2014 (3) TMI 385 - HC - Income Tax

Supreme Court orders Tribunal to reconsider mediclaim & warranty expenses, doubtful debts for MAT.

The Supreme Court remanded the case to the Tribunal for reconsideration on the deductibility of provisions for mediclaim and warranty expenses, as well as ... Allowability of deduction – Provision for Medi-claim made – Warranty expenses - Held that:- The decision in Rotork Controls India (P) Limited vs. Commissioner of Income Tax [2009 (5) TMI 16 - SUPREME COURT OF INDIA] followed - the claim of provision for warranty stating that with making of provision on the basis of estimated present value of contingent liability holds good during the assessment years in question qua warranty claims - the matter remitted back to the Tribunal for fresh adjudication. MAT income - Whether the tribunal was correct in holding that the provision made for doubtful debts cannot be added back for computing MAT income – Held that:- AO held that the debts is a charge to the profits which get reduced and consequently is an unascertained liability - Section 115JA has been amended vide Finance Act, 2009 with effect from 1-4-1998 - assessee does not dispute the statement made by the revenue and also agreed for remanding the matter for deciding the question in the light of the amendment – thus, matter remitted back for fresh adjudication – Decided in favour of Revenue. Issues:1. Allowability of provision made for mediclaim expenses.2. Allowability of provision made for warranty expenses.3. Treatment of provision made for doubtful debts for computing MAT income.Analysis:Issue 1: Allowability of provision made for mediclaim expensesThe judgment revolves around the appeal against the Tribunal's decision dismissing the revenue's appeals concerning the deduction of a provision made by the assessee for mediclaim expenses. The Tribunal allowed the provision as a deduction, contrary to the Assessing Officer's view that such payments would only be made upon a claim under the policy in subsequent assessment years. The Supreme Court's ruling in Rotork Controls India (P) Limited vs. Commissioner of Income Tax (2009) 314 ITR 62 was cited, leading to a remand for the Tribunal to reconsider this question in light of the said judgment.Issue 2: Allowability of provision made for warranty expensesSimilarly, the Tribunal's decision on the allowance of a provision made for warranty expenses was challenged. The Assessing Officer considered this provision as a contingent liability, to be incurred only upon specific events like claims by the assessee's customers. The matter was also remanded to the Tribunal for fresh consideration in line with the Rotork Controls India Ltd judgment.Issue 3: Treatment of provision made for doubtful debts for computing MAT incomeRegarding the provision made for doubtful debts, the Assessing Officer's stance that these debts constitute an unascertained liability and should be added back for computing Minimum Alternate Tax (MAT) income was disputed. The amendment in Section 115JA by the Finance Act, 2009, effective from 1-4-1998, was highlighted. Both parties agreed to remand this issue to the Tribunal for reconsideration in light of the amendment. Consequently, the Tribunal's order was set aside for all three questions, with a direction to decide them on merits and in accordance with the law within six months from the date of the order, keeping all contentions open.In conclusion, the judgment addresses the nuanced issues of deductibility of provisions for mediclaim and warranty expenses, along with the treatment of doubtful debts for MAT income computation, emphasizing the need for reconsideration based on relevant legal precedents and amendments to the tax laws.