KUNKEL WANGER (INDIA) P.LTD, MUMBAI v. DCIT (OSD) 9(1), MUMBAI

ITA 5301/MUM/2012 | 2009-2010
Pronouncement Date: 28-04-2015 | Result: Allowed

Appeal Details

RSA Number 530119914 RSA 2012
Assessee PAN AAACK9554C
Bench Mumbai
Appeal Number ITA 5301/MUM/2012
Duration Of Justice 2 year(s) 8 month(s) 5 day(s)
Appellant KUNKEL WANGER (INDIA) P.LTD, MUMBAI
Respondent DCIT (OSD) 9(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-04-2015
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 28-04-2015
Date Of Final Hearing 22-10-2014
Next Hearing Date 22-10-2014
Assessment Year 2009-2010
Appeal Filed On 23-08-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL ' A ' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI SANJAY ARORA ACCOUNTANT MEMBER ITA NO. 5301/MUM/2012 (ASSESSMENT YEAR: 2009 - 10 ) M/S. KUMKEL VAGNER (INDIA) P. LTD. VS. DCIT (OSD) 9(1) DI/34 3RD FLOOR KHIRA NAGAR SWAMI VIVEKANAND ROAD SANTACRUZ (W) MUMBAI 400054 ROOM NO. 316 3RD FLOOR AYAKAR BHAVAN M.K. ROAD MUMBAI 400020 PAN - AAACK9554C APPELLANT RESPONDENT APPELLANT BY: SHRI AMBRISH M. MEHTA RESPONDENT BY: SHRI ASGHAR ZAIN DATE OF HEARING: 24.03. 2015 DATE OF PRONOUNCEMENT: 28 .04.2015 O R D E R PER D. MANMOHAN V.P. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 19 MUMBAI AND IT PERTAINS TO A.Y. 2009 - 10. 2. THE FOLLOWING GROUNDS WERE URGED BEFORE US: - A. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT (A)] ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER [AO] IN DISALLOWING THE PROVISION FOR WARRANTY CLAIM OF RS.20 33 485/ - IGNORING THE SUBMISSIONS MADE BY THE APPELLANT DURING THE C OURSE OF ASSESSMENT AND APPELLATE PROCEEDINGS. B. THE LEARNED CIT(A) OUGHT TO HAVE FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (PVT.) LTD. V. CIT (2009) 314 ITR 62 AND ALLOWED THE DEDUCTION ON ACCOUNT OF PROVISIO N OF WARRANTY CLAIM OF RS.20 33 485/ - . C. WITHOUT PREJUDICE TO THE MAIN CONTENTION RAISED ABOVE THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE ACTUAL EXPENDITURE INCURRED OF RS.11 10 628/ - AGAINST THE PROVISION FOR WARRANTY CLAIM AND DEBITED TO PROVISION FOR WARRANTY CLAIM ACCOUNT EVENTHOUGH FULL DETAILS OF WHICH WERE FILED BEFORE AO & CIT(A). ITA NO. 5301/MUM/2012 M/S. KUMKEL VAGNER (INDIA) P. LTD. 2 3. THE ISSUE IN SHORT REVOLVES AROUND DISALLOWANCE OF PROVISION FOR WARRANTY CLAIM OF ` 20 33 485/ - . THE FACTS IN BRIEF ARE THAT THE ASSESSEE - COMPANY DECLARED TOTAL INCOM E OF ` 90 55 749/ - . DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE DEBITED ` 20 33 485/ - TOWARDS PROVISION FOR WARRANTY CLAIM WHICH IMPLIES THAT THE EXPENDITURE HAS NOT BEEN CRYSTALLISED. EVENTHOUGH THE ASSESSEE IS FOLLOWING M ERCANTILE SYSTEM OF ACCOUNTING NO LIABILITY OF THIS TYPE OF EXPENDITURE CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE. THE AO ALSO OBSERVED THAT THE PARTIES TO WHOM THE LIABILITY IS PAYABLE ARE ALSO NOT IDENTIFIED. HE ACCORDINGLY DISALLOWED THE CLAIM OF DED UCTION. 4. AGGRIEVED ASSESSEE CONTENDED BEFORE THE CIT(A) THAT IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING CONVEYING AND HANDLING EQUIPMENTS WHICH ARE REQUIRED IN MANUFACTURING OF FOUNDRY MOULDING MACHINES SAND PREPARATION PLANTS AND ALLIED EQUIPMENTS. THE MAIN PLANTS ARE MANUFACTURED IN GERMANY. THE EQUIPMENTS MANUFACTURED AND SOLD BY THE ASSESSEE ARE UNDER WARRANTY FOR A PERIOD RANGING FROM 12 TO 24 MONTHS. EARLIER THE EXPENSES INCURRED WERE DEBITED TO VARIOUS HEADS OF EXPENSES SUCH AS PURCHASE OF RAW MATERIALS AND COMPONENTS LABOUR CHARGES TRAVELLING EXPENSES ETC. SINCE THE OPERATIONS OF THE COMPANY INCREASED IT THOUGHT IT PRUDENT TO MAKE A PROVISION OF WARRANTY CLAIM @2% . IT FURTHER SUBMITTED THAT THE EXPENDITURE INCURRED AGAINST THE PROVISION DURING THE WARRANTY PERIOD IS DEBITED TO PROVISION FOR WARRANTY A/C AND NOT DEBITED TO PROFIT & LOSS ACCOUNT AND THUS THE PROVISION FOR WARRANTY CLAIM IS ALLOWABLE AS REVENUE EXPE NDITURE. IN THE ALTERNATIVE IT WAS SUBMITTED THAT THE ACTUAL EXPENDITURE INCURRED AGAINST THE PROVISION FOR WARRANTY SHOULD BE ALLOWED A S DEDUCTION THOUGH THE SAID EXPENDITURE HAS NOT BEEN DEBITED TO PROFIT & LOSS ACCOUNT. 5. THE LEARNED CIT(A) PREFERRED TO F OLLOW THE VIEW TAKEN IN ASSESSEES OWN CASE FOR A.Y. 2007 - 08 BY HIS PREDECESSOR AND THUS DISMISSED THE APPEAL FILED BY THE ASSESSEE. FURTHER AGGRIEVED ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE US A COPY OF THE ORDER OF THE ITAT A BENCH MUMBAI IN ASSESSEES ITA NO. 5301/MUM/2012 M/S. KUMKEL VAGNER (INDIA) P. LTD. 3 OWN CASE FOR A.Y. 2007 - 08 (ITA NO. 6933/MUM/2010 DATED 13.06.2012) WHEREIN THE BENCH CONSIDERED THE ISSUE IN DETAIL TO HOLD THAT THE AS SESSEE HAS CONSISTENTLY FOLLOWED THE SY STEM OF MAKING A PROVISION FOR WARRANTY CLAIM ON REASONABLE BASIS AND HENCE THERE IS NO REASON TO INTERFERE WITH THE SYSTEM FOLLOWED BY THE ASSESSEE. THE OPERATIVE PORTION OF THE ORDER IS EXTRACTED FOR IMMEDIATE REFERENCE: - 4.1 IN OUR VIEW THE DECISION OF THE AUTHORITIES BELOW TO DISALLOW THE CLAIM CANNOT BE UPHELD. THE ASSESSEE HAD FILED COPY OF CONTRACTS WITH THE BUYERS IN WHICH THERE WAS SPECIFIC CLAUSE REGARDING WARRANTY. THEREFORE AS SOON AS THE SALE IS MADE THE ASSESSEE INCURS THE LIABILITY ON AC COUNT OF WARRANTY CLAIM EVEN THOUGH THE EXPENDITURE MAY BE ACTUALLY INCURRED IN SUBSEQUENT YEARS. THEREFORE THE CLAIM OF DEDUCTION ON ACCOUNT OF PROVISION FOR WARRANTY CLAIM IS ALLOWABLE AS DEDUCTION IN MERCANTILE SYSTEM OF ACCOUNTING AND THIS VIEW IS ALS O SUPPORTED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF ROTORK CONTROLS INDIA (P) LTD. (SUPRA). THE ASSESSEE HAD GIVEN FULL DETAILS/ PARTICULARS OF THE PROVISIONS OF WARRANTY CLAIM AND ASSESSEE HAD ALSO GIVEN COPIES OF THE CONTRACTS WITH THE PARTIE S IN WHICH THERE WAS SPECIFIC PROVISION FOR WARRANTY. AS REGARDS QUANTUM OF CLAIM THE ASSESSEE HAD BEEN CONSISTENTLY MAKING CLAIM @ 2% OF SALES AND IN CASE IN THE SUBSEQUENT YEAR THE PROVISION MADE IS FOUND TO BE EXCESSIVE BALANCE AMOUNT IS OFFERED FOR INCOME AND IN CASE EXPENDITURE ACTUALLY INCURRED IS FOUND TO BE MORE FURTHER DEDUCTION IS CLAIMED IN SUBSEQUENT YEAR. EVEN IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. (SUPRA) WARRANTY PROVISION @ 1.5% OF SALES HAVE NOT FOUND ALLOWABLE. WARRANTY PERC ENTAGE WILL DEPEND UPON FACTS AND CIRCUMSTANCES OF EACH CASE. THE ASSESSEE HAS CONSISTENTLY FOLLOWED THE SYSTEM AND ADJUSTMENTS HAVE BEEN MADE IN FUTURE. THE LD. AR HAS FILED COPY OF PROFIT AND LOSS ACCOUNT FOR ASSESSMENT YEAR 2010 - 11 TO DEMONSTRATE THAT E XCESS PROVISION HAS BEEN OFFERED AS INCOME. WE THEREFORE SEE NO REASON TO INTERFERE WITH THE SYSTEM BEING CONSISTENTLY FOLLOWED BY THE ASSESSEE. IN OUR VIEW THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE CANNOT BE UPHELD . WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE. 7. THE LEARNED D.R. ADMITTED THAT THE ISSUE STANDS COVERED BY THE DECISION OF THE ITAT (SUPRA). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RECORD. IN OUR OPINION THE VIEW TAKEN BY THE IT AT IS BASED ON COGENT REASONS AND BY ADOPTING THE SAME REASONING WE HOLD THAT THE CLAIM OF THE ASSESSEE DESERVE S TO BE ALLOWED. ITA NO. 5301/MUM/2012 M/S. KUMKEL VAGNER (INDIA) P. LTD. 4 9. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL 2015. SD/ - SD/ - ( SANJAY ARORA ) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI DATED: 28 TH APRIL 2015 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 19 MUMBAI 4. THE CIT V MUMBAI CITY 5. THE DR A BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.