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TAXAP/1909/2008 8/ 8 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 1909 of 2008
With
TAX
APPEAL No. 798 of 2009
With
TAX
APPEAL No. 799 of 2009
With
TAX
APPEAL No. 800 of 2009
======================================
HIMALAYA
MACHINERY PVT LTD - Appellant
Versus
DEPUTY
COMMISSIONER OF INCOME TAX - Opponent
======================================
Appearance
:
MR
J P SHAH, Senior Advocate with MR MANISH J SHAH for Assessee.
MR
MR BHATT, Senior Advocate with MRS MAUNA M BHATT for Revenue.
======================================
CORAM
:
HONOURABLE
MR.JUSTICE K.A.PUJ
and
HONOURABLE
MR.JUSTICE RAJESH H.SHUKLA
Date
: 09/02/2010
COMMON ORAL ORDER
(Per
: HONOURABLE MR.JUSTICE K.A.PUJ)
In
all these four Tax Appeals, parties are common and hence, the same
are being disposed of by this common judgment and order.
Tax
Appeal No.1909 of 2008 is filed by the assessee under Section 260A
of the Income-tax Act, 1961 for A.Y. 1995 96 proposing to
formulate the following substantial question of law for the
determination and consideration of this Court :-
Whether
on the facts and in the circumstances of the case, the Tribunal was
right in law in upholding the validity of Section 147 148 notice
?
Tax
Appeal Nos.798, 799 & 800 of 2009 are filed by the Revenue for
A.Y. 1996 97, 1997 98 and 1995 96 respectively.
Questions proposed by the Revenue in all these three Tax Appeals are
as under :-
TAX
APPEAL NO. 798 OF 2009 (A.Y. 1996-97)
Whether
on the facts and in the circumstances of the case, the Tribunal was
right in law in upholding the order of the CIT (A) deleting the
disallowance of Rs.60,00,000/- being provision in respect of warranty
obligation, without appreciating that the expenditure is contingent
in nature which has not crystallized during the previous year
relevant to the assessment year under consideration and was not
allowable in view of the Hon’ble Supreme Court’s decision in the case
of Shri Sajjan Mills Limited V/s. CIT, 1985 (156) ITR 585 ?
TAX
APPEAL NO.799 OF 2009 (A.Y. 1997-98)
Whether,
on the facts and in the circumstances of the case, the Tribunal was
right in law in upholding the order of the CIT (A) deleting the
disallowance of Rs.10,38,751/- being provision in respect of warranty
obligation ?
TAX
APPEAL NO. 800 OF 2009 (A.Y. 1995-96)
Whether,
on the facts and in the circumstances of the case, the Tribunal was
right in law in upholding the order of the CIT (A) deleting the
disallowance of Rs.2,34,00,000/- being provision in respect of
warranty obligation ?
Heard
Mr. J. P. Shah, learned Senior Counsel appearing with Mr. Manish J.
Shah for the assessee and Mr. M. R. Bhatt, learned Senior Advocate
appearing with Mrs. Mauna M. Bhatt, learned Standing Counsel for the
Revenue.
So
far as A.Y. 1995 96 is concerned, there are cross appeals, one
filed by the assessee and other one is filed by the Revenue. The
assessee is aggrieved by the finding recorded by the Tribunal with
regard to reopening of assessment. The Tribunal has held that
reopening of assessment is justified and hence, the assessee has
filed Tax Appeal before this Court challenging the said finding of
the Tribunal. The Revenue has filed Tax Appeal for A.Y. 1995 96
challenging the decision of the Tribunal deleting the disallowance
of Rs.234 Lacs being provision in respect of warranty obligation on
merits.
Tax
Appeals for A.Y. 1996 97 and 1997 98 are filed by the
Revenue involving identical issue which was involved in Tax Appeal
No.800 of 2009. So far as these two tax appeals are concerned,
looking to the specific finding recorded by the learned CIT (Appeal)
as well as the Tribunal to the effect that actual expenses incurred
were more than the provision made by the assessee in its books of
accounts, Mr. Bhatt has rightly submitted that it cannot be said
that any substantial question of law arises for the said two
assessment years.
So
far as Revenue’s Tax Appeal No.800 of 2009 is concerned, Mr. Bhatt
has submitted that the Tribunal’s decision is merely based on its
own decision in the case of the assessee for A.Y. 1996 97 which
is in favour of the assessee. The expenditure incurred by the
assessee is contingent in nature which is not crystallized till the
end of the previous year relevant to the current assessment year.
He has, therefore, submitted that in view of the decision of the
Apex Court in the case of Shri Sajjan Mills Limited V/s. CIT, 1985
(156) ITR 585, contingent liability was not allowable.
Mr.
Shah appearing for the assessee, on the other hand, has invited the
Court’s attention to the finding recorded by the Tribunal after
relying on the decision of the Apex Court in the case of Bharat
Earth Movers V/s. CIT, 245 ITR 428 (SC) wherein the Court
has observed that if a business liability has ‘definitely’ arisen in
the accounting year, the deduction should be allowed, though the
liability may have to be quantified and discharged at a further
date. What should be certain is the incurring of the liability. It
will also be capable of being estimated with reasonable certainty
though the actual quantification may not be possible. In such
circumstances, the liability cannot be contingent one and the
liability in presenti and would not make any difference if the
future date on which the liability shall have to be discharged is
not certain. The Tribunal has further recorded the finding that the
expenditure incurred by the assessee out of the provisions of this
year as well as in the subsequent year, major portion of the
expenditure has been incurred by the assessee towards discharge of
its liability for warranty. Even the figures were given for
subsequent years. So far as the provision made for A.Y. 1995 96
is concerned, the CIT (Appeals) has categorically recorded the
submissions made on behalf of the assessee which shows that
provision of Rs.234 Lacs was actually inadequate as it was mostly
utilized within the next three years, still leaving unexpired
warranty period of two years. While dealing with this submission of
the assessee, the CIT (Appeals) has observed that out of Rs.234
Lacs, Rs.186 Lacs have actually been spent in the succeeding two
years were not charged to the profit and loss account of these two
years. The details of such expenses were also on record. He has
further observed that after going through all the judicial decisions
and the details submitted, the claim of the assessee was required to
be allowed on the ground that in the mercantile system of
accounting, a provision is required to be made for contractual
liability.
Since
the figures of expenditure for the subsequent three years are not
available on record, the Court has asked Mr. Shah to furnish the
figures for subsequent three years. Accordingly, statement is
produced before the Court which indicates that as against the
provisions of Rs.234 Lacs, the assessee has incurred an amount of
Rs.3,30,74,857/-. The detailed break-up submitted by the assessee
is as under :-
Asst.
Year
Expenditure
Incurred Rs.
Cummulative
Expenses Rs.
Excess
of expenditure over provision charged to P & L A/c. Rs.
1996-97
86,20,677
86,20,677
1997-98
82,36,136
1,68,56,813
1998-99
57,22,016
2,25,78,829
1999-00
92,48,059
3,18,26,888
84,26,888
2000-01
12,47,969
3,30,74,857
12,47,969
TOTAL
3,30,74,857
96,74,857
Since
the assessee has incurred the expenditure more than the provision
made, the assessee’s case would squarely fall within the ratio laid
down by the Apex Court in the decision of the Bharat Earth Movers
(Supra). Looking to these figures, it cannot be said that the
provision made by the assessee is not capable of being estimated
with reasonable certainty though the actual quantification was not
possible. Some objection was raised by Mr. Bhatt for the Revenue
that since these figures were not on record, the same should not be
taken into consideration in second appeal. We are of the view that
though the finding was recorded by the learned CIT (Appeal) that the
assessee has incurred the expenditure more than the provision made,
just to substantiate this finding, the figures were called and there
is no dispute about those figures and hence, considering those
figures, we are of the view that the issue raised in the Tax Appeal
is squarely covered by the decision of the Apex Court and the
Tribunal has rightly decided this issue in favour of the assessee.
We, therefore, do not propose to formulate any substantial question
of law as framed by the Revenue. The appeal is, therefore,
dismissed.
Since
the Revenue’s appeal on merits is dismissed by the Court and the
order passed by the Tribunal is confirmed, the appeal filed by the
assessee challenging reopening of assessment has become infructuous
and hence, it is also dismissed.
In
the result, all the four Tax Appeals are accordingly dismissed.
Sd/-
[K. A. PUJ, J.]
Sd/-
[RAJESH H. SHUKLA,
J.]
Savariya
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