2011 (6) TMI 965 - AT - Income Tax

Tribunal allows appeal on warranty expenses & liquidated damages disallowance under Income-tax Act

The appeal was partly allowed as the Tribunal ruled in favor of the appellant, a joint venture company, regarding the allowance of warranty expenses and ... - Issues involved:The judgment involves the following Issues:1. Allowance of warranty expenses disallowed by the Assessing Officer.2. Deletion of disallowance of liquidated damages.Issue 1: Allowance of warranty expenses:The appellant, a joint venture company, filed a return of income for A.Y. 2006-07, which was processed u/s 143(3) of the Income-tax Act 1961. The CIT(A) allowed a portion of warranty expenses disallowed by the Assessing Officer. The Tribunal found that the issue was covered by a previous decision in the assessee's own case, where the Hon'ble Supreme Court held that a provision made for warranty based on past experience is an allowable deduction u/s 37(1) of the Act. The Tribunal remanded the issue back to the Assessing Officer for further examination based on the principles laid down by the Supreme Court.Issue 2: Deletion of disallowance of liquidated damages:The second ground of appeal related to the deletion of disallowance of liquidated damages. The Tribunal, based on a previous decision in the assessee's own case, held that the expenditure in question did not result from a breach of law justifying disallowance u/s 37(1) of the Act. The Tribunal affirmed the findings of the CIT(A) and decided the ground in favor of the assessee.In conclusion, the appeal was partly allowed based on the above considerations.