA PVT. LTD. NEW DELHI. 204-206 TOLSTOY HOUSE 15 TOLSTOY MARG NEW DELHI. (PAN/GIR NO.AACT3770D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PAWAN KUMAR REVENUE BY : SHRI SUKHESH JAIN SR.DR ORDER PER A.K. GARODIA AM THIS IS A REVENUE APPEAL DIRECTED AGAINST THE ORD ER OF THE CIT(A)-IX NEW DELHI FOR AY 2001-02. THE ONLY GROUND RAISED BY THE REV ENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS ERRED IN NOT SUSTAINING THE PENALTY TO THE EXTENT OF ADDITION OF RS.24 53 249/- SUSTAINED BY ITAT OUT OF TOTAL ADDITION OF RS.31 82 677/- MADE B Y THE AO ON ACCOUNT OF PROVISION FOR WARRANTY EXPENSES. 2. BRIEF FACTS ARE THAT IN THE PRESENT YEAR THE AS SESSMENT WAS COMPLETED BY THE AO AFTER MAKING ADDITION OF RS.31 82 677/- BEING THE A MOUNT OF PROVISION OF WARRANTY EXPENSES CLAIMED BY THE ASSESSEE. THERE WAS ONE MO RE ADDITION MADE BY THE AO OF RS.104.22 LAKHS ON ACCOUNT OF FOREIGN EXCHANGE LOSS BUT THIS DISALLOWANCE WAS DELETED BY THE TRIBUNAL AND HENCE THE ONLY DISPUTE BEFORE U S IS REGARDING THE PENALTY IMPOSED FOR FIRST DISALLOWANCE OF RS.31.82 LAKHS MADE BY THE AO ON ACCOUNT OF PROVISION OF WARRANTY EXPENSES. THE ASSESSEE HAS MADE PROVISION TO THE E XTENT OF 1% ON GROSS SALES. IN THE QUANTUM APPEAL THE TRIBUNAL HAS ALLOWED DEDUCTION TO THE EXTENT OF RS.7 29 428/- BEING THE EXTENT OF THE ACTUAL EXPENSES INCURRED BY THE ASSESSEE. IN THE MEANTIME THE AO INITIATED PENALTY AND LEVIED A PENALTY OF RS.53 33 101/- ON ACCOUNT OF BOTH THE ITA NO.4051/DEL./2009 (AY 2001-02) 2 DISALLOWANCES MADE BY THE AO ON ACCOUNT OF PROVISIO N FOR WARRANTY EXPENSES AND ALSO ON ACCOUNT OF FOREIGN EXCHANGE LOSS. AGAINST THE P ENALTY ORDER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO HAS DELETED THE ENTIRE PENALTY. PENALTY WAS PARTLY DELETED ON THE BASIS THAT SINCE THE DISALLOW ANCE OF FOREIGN EXCHANGE LOSS OF RS.104.22 LAKHS HAS BEEN DELETED BY THE TRIBUNAL T HERE IS NO CASE FOR LEVY OF PENALTY ON THAT ACCOUNT. REGARDING THE PENALTY IMPOSED BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROVISION OF WARRANTY EXPENSES THE CIT(A) HAD HELD THAT THE ASSESSEE HAS FURNISHED AN EXPLANATION WHICH IS A BONA FIDE ONE WITH SUFFICIEN T REASONS AND THE EXPLANATION WAS NEITHER FOUND FALSE NOR UNREASONABLE AND NO POSITIV E MATERIAL WAS BROUGHT ON RECORD TO PROVE THAT THE ASSESSEE HAS INFLATED THE PROVISION TO REDUCE THE TAXABLE INCOME AND HENCE THE PENALTY IS NOT LEVIABLE. NOW THE REVENUE IS I N APPEAL BEFORE US FOR THIS PART OF PENALTY WHICH WAS IMPOSED BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROVISION OF WARRANTY EXPENSES TO THE EXTENT CONFIRMED BY THE TR IBUNAL. 3. LD.DR OF THE REVENUE SUPPORTED THE PENALTY ORDER . AS AGAINST THIS LD.AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). HE ALS O PLACED RELIANCE ON THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. AS REPORTED IN 322 ITR 158. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDER OF THE AUTHORITIES BELO W. WE ALSO FIND THAT IN THE NOTES TO THE ACCOUNTS IT HAS BEEN STATED BY THE ASSESSEE COMPAN Y THAT PROVISION FOR WARRANTY EXPENSES IS MADE @ 1% ON GROSS SALES OF TUPPERWARE PRODUCTS BASED ON TECHNICAL ASSISTANCE AND EXPERIENCE. THIS NOTE IS AVAILABLE ON PAGE 23 OF T HE PAPER BOOK. FOR THIS DISPUTE IN THE PRESENT CASE THE EXPLANATION 1 TO SECTION 271(1)(C ) IS VERY MUCH RELEVANT AND HENCE WE REPRODUCE THE SAME HERE-IN-BELOW: [ EXPLANATION 1. WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMP UTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT ( A ) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFE RS AN EXPLANATION WHICH IS FOUND BY THE [ASSESSING] OFFICER OR THE [***] [COMM ISSIONER (APPEALS)] [OR THE COMMISSIONER] TO BE FALSE OR ITA NO.4051/DEL./2009 (AY 2001-02) 3 ( B ) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE [AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL I NCOME HAVE BEEN DISCLOSED BY HIM] THEN THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL FOR THE PURPOSES OF CLAUSE ( C ) OF THIS SUB-SECTION BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. 5. AS PER ABOVE EXPLANATION 1 IN FOLLOWING SITUATI ONS IT CAN BE HELD THAT ADDITION OR DISALLOWANCE REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. FIRST SITUATION IS WHEN THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION. SECOND SITUATION IS WHEN THE EXPLANATION OFFERED BY THE AS SESSEE IS FOUND TO BE FALSE. THIRD SITUATION IS WHEN THE EXPLANATION OFFERED BY THE AS SESSEE IS NOT FOUND TO BE FALSE BUT THE ASSESSEE COULD NOT SUBSTANTIATE HIS EXPLANATION AN D ALSO COULD NOT SATISFY THAT SUCH EXPLANATION IS BONA FIDE. FOURTH SITUATION IS WHEN IN SPITE OF BONA FIDE EXPLANATION IT IS FOUND THAT ALL THE FACTS RELATING TO THE SAME MATER IAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE NOT BEEN DISCLOSED BY THE ASSESSEE. IN THESE FOUR SITUATIONS IT IS DEEMED THAT SUCH ADDITION OR DISALLOWANCE REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. IN THE PRESENT CASE IT IS NOT THE CASE OF THE AO THAT NO EXPLANATION WAS OFFERED BY THE ASSESSEE. IT IS ALSO NOT THE CASE O F THE AO THAT THE EXPLANATION OFFERED BY THE ASSESSEE IS FALSE. NOW WE HAVE TO SEE AND EXA MINE AS TO WHETHER THE EXPLANATION OFFERED BY THE ASSESSEE IS BONA FIDE OR NOT AND WHE THER ALL THE FACTS RELATING TO SAME MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF THE ASSESSEE HAVE BEEN DISCLOSED BY THE ASSESSEE OR NOT. IT WAS THE SUBMISSION OF THE ASSE SSEE BEFORE THE AO THAT IT IS WORLDWIDE POLICY OF THE ASSESSEE COMPANY TO OFFER A LIFE TIME WARRANTY ON TUPPERWARE PRODUCTS BEING SOLD AND BASED ON WORLDWIDE PAST EXPERIENCE THE ASSESSEE COMPANY ESTIMATED THE EXPENDITURE ON ACCOUNT OF CARRYING OUT REPAIRS/REPL ACEMENT OF DAMAGED TUPPERWARE ITEMS SOLD IN INDIA AT THE RATE OF 1% OF GROSS SALE S. SUCH PROVISION WAS MADE BY THE ASSESSEE COMPANY @ 1% OF THE GROSS SALE. THE TRIBU NAL HAS ALSO ALLOWED DEDUCTION TO THE ASSESSEE COMPANY ON ACCOUNT OF WARRANTY EXPENSE S BUT THE SAME WAS RESTRICTED TO THE EXTENT OF ACTUAL EXPENDITURE INCURRED BY THE ASSESS EE COMPANY. THIS TRIBUNAL ORDER IN THE ASSESSEES CASE IN QUANTUM APPEAL AS APPEARING ON PAGES 46-49 OF THE PAPER BOOK. WHILE HOLDING THAT THE TRIBUNAL HAS FOLLOWED ANOTHE R TRIBUNAL DECISION IN ASSESSEES OWN ITA NO.4051/DEL./2009 (AY 2001-02) 4 CASE FOR AY 1999-2000 IN WHICH IT IS HELD BY THE TR IBUNAL THAT THE DEDUCTION ON ACCOUNT OF WARRANTY EXPENSES SHOULD BE ALLOWED ONLY ON ACTU AL BASIS AND THE REASON GIVEN BY THE TRIBUNAL IS THAT THIS WOULD ELIMINATE THE CHANCES O F EITHER MAKING A HIGHER OR LOWER CLAIM FOR ACTUAL LIABILITY INCURRED BY THE ASSESSEE UNDER THIS HEAD. THIS GOES TO SHOW THAT THE DEDUCTION WAS ALLOWED TO THE EXTENT OF ACTUAL EXPEN DITURE INCURRED BY THE TRIBUNAL ON THE BASIS THAT THIS WOULD ELIMINATE THE CHANCES OF EITH ER MAKING A HIGHER OR LOWER CLAIM FOR ACTUAL LIABILITY INCURRED BY THE ASSESSEE UNDER THI S HEAD AND THIS IS NOT THE BASIS AS PER THIS TRIBUNAL ORDER IN QUANTUM APPEAL THAT THE CLAIM MAD E BY THE ASSESSEE ON THE BASIS OF PROVISION FOR WARRANTY EXPENSES TO THE EXTENT OF 1% OF GROSS SALE VALUE IS EXCESSIVE OR UNREASONABLE ESTIMATE. THE TRIBUNAL HAS ADOPTED TH E BASIS OF ALLOWING EXPENDITURE TO THE EXTENT OF ACTUAL EXPENDITURE INCURRED BY THE ASSESS EE BUT THAT IS NOT THE END OF THE MATTER. SINCE THE WARRANTY PROVIDED BY THE ASSESSEE COMPANY IS LIFE TIME WARRANTY SUCH CLAM ON ACCOUNT OF SALES IN THE PRESENT YEAR CAN ARISE IN F UTURE YEARS ALSO AND IN SUCH YEAR IT HAS TO BE ALLOWED ON ACTUAL BASIS AND HENCE IT CANNOT BE S AID THAT THE ASSESSEE HAS MADE UNREASONABLE CLAIM ON THIS ACCOUNT . PROPER DISCLO SURE WAS DULY MADE BY THE ASSESSEE COMPANY IN ITS NOTES ON ACCOUNT AS AVAILABLE ON PAG E 23 OF THE PAPER BOOK AND IT HAS BEEN CLEARLY STATED IN SUCH NOTE THAT PROVISION FOR WARR ANTY EXPENSES IS MADE @ 1% OF GROSS SALES AND THE SAME IS BASED ON TECHNICAL ESTIMATE A ND EXPERIENCE. SINCE THIS IS ONLY THE FOURTH YEAR OF THE EXISTENCE OF THE ASSESSEE COMPA NY IN INDIA IT MAY BE THAT SUCH ACTUAL CLAIM ON ACCOUNT OF WARRANTY MAY BE LESS IN THE INI TIAL YEAS AND IT MAY GO UP IN SUBSEQUENT YEARS AND ONLY BECAUSE THE ACTUAL CLAIM IN INITIAL YEARS IS LESS IT CANNOT BE HELD THAT THE PROVISION MADE BY THE ASSESSEE COMPAN Y IS BOGUS. ALTHOUGH LD.AR OF THE ASSESSEE COULD NOT PRODUCE BEFORE US THE BASIS FOR ADOPTING 1% OF GROSS SALES FOR THIS PROVISION ON ACCOUNT OF WARRANTY EXPENSES WE ARE O F THE CONSIDERED OPINION THAT SINCE IT IS NOT THE BASIS ADOPTED BY THE TRIBUNAL IN QUANTUM APPEAL THAT THE PROVISION MADE BY THE ASSESSEE IS EXCESSIVE AND UNREASONABLE AND DEDUCTIO N WAS ALLOWED ON THE BASIS OF ACTUAL CLAIM LODGED WITH THE ASSESSEE COMPANY IN THE PRESE NT YEAR IT CANNOT BE HELD THAT BOGUS CLAIM WAS MADE BY THE ASSESSEE OR THAT THE PROVISIO NS MADE BY THE ASSESSEE COMPANY IS UNREASONABLE. IN THE TRIBUNAL ORDER OF THE ASSESSE E ITSELF FOR AY 1999-2000 WHICH IS AVAILABLE ON PAGES 52-71 OF THE PAPER BOOK THE TRI BUNAL HAS NOTED IN PARA. 14 YEAR-WISE PROVISION AND ACTUAL EXPENSES. WE FIND THAT THERE WAS NO ACTUAL EXPENSES IN THE INITIAL ITA NO.4051/DEL./2009 (AY 2001-02) 5 THREE YEARS I.E. AY 1997-98 98-99 & 1999-2000. TH E ACTUAL CLAIM IN AY 2000-01 WAS ONLY RS 2.23 LAKHS WHICH HAS RISEN TO RS.7.29 LAKHS IN AY 2001-02 TO RS.8.89 LAKHS IN AY 2002-03 TO RS.18.90 LAKHS IN AY 2003-04 TO RS.29 .04 LAKHS IN AY 2004-05 AND TO RS.35.03 LAKHS IN AY 2005-06. THIS GOES TO SHOW TH AT EVERY YEAR THE QUANTUM OF ACTUAL EXPENSES IS RISING AND HENCE IT CANNOT BE SAID THAT THE BASIS ADOPTED BY THE ASSESSEE COMPANY TO MAKE PROVISION @ 1% OF GROSS SALES IS AR BITRARY OR UNREASONABLE. UNDER THESE FACTS WE ARE OF THE CONSIDERED OPINION THAT HE EXPLANATION OFFERED BY THE ASSESSEE IN SUPPORT OF 1% PROVISION IS BONA FIDE AND THEREF ORE EXPLANATION 1 TO SECTION 271(1)(C) IS NOT APPLICABLE IN THE PRESENT CASE AND HENCE IN SPITE OF PART DISALLOWANCE HAVING BEEN CONFIRMED BY THE TRIBUNAL ON ACCOUNT OF PROVISION F OR WARRANTY EXPENSES WE FEEL THAT IT IS NOT A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C) BECAUSE SUCH DISALLOWANCE OF PART EXPENSES DOES NOT TAKE THE CHARACTER OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME BECAUSE OF BONA F IDE EXPLANATION FURNISHED BY THE ASSESSEE WHICH IS NOT FOUND TO BE FALSE AND ALTHOUG H THE ASSESSEE COULD NOT SUBSTANTIATE THIS EXPLANATION BUT IN OUR HUMBLE OPINION SUCH EX PLANATION IS BONA FIDE AND ALL NECESSARY FACTS ARE DISCLOSED AND HENCE THE SECTIO N 271(1)(C) IS NOT APPLICABLE AND WE THEREFORE FIND NO REASON TO INTERFERE IN THE ORDE R OF CIT(A) AS PER WHICH HE HAS DELETED THE PENALTY. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. 7. ORDER PRONOUNCED IN OPEN COURT ON 23.04.2010. SD/- SD/- (A.D. JAIN) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED APRIL 23 2010. SKB COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIX NEW DELHI. 5.CIT(ITAT) NEW DELHI. AR/ITAT ITA NO.4051/DEL./2009 (AY 2001-02) 6