Ammann India Private Limited Vs ACIT (Gujarat High Court)
The Gujarat High Court allowed the writ petition and quashed the notice and order dated 26.03.2024 issued under Sections 148 and 148A(d) of the Income Tax Act, 1961, holding that the reopening of assessment for Assessment Year (AY) 2017-18 could not be sustained on the facts of the case.
The petitioner, engaged in the business of manufacturing and selling road construction equipment, had filed its return for AY 2017-18 declaring total income of ₹73.65 crore. The Revenue initiated reassessment proceedings alleging that the petitioner had claimed deduction of ₹3.80 crore towards provision for warranties, whereas the actual warranty expenditure was ₹3.21 crore, resulting in an alleged excess deduction of ₹58.40 lakh. The Revenue treated the warranty provision as an unascertained liability. It also alleged that security deposits of ₹65.45 lakh forfeited against C-Forms during FY 2016-17 had not been offered to tax. The petitioner challenged the reopening after its explanation was rejected under Section 148A(d).
The petitioner contended that the warranty provision was created on a scientific basis in accordance with accounting standards and was allowable under Section 37 of the Act. It relied on the Supreme Court’s decision in Rotork Controls India Pvt. Ltd., the Income Computation and Disclosure Standards (ICDS), and explained that the provision was based on historical experience, expected repair costs, material costs, employee costs, and annual reassessment. The petitioner further pointed out that similar deductions had been accepted in earlier assessment years as well as in AY 2018-19 after scrutiny. Regarding the forfeited C-Form deposits, it explained that the deposits were collected only to safeguard against additional sales tax liability arising from non-submission of C-Forms by customers. The forfeited amounts had been used to discharge sales tax liability, supported by customer-wise details, ledgers and challans already furnished during the original assessment proceedings.
