PRINCIPAL COMMISSIONER OF INCOME TAX 2 vs. HITACHI HOMES AND SOLUTIONS (I) LTD.

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TAXAP/1238/2018HC GujaratGJHC24061214201809 October 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA3 pages

AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the Revenue's appeal. The Court noted that the Tribunal had deleted the addition primarily on the ground of consistency, observing that the assessee had followed the same pattern for years without prior objection from the Revenue. Independently, the Court found the disallowance unjustified on merits. The Court reasoned that the expenditure was estimated based on a scientific exercise using past data of compressor failures, which is a well-established principle for allowing estimated expenditure. The Court acknowledged the principle of allowing expenditure based on estimation derived through scientific exercise, akin to actuarial practices in statistical terms. Therefore, the disallowance was not justified.

What were the facts?

The Revenue is in appeal against the Income Tax Appellate Tribunal's order dated April 18, 2018. The assessee, Hitachi Homes and Solutions (I) Ltd., engaged in manufacturing and selling air conditioners, claimed an expenditure of Rs. 52,47,094 for a five-year warranty on an estimated basis for Assessment Year 2001-02. The Assessing Officer and CIT(A) disallowed this claim, finding the estimation data (from Assessment Year 2008-09) unsuitable for the year under consideration. The assessee's argument that this practice was consistent and previously unchallenged was also rejected by the lower authorities.

What were the issues?

1. Whether the Appellate Tribunal erred in law and facts by deleting the addition of Rs. 52,47,094 made by the Assessing Officer and confirmed by the CIT(A), by disallowing the expenses claimed by the assessee for the provision of a five-year warranty? Assessee's Contentions: The assessee argued that the expenditure was claimed on an estimated basis, derived from data of compressor failures over the past five years. The assessee also contended that the Revenue had not objected to this practice in previous years, implying consistency. Revenue's Contentions: The Revenue argued that the data produced by the assessee for estimation was from Assessment Year 2008-09, which was not relevant for the Assessment Year 2001-02 under consideration. They also rejected the assessee's claim of consistency.

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

C/TAXAP/1238/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1238 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 2 Versus HITACHI HOMES AND SOLUTIONS (I) LTD. ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 09/10/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 18.04.2018 raising following question for our consideration: “Whether the Appellate Tribunal has erred in law and on facts by deleting the addition made by the Assessing Officer and confirmed by the CIT(A) of Rs.52,47,094/ by disallowing the expenses claimed by the assessee for provision of five year warranty?”

The sole issue raised by the Revenue is of a disallowance of a sum of Rs.52.47 lakhs made by the Assessing Officer which was confirmed by the Commissioner of Income Tax (Appeals) but deleted by the Tribunal. This issue arises thiswise. Respondentassessee is engaged interalia in the business of manufacturing and selling of Air C/TAXAP/1238/2018 ORDER Conditioners and Air Conditioning System. On such supplies, the assessee provided five years warranty to the customer. For the assessment year 200102, the assessee had claimed such expenditure to the tune of Rs.52.47 lakhs on estimation basis. When questioned, the assessee pointed out that the assessee provided five year warranty. The estimate was based on number of compressors on such machines which failed every year in last five years. It appears that the assessee also produce data before the Revenue authorities of the failure ratio of assessment made in the assessment year 200809. 3. The Assessing Officer did not accept such explanation. Assessing Officer and Commissioner of Income Tax (Appeals) were of the opinion that letters produced were for the assessment year 200809 which would not be useful for the year under consideration. Assessee's contention that in the past, no such objection was raised was also not accepted.

In further appeal, the Tribunal by the impugned judgment, deleted the addition on the short ground of consistency. It was noticed that the assessee had C/TAXAP/1238/2018 ORDER been following the same pattern since years. No where in the past the Revenue had objected to such claim.

Quite apart from the Tribunal's observations on the issue of consistency which seem to be commencing, independently also we do not think that the disallowance was justified on merits. The assessee who was engaged in the business of manufacturing and selling air conditioned units would provide five year warranty to the customer. The expenditure was estimated on the basis of data of past five years of failure of the compressors which obviously in all air conditioned units would be the main concern. The principle of allowing expenditure on the basis of estimation which is derived through some scientific exercise, which in statistical terms used as actuary is well established.

In the result, Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH

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