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Dell International Services India Private Limited v. Income Tax

Karnataka High Court

Feb 3, 2016

Judgment

CaseIQ

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Factual and Procedural Background

The assessee, M/s. Dell International Services India Private Limited, filed returns for assessment years 2002-03 and 2003-04. During assessments under Section 143(3) the Assessing Officer disallowed expenditure claimed as provision for warranty. The assessee's appeals to the Appellate Commissioner were allowed following the Tribunal decision in CIT vs Wipro GE Medical Systems (80 TTJ 455). Revenue appealed; this Court in ITA Nos.448/2008 and connected matters (order dated 26.09.2012) set aside certain ITAT orders and remanded the matter to the Tribunal in light of the Supreme Court's decision in Rotork Controls. The Tribunal, after reconsideration, remanded the matter to the Assessing Officer to verify whether the warranty provision was based on past history or actual expenditure. The assessee challenged that remand before this Court in the present appeal under Section 260-A of the Income-tax Act, 1961.

Legal Issues Presented

Whether the Appellate Tribunal was correct in remanding the matter to the Assessing Officer to verify whether the appellant's provision for warranty is based on past history or actual expenditure, when the High Court had remanded the issue for the limited purpose of whether the requirements in para‑10 of Rotork Controls (SC) are fulfilled.
Whether the Appellate Tribunal was correct in remanding the matter to the Assessing Officer rather than deciding the case as per law, as directed by the High Court.
Whether the remand to the Assessing Officer was beyond the scope of the remand ordered by the High Court.
Whether the Appellate Tribunal was correct in remanding a legal issue to the Assessing Officer.
Whether the Tribunal erred in remanding the matter though all evidence demonstrating the principles was on record.
Whether the Tribunal was justified in remanding the matter for verification even though it was satisfied that the provision for warranty was created on a scientific and reasonable basis.

Arguments of the Parties

Appellant's Arguments

The High Court's earlier remand (26.9.2012) was limited to whether para‑10 of the Supreme Court's Rotork Controls judgment was satisfied; the Tribunal exceeded that scope by remanding to the Assessing Officer for verification of figures.
The Tribunal had positively held that the assessee's methodology for estimating warranty provisions was based on actual past expenditure and scientific/reasonable methods; having so held, the Tribunal should have decided rather than remand.
The Tribunal ought to have exercised its fact‑finding discretion and verified figures itself instead of remanding; the remand is beyond the scope of the High Court's directions and is untenable.

Respondent's (Revenue) Arguments

The Tribunal's remand was a limited remand to verify the figures adopted by the assessee to explain its estimate of warranty provisions, not an open remand.
The Tribunal was compelled to remand in view of certain documents filed by the assessee relating to assessment years 2003-04, 2006-07 and 2010-11.
The revenue seeks confirmation of the Tribunal's remand and answers to the questions of law in the revenue's favour.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT vs Wipro GE Medical Systems (80 TTJ 455)	Tribunal decision followed by the Appellate Commissioner to allow the assessee's claim for warranty provision.	Noted as part of the earlier appellate history — the Appellate Commissioner followed this Tribunal decision when allowing the assessee's appeals.
Rotork Controls India P. Ltd. Vs Commissioner of Income-Tax reported [2009] 314 ITR 62 (SC)	That provision for warranty could be made is permissible if the requirements stated in para‑10 are fulfilled.	This Court remanded earlier appeals to the Tribunal to decide in accordance with law applying the principles in para‑10 of Rotork Controls; the present judgment requires the Tribunal to apply those principles and decides that the Tribunal erred in remanding to the Assessing Officer.
Rotork Controls India (P). Ltd., vs. Commissioner of Income- tax, Chennai reported in ((2009)180 TAXMAN 422 (SC)	Same Supreme Court authority on para‑10 requirements for warranty provisions (as cited in the opinion).	Referred by the Court as the controlling Supreme Court authority which the Tribunal was required to apply when disposing the remanded appeals.

Court's Reasoning and Analysis

The Court reviewed the procedural history and the Tribunal's subsequent order. It observed that this Court had earlier remanded the matter to the Tribunal to decide in accordance with the Supreme Court's Rotork Controls para‑10. The Tribunal, although giving a positive finding that the assessee's methodology for estimating warranty provisions was scientific and reasonable and based on past expenditure, remanded the matter to the Assessing Officer to verify whether the provision was based on past history or actual expenditure.

The Court reasoned that (i) the Tribunal is the last fact‑finding authority and empowered to examine documents on record; (ii) remand is an exceptional power and should not be used routinely when materials are on record; (iii) when materials are available the Tribunal ought to have arrived at a conclusion rather than further remanding after a positive finding; and (iv) no proper reasoning was provided by the Tribunal for exercising the power of remand or for departing from the High Court's remand direction. On these bases the Court found the Tribunal's remand to the Assessing Officer to be in disregard of this Court's earlier directions and unsustainable.

Holding and Implications

The appeal is allowed; the impugned order of the Tribunal is set aside and the matter is remitted to the Tribunal to be decided in accordance with law applying the principles laid down in Rotork Controls.

Consequences: The questions of law are answered in favour of the assessee and against the revenue. The Tribunal is directed to dispose of the appeal after providing an opportunity of hearing to the parties, preferably within three months from receipt of certified copy of this judgment; parties were directed to appear on 2.3.2016. All contentions are left open. No new precedent beyond applying Rotork Controls was created by this decision.

Show all summary ...

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 3^RDDAY OF FEBRUARY, 2016

PRESENT

THE HON'BLE MR. JUSTICE N.K. PATIL

AND

THE HON'BLE MRS.JUSTICE S. SUJATHA ITA No.295/2015

BETWEEN

M/s. Dell International Services India Private Limited

(formerly known as Dell Computers (I) Pvt.Ltd., Divyashree Greens

No.12/1, 12/A & 13/1

Koramangala Inner Ring Road

Domlur

Bangalore-560071. ….Appellant

(By Sri.K.R.Vasudevan & Sri. P. Dinesh, Advocate )

AND

The Assistant Commissioner of Income Tax Circle 11(1)

C R Building

Queens Road

Bangalore-560 001. …Respondent (By Sri.K.V.Aravind, Advocate.) This Income-tax appeal is filed under Section 260-A of Income-tax Act, 1961, praying to set aside the order passed by the ITAT, Bangalore in ITA Nos.362/Bang/2007 and 363/Bang/2007, dated 13.02.2015 relating to Assessment years 2002-03 and 2003-04 respectively to the extent of the issues raised as above.

This appeal coming on for Admission, having been heard and reserved on 1^STFebruary 2016, coming on for pronouncement of Judgment this day, S.Sujatha J., delivered the following

JUDGMENT

This appeal is filed by the assessee challenging the order passed by the Income Tax Appellate Tribunal, "A"

Bench, Bangalore dated 13.2.2015 in ITA Nos. 362 & 363/BANG/2007 relating to the assessment years 2002-03 and 2003-04.

2. Brief facts of the case are that the assessee/company which is engaged in the marketing and distribution of software systems and storage devices, computer consultancy and solutions, had filed its return of income for the relevant assessment years. During the assessment proceedings under Section 143(3) of the income tax Act, 1961 (the 'Act' for short), the Assessing Officer observed that the assessee has created provision for warranty during the relevant assessment years and the expenditure claimed was disallowed by the Assessing Officer. Aggrieved, the assessee preferred appeals before the Appellate Commissioner which were allowed by following the decision

of the Tribunal in the case of CIT vs Wipro GE Medical Systems (80 TTJ 455). Being aggrieved, revenue had preferred the appeals before this Court in ITA Nos.448/2008 c/w ITA 449 and 1039/2008. This Court by order dated 26.09.2012 remanded the matter back to the Tribunal. The Judgment of this Court reads thus:

"The Supreme court in the case of Rotork Controls India P. Ltd. Vs Commissioner of Income-Tax reported [2009] 314 ITR 62(SC) has held in para-10 that the provision for warranty could be made is permissible if the requirements stated in para-10 are fulfilled. In that view of the matter, the appeals are allowed and the common order dated 16.11.2007 passed in ITA No.363/BNG/2007 and ITA No.362/BNG/2007 and the order dated 06.06.2008 passed in ITA

No.1123/BNG/2007, by the ITAT, Bangalore are set aside and the matters are remanded to the Tribunal for disposal in accordance with law."

3. Pursuant to the Judgment passed by this Court, the Tribunal reconsidered the matter and finally, remanded the matter to the Assessing Officer for a limited purpose of verification as to whether the assessee's provision for warranty is based on the past history or

actual expenditure incurred by the assessee on account of such warranty.

4. Being aggrieved by the said order passed by the Tribunal the assessee is before this Court raising the following substantial questions of law:

"1. Whether on facts and circumstances of the case, the Appellate Tribunal is correct in remanding the matter to the Assessing Officer for verifying whether the Appellant's provision for warranty is based on the past history or actual expenditure incurred by the Appellant on account of such warranty whereas the Honorable High Court had remanded the issue for a limited point on whether the requirements stated in Para-10 of the decision of Rotork Controls India Private Limited vs. Commissioner of Income-tax[(2009)314 ITR

62] are fulfilled.

2. Whether the Appellate Tribunal was correct in remanding the matter to the assessing officer rather than deciding the case as per the law, as directed by the Hon'ble High Court.

3. Whether the remanding of the matter now to the assessing officer is beyond the scope of the remand ordered by the Hon'ble High Court.

4. Whether on the facts and circumstances of the case, the Appellate Tribunal was correct in remanding the matter

involving a legal issue to the Assessing Officer.

5. Whether the Appellate Tribunal has erred in remanding the matter to the Assessing Officer though all the evidences to demonstrate the principles were available on record.

6. Whether the Appellate Tribunal is justified in remanding back the matter to the Assessing Officer for verification, even though it was satisfied that the provision for warranty was created on scientific and reasonable basis".

5. Heard the learned counsel Sri K R Vasudevan for the appellant and Sri K V Aravind, learned counsel appearing for the revenue.

6. Learned counsel appearing for the assessee would contend that this Court while disposing off the appeals filed by the revenue, placing reliance on para. 10 of the Judgment of the Apex Court in the case of Rotork Controls India (P). Ltd., vs. Commissioner of Income- tax, Chennai reported in ((2009)180 TAXMAN 422 (SC) has remanded the matter to the Tribunal for disposal in accordance with law. The Tribunal after examining the case of the assessee in the light of the Judgment of the

Apex Court in Rotark Controls' case (supra) has positively held that the methodology adopted by the assessee for estimating the warranty are based on the actual expenditure incurred by the assessee on such products in the earlier assessment years on account of warranty liability. However, having held so, remanded the matter to the Assessing Officer for further inquiry regarding the provision made by the assessee for warranty, whether is based on the past history or actual expenditure incurred by the assessee, contrary to the directions issued by this Court in the earlier round of litigation i.e., ITA Nos.448/2008 and connected matters. It is further contended that the Tribunal ought to have exercised its discretion in verifying any figures regarding the provision, being the last fact finding authority. The order passed by the Tribunal goes beyond the scope of remand made by this Court which is untenable and calls for interference by this Court.

7. Per contra, learned counsel appearing for the revenue Sri Aravind would justify the order passed by the

Tribunal. It is contended that the order of remand made by the Tribunal is not an open remand and it is only for the limited purpose to verify the figures adopted by the assessee to explain the estimate of provision for warranty during the relevant assessment years, whether is actually expended by the assessee on account of such warranty or not. It is also emphasized that the Tribunal was compelled to make this remand order in view of certain documents filed by the assessee in support of its claim relating to the assessment years 2003-04, 2006-07 and 2010-2011. Accordingly, he seeks to confirm the order passed by the Tribunal and to answer the questions of law in favour of the revenue and against the assessee.

8. We have given our anxious consideration to the submissions made by the parties. It is an admitted fact that on the appeal filed by the revenue challenging the order passed by the Tribunal giving relief to the assessee as regards the provision made for warranty, this Court placing reliance on the Judgment of the Apex Court in Rotork Controls' case (supra) remanded the matter to the

Tribunal for disposal in accordance with law. The jurisdiction of the Tribunal being a last fact finding authority, is empowered to examine the documents placed by the assessee in support of its claim. It is settled law that remand is not a power to be exercised in a routine manner and should be used fairingly as an exception only when the facts warranted such course of action. When the materials are available on record, the Tribunal ought to have arrived at a conclusion rather than further remanding the matter back to the Assessing Officer that too, after giving a positive finding that the methodology adopted by the assessee is on a scientific and reasonable basis.

9. We observe that no proper reasoning has been given by the Tribunal for exercising the power of remand. The directions issued by this Court while remanding the matter to the Tribunal is not considered by the Tribunal in the true spirit. It was the obligation cast on the Tribunal to examine the case of the Assessee in the light of the Judgment of the Apex Court in Rotork Controls' case (supra) and to come to a decision. But, remanding the

matter to the Assessing Officer is in disregard to the Judgment of this Court and as such we are of the opinion that the order passed by the Tribunal is unsustainable.

10. Accordingly, we set aside the Order passed by the Tribunal and remand the matter to the Tribunal to consider the case of the Assessee in the light of the directions issued by this Court in ITA No.448/2008 and connected matters dated 26.9.2012 and to decide the matter, applying the principles of law laid down by the Apex Court in Rotork Controls' case (supra).

11. For the foregoing reasons, we answer the questions of law raised, in favour of the Assessee and against the Revenue.

12. In the result, the appeal is allowed. The impugned order of the Tribunal is set aside and the matter stands remitted back to the Tribunal, with a direction to dispose of the appeal in accordance with law after providing an opportunity of hearing to the parties, as expeditiously as

possible preferably within a period of three months from the date of receipt of certified copy of this Judgment. All contentions are left open. The parties are directed to appear before the Tribunal on 2.3.2016 without further notice.

Sd/-

JUDGE