ACIT, New Delhi v. M/s Hughes Network Systems India Ltd., New Delhi

ITA 4872/DEL/2010 | 2004-2005
Pronouncement Date: 26-12-2011 | Result: Dismissed

Appeal Details

RSA Number 487220114 RSA 2010
Assessee PAN AAACH3025R
Bench Delhi
Appeal Number ITA 4872/DEL/2010
Duration Of Justice 1 year(s) 1 month(s) 17 day(s)
Appellant ACIT, New Delhi
Respondent M/s Hughes Network Systems India Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 26-12-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 26-12-2011
Date Of Final Hearing 15-11-2011
Next Hearing Date 15-11-2011
Assessment Year 2004-2005
Appeal Filed On 08-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `C: NEW DELHI BEFORE SHRI G.D. AGRAWAL VICE PRESIDENT AND SHRI C.L. SETHI JUDICIAL MEMBER I.T. A. NOS.4611 & 4594/DEL/2010 ASSESSMENT YEARS : 2004-05 & 2005-06 M/S. HUGHES NETWORK SYSTEMS DY. COMMISSIONER OF INCOME-TAX INDIA LTD. 1 SHIVAJI MARG VS. CIRCLE 12(1) N EW DELHI. WESTERN GREENS NATIONAL HIGHWAY NO.8 NEW DELHI. PAN: AAACH3025R. I.T. A. NOS.4872 & 4873/DEL/2010 ASSESSMENT YEARS : 2004-05 & 2005-06 ASSTT. DIRECTOR OF INCOME-TAX M/S. HUGHES NETW ORK SYSTEMS INDIA LTD. CIRCLE 12(1) NEW DELHI. VS. B-25 SECOND FLOOR NIRLAC CENTRE QUTAB INSTITUTIONAL AREA NEW DELHI. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI AJAY VOHRA ADVOCATE SH. NEERAJ JAIN & MISS PINKY KAPOO R CA. DEPARTMENT BY : SHRI SALIL MIS HRA SR. DR. O R D E R PER BENCH: THESE FOUR APPEALS FILED BY BOTH THE REVENUE AND T HE ASSESSEE ARE DIRECTED AGAINST TWO SEPARATE ORDERS DATED 9.08.201 0 AND 19.08.2010 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT MADE BY THE ASSESSING OFFICER UNDER SEC. 143(3) OF THE INCOME- 2 TAX ACT 1961 (THE ACT) FOR THE ASSESSMENT YEARS 2 004-05 & 2005-06 RESPECTIVELY. 2. GROUND NO.1 IN REVENUES APPEALS FOR BOTH THE AS SESSMENT YEARS IS GENERAL IN NATURE WHICH NEED NO ADJUDICATION AS NO SPECIFIC ARGUMENTS WERE ADVANCED IN THAT REGARD. 3. GROUND NO.2 IN THE ASSESSMENT YEAR 2004-05 AND G ROUND NO.3 IN ASSESSMENT YEAR 2005-06 RAISED BY THE REVENUE ARE D IRECTED AGAINST THE CIT(A)S ORDER IN DELETING THE ADDITION OF RS.18 19 034/- OUT OF TOTAL ADDITION OF RS.24 25 379/- MADE IN THE ASSESSMENT Y EAR 2004-05 AND IN DELETING THE ADDITION OF RS.2 60 412/- OUT OF TOTAL ADDITION OF RS.3 47 216/- MADE IN THE ASSESSMENT YEAR 2005-06 BY THE ASSESS ING OFFICER ON ACCOUNT OF PROVISION MADE FOR IMPAIRMENT OF STOCK. 4. THE ONLY GROUND RAISED BY THE ASSESSEE IN BOTH T HE ASSESSMENT YEARS IS AGAINST SUSTAINING THE PART DISALLOWANCE TO THE EXTENT OF 25% OF TOTAL DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF PROVISION FOR IMPAIRMENT OF STOCK IN BOTH THE YEARS UNDER APPEAL. 5. SINCE THE ISSUES WITH REGARD TO THE ASSESSEES C LAIM OF PROVISION FOR IMPAIRMENT OF STOCK IN BOTH THE ASSESSMENT YEARS RA ISED BY THE REVENUE AS WELL AS BY THE ASSESSEE ARE IDENTICAL AND INTER-CON NECTED THESE GROUNDS ARE TAKEN TOGETHER FOR OUR DECISION. 3 6. FACTS OF THE CASE GIVING RISE TO THE AFORESAID I SSUES REGARDING ASSESSEES CLAIM OF PROVISION OF IMPAIRMENT OF STOC K AS BORNE OUT FROM THE ORDERS OF THE AUTHORITIES BELOW AND SUBMISSIONS OF THE ASSESSEE ARE SET-OUT IN BRIEF BELOW. 7. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MARKET VSAT EQUIPMENT AND PROVIDING TELECOM RELATED SERVICES IN INDIA. IT FILED ITS RETURN OF INCOME ON 30.10.2004 DECLARING TOTAL PROFIT OF R S.6 20 66 910/- FOR THE A.Y.2004-05. THE RETURN WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SEC. 143(2) WAS DULY ISSUED AND SERVED UPON THE ASSESSEE . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE PRODUCED AND S UBMITTED REQUISITE DETAILS WHICH WERE PLACED ON RECORD BY THE ASSESSI NG OFFICER. FROM THE SCHEDULE `G OF THE BALANCE-SHEET IT WAS NOTICED B Y THE ASSESSING OFFICER THAT THE ASSESSEE HAS SHOWN THE VALUE OF INVENTORIE S AFTER ADJUSTMENT OF RS.24 25 379/- ON ACCOUNT OF STOCK IMPAIRMENT DURIN G THE YEAR. THE ASSESSEE WAS ASKED TO SUBMIT THE VALUATION OF STOCK . FROM THE DETAILS FILED BY THE ASSESSEE IT WAS SEEN BY THE AO THAT THE STO CK WAS CLAIMED TO HAVE BEEN VALUED AT THE REALIZABLE VALUE. THE ASSESSEE WAS THUS ASKED TO GIVE THE BASIS OF THE REALIZABLE VALUE ADOPTED BY IT AND TO EXPLAIN AS TO WHY THE INVENTORY SHOULD NOT BE VALUED ON COST BASIS IN ABS ENCE OF EVIDENCE OF REALIZABLE VALUE. THE ASSESSEE SUBMITTED BEFORE TH E AO THAT THE INVENTORY 4 CONSISTS OF OLD/USED STOCK WHICH WAS CATEGORIZED A S DEFECTIVE BUT REPAIRABLE STOCK AND DEMO STOCK. IT WAS SUBMITTED BY THE ASS ESSEE THAT REPAIRABLE STOCK AND DEMO STOCK WERE VALUED AT THEIR NET REALI ZABLE VALUE. THE DEFECTIVE BUT REPAIRABLE STOCK WAS VALUED ON THE BA SIS OF ESTIMATE PROVIDED BY THE TECHNICAL DEPARTMENT WHILE THE DEMO STOCK WA S VALUED BY MAKING A SMALL REDUCTION IN ITS VALUE ON ACCOUNT OF ITS USE FROM YEAR TO YEAR. THE ASSESSEE SUBMITTED DETAILS REGARDING SOME ITEMS GIV ING REALIZABLE RATE AS ON 31.03.2003 VIS--VIS 31.03.2004. THE ASSESSING OFF ICER HAS CONSIDERED THE SUBMISSIONS OF THE ASSESSEE BUT HE WAS OF THE VIEW THAT THE ASSESSEE HAS NOT GIVEN ANY EVIDENCE IN SUPPORT OF THE REALIZABLE VAL UE TAKEN BY IT. THE AO FURTHER STATED THAT THE ASSESSEE COULD NOT SUBMIT E VEN THE POLICY ADOPTED BY IT FOR VALUATION OF THE CLOSING STOCK ON THE BASIS OF PERIOD OF USE BUT HAS MADE ONLY A GENERAL STATEMENT THAT THE VALUE IS RED UCED ON THE BASIS OF USE. THE AO THEREFORE IN THE ABSENCE OF ANY EVIDENCE IN SUPPORT OF THE CONTENTION OF THE ASSESSEE DISALLOWED THE ASSESSEE S CLAIM OF ADJUSTMENT OF RS.24 25 379/- TO THE VALUE OF STOCK INVENTORY AND MADE THE ADDITION OF THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ALTERNAT IVE REASON WAS ALSO GIVEN BY THE AO THAT THE ADJUSTMENT MADE BY THE ASSESSEE WAS ONLY NOTIONAL AND WITHOUT ANY BASIS AND IN CASE THE INVENTORY IS SOL D THE RESULTING LOSS AND GAIN WILL AUTOMATICALLY BE ACCOUNTED IN THAT YEAR A ND THEREFORE THERE WAS NO 5 NEED TO MAKE ANY ADJUSTMENT IN THAT REGARD ON PROVI SIONAL BASIS. BY GIVING THIS REASON ALSO THE CLAIM OF THE ASSESSEE WAS REJE CTED. 8. BEING AGGRIEVED THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). 9. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E AND THE AOS ORDER THE LEARNED CIT(A) RESTRICTED THE DISALLOWANCE TO 2 5% OF THE TOTAL DISALLOWANCE MADE BY THE AO AFTER PLACING A RELIANC E UPON THE DECISION OF ITAT CALCUTTA IN THE CASE OF JOINT COMMISSIONER OF INCOME-TAX VS. I.T.C. CALCUTTA AS REPORTED IN (2005) 299 ITR 341 (AT)(CAL .). THE RELEVANT OPERATIVE PORTION OF THE CIT(A)S ORDER IN A.Y. 200 4-05 RUNS AS UNDER:- I HAVE GONE THROUGH THE SUBMISSION OF THE APPELLA NT. EVEN AT THE APPELLATE STAGE THE ASSESSEE COULD NOT FURNISH THE DETAILS OF THE INVENTORY ON ACCOUNT OF WHICH IT HAS DEBITED ON AMOUNT OF RS.24 25 379/-. HOWEVER IT IS ACCEPTABL E THAT THERE CAN BE SOME DIMINISHING IN THE VALUE OF INVENTORY B UT IN THE ABSENCE OF COMPLETE DETAILS AND THE FACT AND EVEN A FTER BEING GIVEN REASONABLE AMOUNT OF OPPORTUNITY THE APPELLAN T COULD NOT FURNISH ANY DETAIL BEFORE THE A.O. OR AT THE APPELL ATE STAGE THEREFORE THE DISALLOWANCE IS RESTRICTED TO 25% OF THE TOTAL DISALLOWANCE MADE BY THE A.O. THE APPELLANT GETS A RELIEF OF RS.18 19 034/-. RELIANCE HAS BEEN PLACED IN THE CA SE OF JOINT COMMISSIONER OF INCOME TAX VS. I.T.C. CALCUTTA AS R EPORTED IN 299 ITR 0341[2005]. 10. THE DEPARTMENT IS IN APPEAL AGAINST THE CIT(A) S ORDER IN GRANTING A RELIEF OF RS.18 19 034/- OUT OF THE TOTAL ADDITION OF RS.24 25 379/- MADE BY 6 THE ASSESSING OFFICER WHILE THE ASSESSEE IS IN APPE AL IN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF 25% OF THE TOTAL DISA LLOWANCE MADE BY THE AO. 11. IN THE ASSESSMENT YEAR 2005-06 THE ASSESSEE HA D SHOWN THE VALUE OF INVENTORIES AFTER MAKING ADJUSTMENT OF RS.3 47 216/ - ON ACCOUNT OF STOCK IMPAIRED DURING THE YEAR. IN THE LINE OF THE REASO NS GIVEN BY THE A.O. IN THE A.Y. 2004-05 THE ASSESSEES CLAIM ON ACCOUNT OF RE DUCTION IN THE VALUE OF INVENTORIES ON ACCOUNT OF IMPAIRMENT OF STOCK TO TH E EXTENT OF RS.3 47 216/- HAS BEEN DISALLOWED. ON AN APPEAL THE LEARNED CIT (A) REDUCED THE DISALLOWANCE TO 25% OF TOTAL DISALLOWANCE OF RS.3 4 7 216/- MADE BY THE AO. BEING AGGRIEVED BOTH REVENUE AND ASSESSEE ARE IN A PPEAL BEFORE US. 12. THE LEARNED DR HAS SUBMITTED THAT THE ASSESSEE HAS FAILED TO FURNISH THE BASIS AND EVIDENCE IN SUPPORT OF THE NET REALIZ ABLE VALUE ADOPTED BY THE ASSESSEE FOR THE PURPOSE OF VALUING THE INVENTORIES WHICH ARE DEFECTIVE BUT REPAIRABLE AND WHICH ARE USED FOR DEMONSTRATION TO THE CUSTOMERS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT FURNISH ED ANY REPORT FROM TECHNICAL EXPERT TO SUPPORT THE NET REALIZABLE RATE OF VARIOUS ITEMS ADOPTED BY THE ASSESSEE. HE FURTHER POINTED OUT THAT THE ASSE SSEE HAS APPLIED AD HOC PERCENTAGE OF DEDUCTION TO THE COST PRICE WHICH CA NNOT BE SAID TO BE A SYSTEM RECOGNIZED UNDER THE PRINCIPLES OF LAW AND A CCOUNTANCY FOR THE PURPOSE OF VALUING THE INVENTORIES AT NET REALIZABL E VALUE. HE FURTHER 7 SUBMITTED THAT MERELY BECAUSE THE ASSESSEES CLAIM HAS BEEN ALLOWED IN THE ASSESSMENT YEAR 2003-04 THAT BY ITSELF CANNOT BE A BASIS TO ALLOW THE SAME IN THE YEARS UNDER CONSIDERATION UNLESS THE NET REA LIZABLE VALUE ADOPTED BY THE ASSESSEE IS SUPPORTED BY ANY EVIDENCES AND MATE RIAL. HE FURTHER POINTED OUT THAT IN SOME OF THE ITEMS EVEN THE VALUE HAS B EEN TAKEN AT `NIL WHICH IS NOT AT ALL JUSTIFIABLE INASMUCH AS THERE MUST BE SO ME VALUE OF STOCK EVEN IF IT IS SOLD IN THE MARKET AS A SCRAP. 13. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OT HER HAND SUBMITTED THAT THE ASSESSEE AS PER THE CONSISTENT METHOD OF VALUAT ION OF STOCK HAS VALUED THE CLOSING STOCK AT COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER AND IN SOME ITEMS OF INVENTORIES THE NET REALIZABLE VALUE HAS BEEN TAKEN AT `NIL BECAUSE OF THE REASON THAT THESE STOCKS COULD NOT B E SOLD IN THE MARKET AND AS SUCH THE MARKET PRICE IN THE INSTANT CASE WOULD BE `NIL. HE FURTHER SUBMITTED THAT THE NET REALIZABLE RATE HAS BEEN TAK EN AS PER THE ASSESSMENT MADE BY THE PERSON OF TECHNICAL DIVISION OF THE ASS ESSEE COMPANY. HE FURTHER SUBMITTED THAT THE DECISION OF INCOME-TAX A PPELLATE TRIBUNAL SPECIAL BENCH IN THE CASE OF JCIT VS. I.T.C. CALCUT TA REPORTED IN 299 ITR 0341 (AT) IS NOT APPLICABLE TO THE PRESENT CASE INA SMUCH AS IN THE PRESENT CASE THE ASSESSEE HAS FURNISHED THE DETAILS OF INV ENTORIES AND THE RATE AT WHICH THEY WERE VALUED FOR THE PURPOSE OF DETERMINI NG THE VALUE OF CLOSING 8 STOCK AT THE END OF THE YEAR. IN SUPPORT OF THE AS SESSEES CASE THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE VARIOUS DE CISIONS WHICH WILL BE REFERRED TO HEREINAFTER BY US WHILE DECIDING THE IS SUE. 14. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 15. FROM THE ORDER OF THE ASSESSING OFFICER WE FIN D THAT THE ASSESSEE HAD SUBMITTED THE DETAILS OF INVENTORY CONSISTED OF OLD /USED STOCK WHICH IS CATEGORIZED AS DEFECTIVE BUT REPAIRABLE STOCK AND DEMO STOCK. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT THE ST OCKS WERE VALUED AT THEIR NET REALIZABLE VALUE. THE ASSESSEE SUBMITTED THE D ETAILS GIVING REALIZABLE RATE AS ON 31.03.2003 AND AS ON 31.03.2004. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE A.Y. 2004-05 THE ASSESSEE SUBM ITTED ITS REPLY DATED 27.12.2006 ENCLOSING THEREWITH THE WORKINGS FOR VAL UATION OF CLOSING STOCK OF INVENTORY WHICH ARE PLACED AT PAGES 26 TO 33 OF THE PAPER BOOK FILED BY THE ASSESSEE. IT IS THEREFORE NOT CORRECT TO SAY THAT THE ASSESSEE HAS NOT PRODUCED THE VALUATION OF STOCK FOR DEFECTIVE ITEMS AS WELL AS DEMO STOCK. NO DEFECT HAS BEEN POINTED OUT BY THE AO. THE RATE AT WHICH THE STOCK HAS BEEN VALUED HAS BEEN GIVEN IN DETAILS FILED. ON PE RUSAL OF THE DETAILS OF VALUATION OF STOCK WE FIND THAT THE ASSESSEE HAS T AKEN `NIL VALUE IN RESPECT OF CERTAIN ITEMS BOTH UNDER THE HEAD DEMO STOCK AS WELL AS IMPAIRED STOCK. 9 FROM THE PERUSAL OF THE DETAILS OF INVENTORY VALUAT ION AS ON MARCH 31 2004 FURNISHED BY THE ASSESSEE BEFORE THE AO A COPY OF WHICH IS PLACED AT PAGE 27 OF THE PAPER BOOK FILED BY THE ASSESSEE BEFORE U S FOR THE ASSESSMENT YEAR 2004-05 WE FIND THAT THE GROSS VALUE OF USED STOCK WAS TAKEN AT RS.2 08 58 066/- AND THE NET REALIZABLE VALUE HAS B EEN TAKEN AT RS.1 23 94 911/-. IN THIS WAY THE ASSESSEE HAS DE VALUED THE VALUE OF USED STOCK BY RS.84 63 155/- I.E. RS.2 08 58 066/- RS. 1 23 94 911/-. OUT OF THE AFORESAID DEVALUATION TO THE EXTENT OF RS.84 63.155 /- AN AMOUNT OF RS.60 37 776/- HAS ALREADY BEEN BOOKED IN THE PRECE DING YEAR ENDED ON MARCH 31 2003 AND THE BALANCE AMOUNT OF DEVALUATIO N OCCURRED DURING THIS YEAR AMOUNTING TO RS.24 25 379/- HAS BEEN CLAIMED I N THE YEAR UNDER CONSIDERATION ON ACCOUNT OF DEVALUATION DUE TO WEAR AND TEAR OF EQUIPMENTS AS WELL AS DEFECTIVE EQUIPMENTS. THE ASSESSEE HAS FURNISHED THE COMPARATIVE CHART OF REALIZABLE RATE AS ON 31.03.2003 VIS--VIS AS ON 31.03.2004 IN RESPECT OF CERTAIN ITEMS. FOR INSTANCE IN RESPECT OF ITEM SAT-ANT-REFL- KU-1.2M-PROD THE ASSESSEE HAS TAKEN A REALIZABLE R ATE AT RS.4 000/- PER PIECE AS AGAINST RS.6000/- BEING REALIZABLE RATE AS ON 31.03.2003. ON AN AVERAGE THE REALIZABLE RATE AS ON 31-03-2004 HAS B EEN ADOPTED BY GIVING A DISCOUNT FROM 10% TO 30% ON THE NET REALIZABLE RATE TAKEN AS ON 31.03.2003. IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR ENDED ON 31 ST MARCH 2003 THE 10 ASSESSEE HAD VALUED THE USED MATERIAL AT NORMAL VAL UE OF RS.2 30 29 825/- AND NET REALIZABLE VALUE OF THE SAME HAS BEEN TAKEN AT RS.1 69 93 049/- THEREBY GIVING A REDUCTION TO THE EXTENT OF RS.60 3 6 776/- TO THE NORMAL VALUE ON ACCOUNT OF WEAR AND TEAR TO THE EQUIPMENTS AND THE AFORESAID SUM OF RS.60 36 776/- WAS CLAIMED AS DEVALUATION IN THE VALUE OF INVENTORIES IN THAT YEAR WHICH HAS BEEN ALLOWED BY THE AO. NO SU CH DEVALUATION SEEMS TO HAVE BEEN CLAIMED IN THE YEAR ENDED ON MARCH 31 20 02 AS IS EVIDENT FROM THE INVENTORY VALUATION AS ON MARCH 31 2003 A COP Y OF WHICH IS PLACED AT PAGE 31 OF THE PAPER BOOK. THE ASSESSEE HAS ALSO F URNISHED THE VALUATION OF STOCK USED FOR DEMONSTRATION TO CUSTOMERS AS ON 31 ST MARCH 2004 AND DETAILS OF THE ITEM-WISE NET REALIZABLE VALUE AS COMPARED T O THE COST PRICE HAS BEEN FURNISHED A COPY OF WHICH IS PLACED AT PAGES 32 TO 33 OF THE PAPER BOOK FILED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2004-0 5. THE ASSESSEE HAS ALSO GIVEN THE DETAILS OF IMPAIRMENT OF STOCK WHICH ARE DEFECTIVE AND REPAIRABLE BY GIVING THE DETAILS OF COST VIS--VIS THE NET REA LIZABLE VALUE AS ON 31.03.2004 AND HOW A SUM OF RS.84 63 155/- HAS BEEN ARRIVED AT. ALL THESE DETAILS WERE AVAILABLE BEFORE THE AO. THE SAME MET HOD WAS ADOPTED BY THE ASSESSEE IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2003-04 WHERE VALUE ON ACCOUNT OF IMPAIRMENT WAS REDUCED BY RS.60 37 77 6/- WHICH WAS CLAIMED AND ALLOWED IN THE ASSESSMENT YEAR 2003-04. THE AO HAS NOT BEEN ABLE TO 11 POINT OUT ANY ITEM WHERE THE NET REALIZABLE RATE TA KEN BY THE ASSESSEE WAS NOT REASONABLE BUT HAS BEEN ADOPTED TO REDUCE THE P ROFIT OF THE ASSESSEE TO AVOID THE PAYMENT OF TAXES. 16. SIMILARLY ON PERUSAL OF THE VARIOUS DOCUMENTS PLACED IN THE PAPER BOOK FOR THE ASSESSMENT YEAR 2005-06 FILED BY THE A SSESSEE WE FIND THAT THE ASSESSEE VIDE LETTER DATED 18 TH DECEMBER 2007 HAS FURNISHED BEFORE THE ASSESSING OFFICER THE DETAILS ABOUT THE NOTE ON ALL OWABILITY OF IMPAIRMENT OF STOCK AND THE BASIS OF VALUATION OF CLOSING STOCK A DOPTED BY THE ASSESSEE. NOTE ON ALLOWABILITY OF IMPAIRMENT OF STOCK WAS ANN EXED AS ANNEXURE-4 TO THE AFORESAID LETTER OF THE ASSESSEE DATED DECEMBER 18 2007 WHERE IT WAS SUBMITTED THAT THE ASSESSEE AS PER THE CONSISTENT M ETHOD OF VALUATION OF STOCK VALUED THE CLOSING STOCK AT COST OR NET REAL IZABLE VALUE WHICHEVER IS LOWER. IT WAS FURTHER SUBMITTED THAT THE STOCK WH ICH COULD NOT BE SOLD IN THE MARKET AT ALL HAD BEEN VALUED AT NET REALIZABLE VA LUE OF RS. `NIL AND IN RESPECT OF SOME OTHER STOCK THE VALUE WAS TAKEN AT NET REALIZABLE VALUE AT WHICH THE STOCK COULD BE SOLD. IN THAT YEAR I.E. A SSESSMENT YEAR 2005-06 THE ASSESSEE HAS CLAIMED IMPAIRMENT OF STOCK TO THE EXTENT OF RS.3 47 216/- ONLY WHICH HAS BEEN DISALLOWED BY THE AO. THE ASS ESSEE HAS SUBMITTED THE DETAILS OF VALUATION OF STOCK ALONG WITH RELATED CO MPUTATION OF ITS VALUE A 12 COPY OF WHICH IS PLACED AT PAGES 93 TO 97 OF THE PA PER BOOK FILED BY THE ASSESSEE. 17. IT IS NOT IN DISPUTE THAT AS PER THE SETTLED LAW LAID DOWN BY VARIOUS COURTS FROM TIME TO TIME THE ASSESSEE IS ENTITLED TO VALUE CLOSING STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER. IN OTHER WORDS THE METHOD OF VALUING THE CLOSING STOCK AT COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER BY THE ASSESSEE CANNOT BE SAID TO BE UNACCEPTABLE. THE ASSESSEE HAS RELIED UPON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASES OF CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SC) & CIT VS. BRITISH PAINTS INDIA LTD. (1991) 188 ITR 44 (SC) WHERE IT HAS BEEN HELD THAT IT IS A WELL RECOGNIZED PRINCIPLE OF COMMERCIAL ACCOUNTING TO EN TER IN THE PROFIT AND LOSS ACCOUNT THE VALUE OF THE STOCK AND TRADE AT THE BEG INNING AND AT THE END OF THE ACCOUNTING YEAR AT COST OR MARKET PRICE WHICHE VER IS THE LOWER. THE ASSESSEE ALSO MADE A REFERENCE TO THE DECISION OF H ONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARAT COMMERCE AND INDUSTRI ES LTD. (1999) 240 ITR 256 (DEL) WHERE IT WAS HELD THAT THE ASSESSEE MAY VALUE SLOW MOVING STOCK AT THE NET REALIZABLE VALUE. REFERENCE WAS ALSO MA DE TO SOME OTHER DECISIONS REITERATING THE SAME PRINCIPLE THAT THE ASSESSEE IS ENTITLED TO VALUE THE GOODS AT A LOWER COST OR MARKET PRICE AND IF THERE IS NO DEMAND FOR THE GOODS IN THE 13 MARKET THE ASSESSEE IS ENTITLED TO VALUE GOODS AT `NIL. IN THIS REGARD FOLLOWING SOME MORE DECISIONS HAVE BEEN RELIED UPON BY THE ASSESSEE:- (I) K. MOHAMMAD ADAM SAHIB VS. CIT 56 ITR 360 (MAD .). (II) INDIA MOTOR PARTS AND ACCESSORIES (P) LTD. VS. CIT 60 ITR 531 (MAD.). (III) CIT VS. DALMIA CEMENT (BHARAT) LTD. 215 ITR 441 (DEL). (IV) IAC VS. CONSOLIDATED PNEUMATIC TOOL CO. (INDIA ) LTD. 14 ITD 564 (BOM.). 18. IN THE PRESENT CASE AS DISCUSSED ABOVE THE AS SESSEE HAS BEEN FOLLOWING THE CONSISTENT METHOD OF VALUING THE CLOS ING STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER AND THIS SYSTEM A DOPTED BY THE ASSESSEE IS A PRINCIPLE ACCEPTED BY THE VARIOUS COURTS AS NOTED ABOVE. THE ASSESSEE HAS FURNISHED THE DETAILS OF INVENTORY WITH THEIR RESPE CTIVE NET REALIZABLE VALUE AS AT THE END OF THE YEAR. SAME METHOD WAS ADOPTED IN THE ASSESSMENT YEAR 2003-04 WHERE THE ASSESSEES CLAIM HAS BEEN ACCEPTE D. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECT OR IRREGULAR ITY IN THE DETAILS OF RATE ADOPTED BY THE ASSESSEE FOR VALUING THE STOCK AT NE T REALIZABLE VALUE BY MAKING ANY ENQUIRY OR BY UNDERTAKING AN EXERCISE TO ASCERTAIN THE NET REALIZABLE VALUE AS AT THE END OF THE RESPECTIVE YE ARS. WE FURTHER FIND THAT THE AO HAS FAILED TO POINT OUT ANY SPECIFIC ITEM IN RESPECT OF WHICH THE NET REALIZABLE VALUE ADOPTED BY THE ASSESSEE WAS FOUND TO BE NOT JUSTIFIED OR EXCESSIVE HAVING REGARD TO THE NATURE OF THE ITEM A ND THE COST INCURRED BY THE 14 ASSESSEE. THE LEARNED CIT(A) HAS RESTRICTED THE DI SALLOWANCE TO 25% ON AD HOC BASIS BY OBSERVING THAT THE ASSESSEE COULD NOT FURNISH THE DETAILS OF INVENTORIES ON ACCOUNT OF WHICH IT HAS DEVALUED TH E STOCK BY RS.24 25 379/-. IN THIS RESPECT THE LEARNED CIT(A) HAS FAILED TO E XAMINE AND VERIFY THE VARIOUS DETAILS FILED BY THE ASSESSEE BEFORE THE AO AND HAS SIMPLY DISALLOWED THE ASSESSEES CLAIM TO THE EXTENT TO 25 % OF THE TOTAL CLAIM MADE BY THE ASSESSEE. SINCE THE DEVALUATION OF STOCK TO THE EXTENT OF RS.60 37 776/- CLAIMED IN THE ASSESSMENT YEAR 2003- 04 HAS BEEN ACCEPTED BY THE REVENUE WE DO NOT FIND ANY REASON TO DISALL OW THE ASSESSEES CLAIM IN THE YEAR UNDER CONSIDERATION WHEN THE ASSESSEE HAS FOLLOWED THE SAME SYSTEM OF VALUING THE STOCK AT NET REALIZABLE VALUE WHICH HAS BEEN DETERMINED BY THE ASSESSEE HAVING REGARD TO THE NAT URE OF THE INVENTORIES AND THE DEFECT OR IMPAIRMENT EMBEDDED THEREIN. IT IS P ERTINENT TO NOTE THAT IN THE ASSESSMENT YEAR 2005-06 THE ASSESSEE HAS MERELY CL AIMED THE DEVALUATION IN THE STOCK TO THE EXTENT OF RS.3 47 216/- ONLY AG AINST RS.24 25 379/- CLAIMED IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2004-05 AND RS.60 37 776/- CLAIMED IN THE ASSESSMENT YEAR 2003- 04 INASMUCH AS THE STOCKS WERE MOSTLY BECAME DEFECTIVE BY 31-03-2003 A ND 31-03-2004 AND SLIGHTLY BECAME MORE DEFECTIVE IN THE ASSESSMENT YE AR 2005-06. THUS IT IS NOT A CASE WHERE THE ASSESSEE HAS ADOPTED A PRACTIC E TO DEVALUE THE STOCK AT 15 ITS OWN WILL AND DESIRE WITHOUT HAVING ANY REGARD T O THE NET REALIZABLE VALUE OF THE ASSET AT A PARTICULAR DATE. IN THIS VIEW O F THE MATTER WE THEREFORE DELETE THE DISALLOWANCE OF ASSESSEES CLAIM TO THE EXTENT OF 25% SUSTAINED BY THE LEARNED CIT(A) AND ALLOW THE ASSESSEES TOTAL C LAIM MADE IN THE RETURN OF INCOME IN BOTH THE ASSESSMENT YEARS. 19. IN THE RESULT THIS GROUND RAISED BY THE REVENU E IN BOTH THE ASSESSMENT YEARS IS REJECTED AND THAT OF THE ASSESSEE IS ALLOW ED. 20. GROUND NO.3 RAISED BY THE REVENUE IN A.Y. 2004- 05 IS WITH REGARD TO THE ADDITION OF RS.7 93 503/- ON ACCOUNT OF CUSTOM DUTY DEPOSITED WITH SPECIAL VALUATION BRANCH (SVB) LOADING WHICH HAS B EEN DELETED BY THE LEARNED CIT(A). 21. THE ASSESSEES CLAIM OF DEDUCTION OF RS.7 93 50 3/- LOADING WITH CUSTOMS DEPARTMENT HAS BEEN DISALLOWED BY THE A.O. BY GIVING A REASON THAT THE ASSESSEE IN ITS LETTER DATED 31-10-2006 HAS ST ATED THAT IT HAS NOT DEPOSITED ANY AMOUNT AS SVB LOADING DURING THE RELEVANT YEAR. 22. ON AN APPEAL THE LEARNED CIT(A) DIRECTED TO VE RIFY WHETHER ANY ACTUAL PAYMENT HAS BEEN MADE TO THE CUSTOM AUTHORIT IES OR NOT AND IF THE PAYMENT HAS BEEN MADE FOR THIS YEAR THEN THAT AMOU NT MAY BE ALLOWED U/S 43B AND HOWEVER LIABILITY WOULD BE LIMITED TO THE ACTUAL PAYMENT THAT IS RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . 16 23. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT T HE A.O. HAS DISALLOWED THE ASSESSEES CLAIM OF PAYMENT OF RS.7 93 503/- ON THE GROUND THAT NO SUCH PAYMENT WAS MADE BY THE ASSESSEE TO THE CUSTOM AUTH ORITY IN THE RELEVANT YEAR THOUGH THE ASSESSEE HAS CLAIMED BEFORE THE LEA RNED CIT(A) THAT SUCH PAYMENT WAS MADE AT THE TIME OF OBTAINING THE POSSE SSION OF THE IMPORTED GOODS FROM THE CUSTOMS AUTHORITIES AND AS PER PROVI SIONAL DEMAND RAISED BY THE CUSTOMS AUTHORITIES. IN THIS SITUATION THE LE ARNED CIT(A) HAS DIRECTED THE A.O. TO VERIFY THE POSITION AND IF FOUND THAT T HE PAYMENT HAS BEEN MADE FOR THIS YEAR THE DEDUCTION SHALL BE ALLOWED TO TH E EXTENT OF LIABILITY THAT IS RELEVANT TO THE YEAR UNDER APPEAL. FROM THE ORDER OF THE LEARNED CIT(A) IT IS SEEN THAT OBJECTION RAISED BY THE A.O THAT NO SUCH PAYMENT HAS BEEN MADE IN THE RELEVANT YEAR HAS BEEN DULY CONSIDERED BY HIM BY DIRECTING THE A.O. TO VERIFY WHETHER THE PAYMENT HAS BEEN MADE OR NOT IF NO PAYMENT IS MADE THE QUESTION OF ALLOWING DEDUCTION WOULD NOT ARISE. IN THESE CIRCUMSTANCES WE DO NOT FIND ANY FAULT WITH THE LEARNED CIT(A)S ORDER ON THIS COUNT WHICH IS ACCORDINGLY UPHELD. AT THIS STAGE WE MAY NOTE THAT IDENTICAL ISSUE HAD COME BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HUGHES ESCORTS COMMUNICATIONS LTD. (2008) 170 TAXMA N 570 (DELHI) WHERE THE HONBLE HIGH COURT HAS HELD AS UNDER:- 5. WE FIND FROM A PERUSAL OF THE ORDER PASSED BY T HE TRIBUNAL THAT THE ASSESSEE REALLY HAD NO OPTION BUT TO MAKE THE 17 PAYMENT AS PER THE DEMAND NOTICE ISSUED BY THE CUST OMS AUTHORITIES. AT THE TIME OF MAKING THE PAYMENT IT WAS NOT KNOWN WHETHER THE DEMAND WOULD FALL SHORT OF THE AC TUAL LIABILITY OR IN EXCESS OF THE ACTUAL LIABILITY. TA KING THIS INTO CONSIDERATION THE TRIBUNAL FELT THAT IT WOULD NOT BE APPROPRIATE TO LIMIT THE CLAIM OF THE ASSESSEE ONLY TO THE EXTE NT OF THE ACTUAL LIABILITY. IT WAS FOUND THAT THERE IS NO ERROR IN D IRECTING THE ASSESSING OFFICER TO MAKE A VERIFICATION WITH REGAR D TO THE EXCESS PAYMENT IF ANY AND TO TAX THE AMOUNT IF IT HAS NOT ALREADY BEEN TAXED. THE TRIBUNAL ALSO LIMITED THE LIABILITY OF THE ACTUAL AMOUNT TO THE ASSESSMENT YEAR UNDER CONS IDERATION. 6. WE CANNOT FIND ANY FAULT IN THE VIEW TAKEN BY TH E TRIBUNAL PRIMARILY BECAUSE THE LIABILITY WAS REQUIR ED TO BE DISCHARGED BY THE ASSESSEE ON DEMAND AND THE ASSESS EE HAD NO OPTION BUT TO MAKE THE PAYMENT. THIS CLEARLY FALLS WITHIN SECTION 43B(A) OF THE ACT. 7. LEARNED COUNSEL FOR THE REVENUE CONTENDED THAT T HE AMOUNT DEPOSITED BY THE ASSESSEE IS NOT CUSTOMS DUT Y AT ALL. NO SUCH ARGUMENT WAS CANVASSED BEFORE THE TRIBUNAL AND WE CANNOT PERMIT LEARNED COUNSEL TO RAISE SUCH AN ARGU MENT AT THIS STAGE. 24. IDENTICAL GROUND HAS ALSO BEEN RAISED BY THE RE VENUE VIDE GROUND NO.2 IN A.Y. 2005-06 REGARDING ASSESSEES CLAIM O F DEDUCTION OF RS.45 556/- ON ACCOUNT OF CUSTOM DUTY DEPOSITED WIT H SPECIAL VALUATION BRANCH (SVB) LOADING WHICH HAS BEEN DISALLOWED BY THE A.O. FOR THE REASON THAT IT WAS MERELY A PAYMENT IN ADVANCE AND CAN NOT BE CONSTRUED TO BE A SUM PAYABLE BY THE ASSESSEE DURING THE YEAR UN DER CONSIDERATION. ON AN APPEAL THE CIT(A) DIRECTED THE A.O. TO VERIFY THE AMOUNT WHICH PERTAIN TO THE RELEVANT YEAR UNDER CONSIDERATION AND ALLOW TH E SAME AS DEDUCTION. IT IS 18 THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE HAD TO PAY THE SUM OF RS.45 556/- ON ACCOUNT OF PROVISIONAL CUSTOM DUTY AT THE TIME O F OBTAINING POSSESSION OF THE IMPORTED GOODS FROM THE CUSTOMS AUTHORITIES AND AS PER DEMAND NOTICE ISSUED BY THE CUSTOMS AUTHORITIES. IN THE LIGHT OF THE FACTS OF THE PRESENT CASE AND IN VIEW OF THE DECISION OF HONBLE DELHI HIGH C OURT IN THE ABOVE REFERRED CASE OF CIT VS. HUGHES ESCORTS COMMUNICATI ON LTD. (SUPRA) WE FIND NO FAULT WITH THE LEARNED CIT(A)S ORDER ON TH IS POINT IN THIS A.Y. 2005- 06. THE ORDER OF THE LEARNED CIT(A) IS THUS UPHELD . 25. TO SUM UP GROUND NO.3 AND GROUND NO.2 RAISED B Y THE REVENUE ON THE ISSUE OF ASSESSEES CLAIM OF DEDUCTION ON ACCOU NT OF PAYMENT OF CUSTOM DUTY ARE REJECTED AND THE ORDER OF THE LEARNED CIT (A) IS UPHELD IN BOTH THE ASSESSMENT YEARS 2004-05 AND 2005-06 RESPECTIVELY. 26. GROUND NO.4 IN BOTH THE ASSESSMENT YEARS 2004-0 5 AND 2005-06 IS REGARDING ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF PROVISION FOR WARRANTY MADE IN THE PROFIT & LOSS ACCOUNT. 27. THE ASSESSEES CLAIM FOR PROVISION OF WARRANTY EXPENSES OF RS.1 04 48 758/- IN A.Y. 2004-05 HAS BEEN DISALLOWE D BY THE A.O. BY OBSERVING AS UNDER:- 7. ASSESSEE HAS MADE CLAIM OF WARRANTY EXPENSES OF RS.10448758/- WHICH IS AN ESTIMATE OF EXPENSES LIK ELY TO BE INCURRED ON SUPPLY OF TELECOM EQUIPMENT. AR FURTHE R CONTENDS THAT WITHOUT PROVISION FOR WARRANTY THE ACCOUNTS WI LL NOT REFLECT 19 TRUE AND FAIR VIEW OF THE FINANCIAL RESULT. CONTEN TIONS OF AR THOUGH MERITORIOUS OVER LOOKED THE FACT THAT COMPUT ATION OF INCOME CHARGEABLE TO TAX IS A PROCEDURE DIFFERENT F ROM THAT OF COMPUTING FAIR ACCOUNTING VIEW BASED ON CONSERVATIS M. DESPITE GREAT MATHEMATICAL ACCURACY USED IN COMPUTA TION OF WOULD BE EXPENSE ON WARRANTY IT STILL REMAINS THE F ACT THAT THE EXPENSE HAS STILL NOT BEEN INCURRED. THE PROVISION IS BASED ON ESTIMATION OF PROBABILITY OF SUCH EXPENSE BEING INC URRED IN FUTURE. FOR COMPUTATION OF INCOME CHARGEABLE TO TA X FOR THIS ASSESSMENT YEAR 2004-05 THE PROVISION CANNOT BE ALL OWED AS DEDUCTION AND IS HENCE ADDED BACK TO THE DECLARED I NCOME. 28. SIMILARLY THE CLAIM OF WARRANTY EXPENSES AMOUN TING TO RS.87 41 759/- IN A.Y. 2005-06 HAS BEEN DISALLOWED BY THE A.O. FOR THE REASON THAT THE ASSESSEE HAS FAILED TO FURNISH ANY EVIDENCES TO PROVE THAT THIS LIABILITY OF WARRANTY HAS ACTUALLY BEEN ASCERTAINED AND INCURRED BY THE ASSESSEE. 29. ON AN APPEAL THE LEARNED CIT(A) ALLOWED THE AS SESSEES CLAIM AFTER FOLLOWING THE DECISION OF THE TRIBUNAL IN A.Y. 2003 -04 IN THE ASSESSEES OWN CASE. 30. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORDS. 31. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT DATE D 18.02.2002 WITH HUGHES ESCORTS CO. LTD. (HECL) WHEREUNDER HECL HAD ENSURED WARRANTY SUPPORT TO THE ASSESSEE IN RESPECT OF SALE OF CERTA IN HARDWARE EQUIPMENTS TOGETHER WITH PROVIDING CERTAIN SERVICES WITH RESPE CT TO PROVIDING LOGISTIC SUPPORT FOR SALE OF CERTAIN HARDWARE EQUIPMENTS. T HE WARRANTY SUPPORT WAS REQUIRED TO BE PROVIDED FOR A PERIOD OF ONE YEAR FR OM THE DATE OF 20 DELIVERY/INSTALLATION OF THE EQUIPMENT AND IT WOUL D INCLUDE REPLACEMENT REPAIRING AND PROVIDING ONSITE SUPPORT AS AND WHEN REQUIRED AND IN CONSIDERATION OF WHICH THE ASSESSEE WAS REQUIRED T O PAY AN AMOUNT UPTO 2% OF THE EQUIPMENT SALES TO HECL. THE ASSESSEE THUS MADE A PROVISION OF WARRANTY LIABILITY IN THE LIGHT OF THE SAID AGREEM ENT. THE TRIBUNAL IN A.Y. 2003-04 VIDE ORDER DATED 20.03.2008 IN ITA NO.1333/ DEL/2007 ALONG WITH ITA NO.174(DEL)/2007 HAS ACCEPTED THE ASSESSEES CL AIM OF DEDUCTION FOR WARRANTY EXPENSES BY OBSERVING AND HOLDING AS UNDER :- 57. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS IN THE LIGHT OF MATERIALS PLACED BEFORE US. A FINDING OF FACT HAS BEEN RECORDED BY THE CIT(A) THAT WARRANTY COST FOR THE Y EAR UNDER APPEAL TO THE ASSESSEE IS A SUM OF RS.85 05 516/- W HICH IS 1.51% TURN OVER AS COMPARED TO SIMILAR WARRANTY EXP ENSES OF 1.48% OF THE TURN OVER FOR THE IMMEDIATE PRECEDING YEAR. THIS FINDING OF LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE REVENUE. THE LAW THAT WHETHER THE BUSINESS LIABILITY IS CONT INGENT OR ASCERTAINED IS WELL SETTLED BY THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LTD. (SUPR A) WHEREIN IT WAS OBSERVED THAT IF A BUSINESS LIABILITY IS DEF INITELY ARISEN IN THE ACCOUNTING YEAR THE DEDUCTION SHOULD BE ALLOWE D ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHAR GED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRI NG OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTI MATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATI ON MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED TH E LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRESENTI THOUGH IT WILL BE DISCHARGED AT FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE T O BE DISCHARGED IS NOT CERTAIN. THE OBSERVATIONS OF THE IR LORDSHIPS FROM THE SAID DECISION ARE REPRODUCED BELOW FOR THE SAKE OF CONVENIENCE:- 21 THE LAW IS SETTLED: IF A BUSINESS LIABILITY IS DEFINITELY ARISEN IN THE ACCOUNTING YEAR THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPA BLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY I S IN PRESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. 58. CONSIDERING THE CLAIM OF THE ASSESSEE IN VIEW O F THE ABOVE MENTIONED OBSERVATIONS OF THEIR LORDSHIPS WE FIND THAT THE LD. CIT(A) HAS RIGHTLY HELD THAT SUCH CLAIM OF THE ASSESSEE IS ALLOWABLE. THEREFORE WE DECLINE TO INTERFERE AND THE DEPARTMENTAL APPEAL IS DISMISSED. 32. IN THIS CONNECTION RELIANCE MAY BE PLACED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROL INDIA P. LTD. VS. CIT AND SOME OTHER RELATED CASES (2009) 314 ITR 62 (SC) WHERE IT HAS BEEN HELD THAT WHEN WARRANTY IS AN INTEGRAL PART OF THE SALE PRICE IT STOOD ATTACHED TO THE SALE PRICE OF THE PRODUCT AND IN THAT CASE THE WARRANTY PROVISIONS HAD TO BE RECOGNIZED BECAUSE THE ASSESSEE HAD A PRESENT O BLIGATION AS A RESULT OF PAST EVENTS RESULTING IN AN OUTFLOW OF RESOURCES A ND A RELIABLE ESTIMATE COULD BE MADE OF THE AMOUNT OF THE OBLIGATION AND THERE FORE THE ASSESSEE HAD INCURRED A LIABILITY DURING THE ASSESSMENT YEAR WHI CH WAS ENTITLED TO DEDUCTION UNDER SEC. 37 OF THE ACT. IN THE PRESENT CASE THE ASSESSEE HAS SOLD 22 CERTAIN HARDWARE EQUIPMENTS TOGETHER WITH WARRANTY PROVISIONS AND OUTSOURCED THE WARRANTY PROVISION TO HECL WHEREUND ER HECL WAS REQUIRED TO PROVIDE WARRANTY SUPPORT FOR A PERIOD O F ONE YEAR FROM THE DATE OF DELIVERY/INSTALLATION OF THE EQUIPMENT WHICH WO ULD INCLUDE REPLACEMENT REPAIRING AND PROVIDING ON SITE SUPPORT AS AND WHEN REQUIRED AND IN CONSIDERATION OF WHICH THE ASSESSEE WAS REQUIRED T O PAY TO HECL AN AMOUNT OF 2% OF THE EQUIPMENTS SALES. IT IS THUS CLEAR THAT PAYMENT OF WARRANTY EXPENSES TO THE EXTENT OF 2% OF THE EQUIPM ENT SALES WAS INTEGRAL PART OF THE SALE PRICE OF VARIOUS EQUIPMENTS SOLD B Y THE ASSESSEE TO ITS CUSTOMERS AND THEREFORE THE ASSESSEE HAD INCURRED A LIABILITY OF WARRANTY EXPENSES DURING THE YEAR UNDER CONSIDERATION AS AND WHEN THE GOODS WERE SOLD TO CUSTOMERS WHICH IS ENTITLED TO DEDUCTION U NDER SEC. 37 OF THE ACT. 33. RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER PAS SED IN A.Y. 2003-04 WE UPHELD THE ORDER OF THE LEARNED CIT(A) IN DELETI NG THE DISALLOWANCE OF ASSESSEES CLAIM FOR PROVISION OF WARRANTY EXPENSES . 34. THUS THE GROUND NO.4 IN BOTH ASSESSMENT YEARS 2004-05 AND 2005- 06 RAISED BY THE REVENUE IS REJECTED. 35. THE GROUND RAISED BY THE ASSESSEE REGARDING CHA RGEABILITY OF INTEREST UNDER SEC. 234B IS CONSEQUENTIAL IN NATURE AND THE ASSESSING OFFICER SHALL 23 RECOMPUTE THE INTEREST CHARGEABLE UNDER SEC. 234B O N THE INCOME FINALLY DETERMINED IN THE PRESENT CASE. 36. IN THE RESULT THE APPEALS FILED BY THE ASSESSE E IN BOTH THE ASSESSMENT YEARS ARE ALLOWED AND THAT OF THE REVENUE ARE DISMI SSED. 37. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 26 TH DECEMBER 2011. SD/- SD/- (G.D. AGRAWAL) (C.L. SETHI) VICE PRESIDENT JUDICIAL MEMBER DATED: 26 TH DECEMBER 2011 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.