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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI GEORGE GEORGE K
Per George George K, Judicial Member:
This appeal at the instance of the assessee is directed against order of CIT(A), dated 25.02.2020. The relevant Assessment Year is 2016-17.
2. The solitary issue that is raised is whether the CIT(A) is justified in confirming the disallowance of provision for warranty created in excess of 2.14% of the sales.
The brief facts of the case are as follows:
Assessee is a private limited company engaged in the business of distribution of Apple products in India. For the Assessment Year 2016-17, the return of income was filed on 30.11.2016 declaring a total income of Rs.458,93,41,170/-. Assessment was completed under section 143(3) vide order dated 22.12.2018. The AO, in the said order, made a disallowance of provision for warranty created in excess of 2.14% of sales. The AO relied on the order of the Tribunal in assessee’s own case for Assessment Years 2013-14 and 2014-15 in restricting the provision for warranty to 2.14% of the sales.
Aggrieved, the assessee filed appeal before the First Appellate Authority. The CIT(A) confirmed the disallowance made by the AO and dismissed the appeal of the assessee.
5. Aggrieved by the order of the CIT(A), assessee has filed the present appeal before the Tribunal. The learned AR submitted that the Tribunal’s order relied on the by the AO for Assessment Years 2013-14 and 2014-15 was reversed by the Hon’ble High Court of Karnataka and the entire claim for provision for warranty was allowed as a deduction. The learned AR submitted that the facts for the relevant Assessment Year being same, the issue is squarely covered by the orders of the Hon’ble High Court of Karnataka in assessee’s own case for Assessment Years 2013-14 and 2014-15 in and 828/2018 (judgment dated 24.03.2023).
The learned DR supported the orders of the AO and the CIT(A).
We have heard the rival submissions and perused the material on record. On identical facts, the Hon’ble High Court of Karnataka in assessee’s own case Assessment Years 2013-14 and 2014-15 (supra) had decided the issue in favour of the assessee. The relevant finding of the Hon’ble High Court reads as follows:
“8. We have carefully considered rival contentions and perused the records.
9. In assessee's own case in (Commissioner of Income Tax Vs. M/s. Apple Computers International Pvt. Ltd), this court has answered the question of law in assessee's favour. In the said appeal, Revenue had challenged the Tribunal's order6 which had held that the warranty estimated at 2.14% was arrived based on assessee's past experience in the Indian International market and the post sales support rendered based on the technical evaluation.
In Rotork Case, it is held that a provision is a liability, which can be measured only by using a substantial degree of estimation and it is recognized when: a) an enterprise has a present obligation as a result of past event; b) it is probable and an outflow of resources will be required to settle the obligation., and c) A reliable estimate can be made of the amount of obligation.
It was argued by Shri, Percy Pardiwala that Assessment Order in this case is based on DkP's direction for A.Y. 2011-12 and contended tnat the AO's Order based on the said DRP'.: directions has beer. set aside by the Tribunal'. Therefore, the very foundation of the order does not survive.
Shri. Pardiwala has filed a statement showing the provisions made for A.Y.s 2007-08 to 2016-17. The total provision for the said period was Rs.1493,97,36,553/-whereas the total utilization for corresponding A.Y.s 2008-09 2017-18 was Rs.1426,07,56,990/-. The relevant portion of the statement reads thus:
Assessm Opening Provision Actual Closing Balance Sales #3/6 *4/6 debited to P/L expenses ent Year balance incurred account
(3) (5) (2) (1) (4) 16) 8,08,26,871 3,29,55,062 1,39,93,51,676 6.41 2007-08 2,38,46,557 8,99,35,376 2008-09 3,29,55,062 8,25,70,227 8,33,79,038 2,18,97,22,707 3.77 5.96 '3,21,46,251 12,42,67,639 5,18,97,669 4,43,69,70.700 3.25 5.68 2009-10 3,21,46,251 14,40,19,057 12,78,97,272 10,15,89,306 4,56,52,93,882 3.89 2.88 2010-11 5,18,97,669 17,75,89,409 2011-12 10,15,89,806 18,74,41,965 18,22,20,347 10,68,1.1,429 5,93,99,13,233 3.16 3.99 5.32 2012-13 10,68,11,429 42,33,93,372 31,60,73,82 21,41,30,976 19,64,07,64,088 2.16 4.9 4.34 2013-14 21,41,30,976 1,47,40,08,630 35,31,18,651 83,50,20,955 30,09,01,06,354
8.01 2014-15 83,50,20,955 4,39,48,76,976 2,41,07,43,05 2,81,91,54,826 44,41,82,65,721 9.89 2015-16 2,81,91,54,826 2,15,62,64,681 3,49,52,62,741 63,65,833,26,177 4.45 4.85 2,83,23;17,596 2016-17 3,49,52,62,741 3,13,33,88,99S 3,63,16,42,487 4,99,72,09,249 98,49,30,90,748 5.21 5.7 2017-18 4,42,54,79,249 1,14,03,23,80,000 3.34 4.44 4,99,72,09;249 3,80,34,30,000 4,37,57,10,300 Total 1874,32,16,533/- 1434,15,87,857 38886,41,85,286
Total provision for AYs 2007-08 to 2016-17 = Rs.1493,97,36,553/-
Total utilization for AYs 2008-09 to 2017-18 = Rs.1426,07,56,990/- (95.5% of total provision for AYs 2007-08 to 2016-17)
** percentage of actual expenses over sales is the comparison of the utilization in the subsequent year towards the sales in the previous year
Adverting to the above statement, he urged that assessee had utilized about 95.5% of the total provision made between A.Y. 2007-08 and 2016-17.
Shri. Pardiwala has also made available a copy of the orders passed by the Tribunal for A.Y. 2011-12. We have carefully perused the same. In that case; AO had disallowed Rs.5,10,83,253/- being the prevision for warranty. The Tribunal held that the said issue was covered in the favour of assessee by various orders passed by the Tribunal in assessee's own case for A.Y.s 200.3704, 2005-06, 2006-07, and 2007-08 and that for A.Y. 2003-04 the matter was taken to this Court also and ultimately assessee's stand has been upheld. i1e submitted that pare No. 4.9 in the Assessment Order for A.Y. 2013-14 and Para 3.9 in the Assessment order for A.Y, 2014-15 show that the AO has based his order on DRP's directions for A.Y. 2011-12. As recorded herein, the Assessment order based on the
said direction by the DRP has been set-aside by the Tribunal vide order dated September 22, 2017 in IT(TP)A No.242/Bang/2016. Therefore, Shri. Pardiwala is right in his submission that the very foundation of AO's order did not survive as the AO's orders under challenge in these appeals are based on DRP'S directions for A.Y. 2011-12 has been already set aside. 15. We have also carefully perused the tabular column furnished by Shri. Pardiwala extracted above showing the provisions made between A.Y. 2007-08 and 2017-18. He is right in his submission that the total utilization for the corresponding A.Y.:4 2008-09 to 2017-18 is 95.5% of the total provision. Therefore, as held in Rotork Case, the estimate made by assessee is reliable and robust. 16. In view of the above, the orders passed by the AO and confirmed by CIT(A) and the Tribunal are unsustainable in law and these appeals by the assessee merit consideration. appeal9 17. So far as the connected by Revenue is concerned, we may record that it is not in dispute that assessee has utilized 95.5% of the total provision for A.Y. 2007-08 to 2016-17. The percentage of utilization depends upon the warranty claims made during the corresponding year. The tabular column submitted by assessee shows that the warranty claim is varied between 2.16% to 9.89%. But what is relevant is the utilization of the -provision and as noticed by us, the utilization is 95.5%. Thus, the estimate made by the assessee is robust and therefore, the impugned order does not call for any interference. 18. In view of above discussion, the following: ORDER
and ITA No.829-830/2018 are allowed.
Order dated August 03, 2018 in ITA No. 422 & 423/Bang/2018 and order dated October 10, 2018 in Misc.Petn. Nos.279&280/Bang/2018 passed by the Tribunal are set-aside. 3. ITA No.294/2018 is dismissed. 4. Order in IT(TP)A No. 242/Bang/2016 dated 22.09.2017 passed by the Tribunal is confirmed.
The questions of law are answered in favour of the assessee and against the Revenue.”
In view of the above judgment of the Hon’ble High Court in assessee’s own case, we direct the AO to grant deduction of provision for warranty as claimed in the return of income. It is ordered accordingly.
In the result, appeal filed by the assessee is allowed.
Pronounced in the open court on the date mentioned on the caption page.