×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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07-11-2019, Rohde & Schwarz India, Section 37, Tribunal Delhi
The above two separate appeals by the assessee are preferred against two separate orders of the Commissioner of Income Tax [Appeals] - 7, New Delhi dated 17.02.2017 and 28.12.2107 pertaining to assessment years 2011-12 and 2012-13. Since both these appeals were heard together, these are being disposed of by this common order for the sake of convenience and brevity.
2. The common grievance in both these appeals relates to the disallowance made for the provision for warranty, though the quantum may differ.
3. Briefly stated, the facts of the case are that the assessee received commission income and as per the Sales Representation Agreement, the assessee’s activity involves the sale of equipments and at the same time, attends to he warranty services for free warranty for the warranty period The assessee gets income from its Associated Enterprise Rhode & Schwarz GmBH, Germany and other for services rendered. The services include all activities culminating in the sale of their equipments and free warranty services for 2-5 years, depending upon the equipments, which start after the equipment has been sold to the parties in India.
4. During the course of assessment proceedings, the assessee was asked to furnish the details of commission income and creation of provision. In A.Y 2011-12, the assessee filed the following details:
Commission as actual received 27,94,34,315
Add: commission of earlier year considered as income 36,06,987
Less - Commission of previous years offered to tax in earlier year 5,12,51,599
Less: Provision for warranty 74,45,364
Commission for the year 22,44,44,339
5. In A.Y 2012-13, the assessee filed the following details: Balance as at 31st March, 2011 Rs, 3,34,39,187/-
Add: Addition during the year Rs. 2,55,27,748/-
Less: amount used during the year Rs. 2,00,88,611/-
Balance as at 31s
March, 2012 Rs. 3,88,78,324/-
6. The assessee was required to justify its claim of creation of provision for warranty. On receiving no plausible reply, the Assessing Officer made an addition of Rs. 74,45,364/- in A.Y 2011-12 and Rs. 2,55,27,748/- in A.Y 2012-13.
7. The assessee carried the matter before the ld. CIT(A) and the ld. CIT(A), after considering the facts and submissions, found that a similar addition was confirmed by his predecessor in A.Y 2010-11. The relevant findings of the ld. CIT(A) read as under:
“5.3. I have carefully considered the assessment order and the submissions filed by the AR. This issue was adjudicated by me in appeal for A.Y. 2011-12 in Appeal No: 625/CIT(A)- 7/Del/14-15 dated 22.04.2016 and the addition made by the AO was confirmed. Operative part of the order is reproduced as under:
“3.4. I have carefully considered the assessment order and the submissions filed by the Aft. The appellant company during the year has created a provisions of warranty at Rs.36,06,987/- which is reduced from the commission income instead of separately debiting into the P & L A/c. The Ld. AR has relied on the judgement of the Hon 'ble Apex Court in the case of M/s Rotork Controls India (P) Ltd. vs. CIT (2009) 314 ITR 62. The AO has recorded that the appellant failed to submit details of warranty expenses and how it was linked to the commission. Further, during appellate proceedings a simple chart disclosing invoices against which provisions of warranty is tabulated was furnished. No basis as to how the warranty provision was worked out was available. The Hon 'ble Supreme