ADDL.CIT, SPECIAL RANGE-4 , NEW DELHI vs. INFRES METHODEX PVT. LTD., NEW DELHI

2. The appellate crave leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.”

The Ld. CIT(A) vide order dated 30/07/2018, allowed the Appeal of the Assessee by deleting the addition made by the A.O. Aggrieved by the order of the Ld. CIT(A) dated 30/07/2018, the Department of Revenue preferred the present Appeal on the grounds mentioned above.

Further submitted that the Assessee is having very good case on merit which has not been considered by the Tribunal for the Assessment Year 2014-15.

“5.0 We have heard rival submissions and have also perused the records. As far as the issue of disallowance of provision for warranty is concerned, it is seen that the Assessing Officer has made the addition after observing that the estimates made by the assessee for making the impugned provisions were neither on a scientific basis nor were reliable. The Assessing Officer, while making the disallowance, has placed reliance on the judgment of the Hon’ble Apex Court in Rotork Controls India Pvt. Ltd. reported in 314 ITR 62(SC) on the ground that the assessee company did not fulfill the following conditions:-

(i) An obligation to incur expenses should have been arisen; (ii) The estimate should be on scientific basis; and (iii) The estimate should be on reliable based on experience and historical trend.

5.1 It was the assessee’s submissions before the Lower Authorities that the provision created as a percentage of sales were different in Financial Years 2011-12, 2012-13 and 2013-14 for the reason that the warranty period ranged between one year to three years depending on the model of the machine and, therefore, the provision made for the machine whose warranty extended for 2 to 3 years is to be carried forward and is to be added to the provision of the current year and, therefore, because of this reason, the provision to sales ratio was not consistent and that it was not because of any change in the basis of principles on which the provision is made. It was also submitted before the Lower Authorities that the assessee company provided free replacement of parts against the manufacturing defects and also provided preventive maintenance checks for the equipment sold during the period ranging from 1 to 3 years and, accordingly, provision was made for the costs likely to be incurred during the warranty period on a consistent basis that is material cost being estimated at 1 to 3% of sale value for each year and labour cost at 75% of the standard labour cost. It was also the assessee submissions before the Lower Authorities that the provision is estimated on past trends and experience and is worked out every year. It was also submitted before the Lower Authorities that if the provision made in earlier year is more or less, difference in the amount is accounted through Profit & Loss Account and that this practice is being followed consistently by the company since the past many years. The assessee had also submitted an illustrative calculation sheet for the provision made along with purchase orders before the Lower Authorities in support of its working and claim.

5.2 Although, the Assessing Officer did not find the explanation and submissions of the assessee satisfactory, the Ld. CIT(A) accepted the assessee’s submissions and working as being correct and allowed the claim of the assessee. However, a perusal of the order of the Ld. CIT(A) shows that he has accepted the submissions of the assessee without actually examining the weight of the submissions of the assessee. The Ld. CIT(A) has simply accepted the submissions provided by the assessee and after duly reproducing the submissions in the impugned order has noted that in view of the submissions made by the assessee and the case laws cited and in view of the facts and circumstances of the case, the impugned disallowance is deleted. However, while making the deletion, the Ld. CIT(A) has not given any reasoning as to why the submissions of the assessee were found to be satisfactory for the purpose of making provision of warranties. The Ld. CIT(A) has not adjudicated the issue before him by examining the various details and documents submitted by the assessee and has simply accepted the contentions of the assessee without returning a finding on fact. In such a situation, we deem it appropriate to restore this issue to the file of the Ld. CIT(A) for considering the issue afresh and, thereafter, adjudicate on the issue by passing a speaking order after giving proper opportunity to the assessee. Accordingly, the Department succeeds on ground No.1 and the same stands allowed for statistical purpose.”

Further, we find no merit in the contention of the Ld. Assessee's Representative that the Assessee has preferred a Miscellaneous Application against the order of the Tribunal in which is pending before the Tribunal for adjudication for Assessment Year 2014-15, therefore, the present Appeal which is for Assessment Year 2015-16 may be kept pending. Mere pendency of a Miscellaneous Application from past three years before the Tribunal against the order of the Tribunal for the for the earlier year i.e. Assessment Year 2014-15 cannot be ground for deferring the present Appeal. On the other hand, we are bound by the principles of consistency, thus by respectfully following the order of the Tribunal for Assessment Year 2014-15 dated 30/09/2021, we remand the issue involved in the present Appeal to the file of the Ld. CIT(A) for considering the issue afresh and pass speaking order after giving opportunity of being heard to the Assessee.

Accordingly, the Appeal of the Revenue is partly allowed for statistical purpose.