What did the Tribunal hold?

The Tribunal noted that in the assessee's own case for AY 2005-06 and 2007-08, the issue of warranty provision was remitted back to the Assessing Officer. Following this precedent, the Tribunal set aside the orders of both lower authorities and remitted the matter to the Assessing Officer for reconsideration.

The Revenue filed an appeal against the CIT(A)'s order for AY 2006-07. The appeal was filed with a delay of 6 days, which was condoned by the Tribunal. The issue involved was the provision made by the assessee for warranty.

What were the issues?

The key issue was whether the provision made by the assessee for warranty was based on a scientific basis and met the criteria laid down by the Supreme Court for an ascertained liability, or if it was a contingent liability.

DCIT vs Fl Smidth Minerals India Pvt Ltd. | ITAT Chennai 2018

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN

For Appellant: Shri M. Mathivanan, JCIT

For Respondent: Ms. S. Sriniranjani, Advocate

Hearing: 06.12.2018Pronounced: 19.12.2018

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) -6, Chennai, dated 14.09.2017 and pertains to assessment year 2006-07.

There was a delay of 6 days in filing this appeal by the Revenue. The Revenue has filed a petition for condonation of delay. We have heard the Ld. D.R. and the Ld.counsel for the assessee. We find that there was sufficient cause for not filing the appeal before the stipulated time. Therefore, we condone the delay and admit the appeal.

We heard Shri M. Mathivanan, the Ld. Departmental Representative and Ms. S. Sriniranjani, the Ld.counsel for the assessee. During the course of hearing, it was brought to the notice of the Tribunal that in the assessee's own case, for assessment years 2005-06 and 2007-08, the issue of provision made by the assessee for warranty was remitted back to the file of the Assessing Officer. We have carefully gone through the order of this Tribunal for assessment years 2005-06 and 2007-08. This Tribunal has remitted back the matter to the file of the Assessing Officer. In fact, the Tribunal at para 4.2 of its order dated 03.08.2017 observed as follows:- “With regard to disallowance made on the provision for warranty in assessment year 2005-06, the DR submitted that the CIT(A) ought have appreciated that as per Apex Court’s decision relied on, the provision towards warranty arrived at on a scientific basis is only allowable and not any lump sum provision (uncertain liability), the provision made by the assesse is not scientifically arrived figure and it should have satisfied the important aspects observed by the Hon’ble Supreme Court viz,

(i) Provisioning which relates to present obligation (ii) It arises out of obligating events (iii) It involves outflow of resources and lastly (iv) It involves reliable estimation of obligation.

The AR submitted that the Jurisdictional High Court in its own case in TCA No. 30 of 2010 dated 03.06.2013 set aside the order of the Tribunal and allowed the assessee’s appeal. We have considered the rival submissions and gone through the orders. The assessee had made provision for warranty at Rs. 7,50,41,484/- in the books of account and the AO refused to allow it for the reason that this provision for warranty was credited without any scientific reasons. Thus, the contention of the assessee is that the provision is an ascertained liability, whereas, the revenue observed it as contingent liability. It is clear from the assessment order that the assessee could not explain the methodology and calculation of the provisions on the basis of the satisfactory aspects of Apex Court in the case of Rotork Controls India Ltd. (Supra). In the circumstances, we are of the opinion that the matter has to be re-examined as to whether the methodology adopted for creating provision is in the light of the observations made by the Supreme Court. Therefore, we set aside the order of the CIT(A) and remit this issue to the file of the AO for re-examination after affording adequate opportunity for being heard to the assessee. Thus, the Revenue’s cross appeal is treated as allowed for statistical purposes.”

In view of the above, since the issue is identical in nature, orders of both the authorities below are set aside and the matter is remitted back to the file of the Assessing Officer for reconsideration.

In the result, the appeal filed by the Revenue is allowed for statistical purposes.

Order pronounced in the court on 19th December, 2018 at Chennai.

DCIT CORPORATE CIRCLE 2(1), CHENNAI vs. FL SMIDTH MINERALS INDIA PVT LTD., CHENNAI

What did the Tribunal hold?

What were the facts?

What were the issues?

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