2021 (8) TMI 75 - AT - Income Tax

Tribunal upholds deduction for warranty expenses, citing judicial precedents and assessee's consistent practice.

Deputy Commissioner of Income-tax, Circle-6 (1), Kolkata. Versus M/s. Orient Paper & Industries Ltd.

The Tribunal dismissed the revenue's appeal, upholding the Ld. CIT(A)'s decision to allow the deduction for warranty expenses claimed by the assessee. The ... Deduction claimed during the assessment proceeding by filing a letter - disallowance of warranty expenses as the assessee did not claim the deduction in its return of income - disallowing the additional claim by filing an application made by the assessee during the course of assessment - whether the assessee without making a claim for deduction in its return of income, claim the same without filing revised return of income? - HELD THAT:- It is settled position of law that the Ld. CIT(A) enjoys plenary and co-terminus powers as that of AO and even has the authority to enhance the assessment. So the action of the Ld. CIT(A) to entertain the claim of assessee which was inadvertently omitted by the assessee while filing return of income is in order and is in the spirit of the CBDT Circular No. 114XL 35 of 1955 dated 11.04.1955 which says that the department should not take advantage of the assessee’s ignorance and even if the assessee offers income which is not taxable, then the AO is duty bound to tax only the legitimate income. The assessee had been consistently following the same method from AY 2007-08 in respect of expenses relating to warranty and the department has accepted the same. So, taking into consideration these facts also, and coupled with the fact that the AO having accepted that in this relevant assessment year, the assessee has made actual payment out of the provision created for warranty expenses for AY 2014-15, the Ld. CIT(A) has rightly admitted new claim of warranty expenses actually paid by the assessee and allowed the same, which does not require any interference from our part and, therefore, we confirm the same and dismiss the appeal of the revenue. Issues:- Appeal by revenue against Ld. CIT(A)-2, Kolkata's order for AY 2015-16.- Condonation of delay in filing the appeal.- Deletion of addition of warranty expenses by Ld. CIT(A).- Claiming deduction for warranty expenses without revising return.- Applicability of judicial precedents and CBDT Circular.Analysis:1. Condonation of Delay: The revenue's appeal was time-barred by 18 days, and a petition for condoning the delay was filed. After hearing both sides, the delay was condoned, and the appeal was admitted for hearing.2. Deletion of Addition of Warranty Expenses: The revenue challenged the deletion of an addition of Rs. 12,26,74,120/- regarding warranty expenses by the Ld. CIT(A). The AO noted that the assessee created a provision for warranty but did not claim it in the return of income. The Ld. CIT(A) allowed the claim based on the assessee's consistent practice and judicial precedents supporting the rule of consistency.3. Claiming Deduction Without Revising Return: The AO did not allow the deduction as the assessee did not file a revised return of income. However, the Ld. CIT(A) admitted the claim, considering the genuine mistake made by the assessee and the legitimate nature of the claim. The Tribunal upheld this decision, citing the plenary powers of the Ld. CIT(A) to entertain new claims.4. Applicability of Judicial Precedents and CBDT Circular: The Ld. CIT(A) relied on judicial precedents and the CBDT Circular to support the allowance of the warranty expenses claimed by the assessee. The Tribunal confirmed the decision, emphasizing the consistent practice followed by the assessee and the acceptance of the same by the department in previous assessments.5. Final Decision: The Tribunal dismissed the appeal of the revenue, affirming the decision of the Ld. CIT(A) to allow the deduction for warranty expenses claimed by the assessee. The Tribunal concluded that the assessee's claim was legitimate, and the Ld. CIT(A) acted within the scope of his powers in admitting and allowing the claim.In conclusion, the Tribunal upheld the Ld. CIT(A)'s decision to delete the addition of warranty expenses, emphasizing the genuine nature of the claim and the authority of the Ld. CIT(A) to entertain such claims even without a revised return of income. The decision was supported by judicial precedents and the consistent practice of the assessee in previous assessments.