Tribunal rules in favor of assessee on warranty claims provision and deduction eligibility for machinery purchase.

The Tribunal dismissed the Revenue's appeal regarding the provision for warranty claims and allowed the assessee's appeal concerning the deduction under section 32AB for machinery purchased under a hire purchase agreement. The Tribunal held that the assessee was eligible for the deduction under section 32AB, even though actual payment was made in subsequent years, as the liability was created during the relevant year.

---

---

Issues Involved:
1. Deduction for provision of warranty claims.
2. Eligibility for investment deposit allowance under section 32AB for machinery purchased on hire purchase.

Detailed Analysis:

1. Deduction for Provision of Warranty Claims

Revenue's Appeal:
The Revenue contended that the learned CIT(A) erred in allowing the provision for warranty claims amounting to Rs. 7,90,000 as a deduction. The Revenue also highlighted that a similar decision for the assessment year 1989-90 was not accepted by the department and was pending appeal before the Appellate Tribunal.

Tribunal's Decision:
The Tribunal noted that both parties agreed that the issue was governed by a prior decision of the Tribunal in favor of the assessee. Consequently, the Tribunal dismissed the Revenue's appeal, adhering to the earlier decision.

2. Eligibility for Investment Deposit Allowance under Section 32AB

Assessee's Appeal:
The assessee challenged the disallowance of the deduction under section 32AB for a computer purchased under a hire purchase agreement for Rs. 34,85,062. The Assessing Officer had disallowed the claim on the grounds that no actual payment was made during the relevant year, arguing that the term "utilised" in section 32AB necessitated an actual outflow of money.

Arguments by the Assessee:
The assessee argued that since it followed the mercantile system of accounting and had created a liability for the payment, it should be considered as having "utilised" the funds for the purchase of the computer. The assessee relied on Circular No. 9 of 1943 and the decision in Addl. CIT v. General Industries Corpn., which allowed depreciation for assets acquired under hire purchase agreements.

Arguments by the Revenue:
The Revenue countered that the term "utilised" required actual payment, and since no payment was made, the deduction under section 32AB was not allowable. The Revenue also argued that the assessee did not become the owner of the asset until the completion of payments as per the hire purchase agreement.

Tribunal's Decision:
The Tribunal examined the provisions of section 32AB and relevant case law, including the decision of the Delhi High Court in General Industries Corpn., which treated assets under hire purchase as belonging to the assessee for depreciation purposes. The Tribunal also referred to the decision of the Ahmedabad Bench in Dy. CIT v. Gujarat Instrument Ltd., which held that actual payment during the previous year was not necessary for claiming deduction under section 32AB, provided the asset was purchased and delivery taken during the year.

The Tribunal concluded that the assessee was eligible for the deduction under section 32AB, even though the actual payment was made in subsequent years, as the liability was created during the relevant year. The Tribunal allowed the assessee's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal regarding the provision for warranty claims and allowed the assessee's appeal concerning the deduction under section 32AB for machinery purchased under a hire purchase agreement.

---