TaxTMI 
TaxTMI 
2016 (9) TMI 863
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.... law and on facts in confirming the order of the CIT(A) though the assessee failed to furnish evidence regarding justification of such claim and thereby deleting the addition of Rs. 2,90,20,000/- made by the AO on account of disallowance of quality claim expenses?" 3. The issue pertains to the assessee's claim of deduction of Rs. 2.90 crores towards quality claim expenses. The assessee was in the business of manufacturing ready-made garments and exporting them. For the assessment year 2009-10, the assessee had filed return of income showing gross turnover of Rs. 21.28 crores (rounded off) and other income of Rs. 2.13 crores (rounded off) and disclosed gross loss of Rs. 4.37 lacs (rounded off). The assessee had claimed deduction of Rs....
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.... defective garments through retail chain in UK by offering huge discounts. These buyers had claimed allowances by using debit notes on the assessee. Thus, the claim was based on specific material on record. The assessee had also maintained complete item wise and code wise details regarding the inventories in terms of quality and value from which the item and code wise defects could be detected. The assessee pointed out that the buyers had raised debit notes a total of which came to Rs. 2.90 crores. 6. The Commissioner accepted the assessee's claim making following observations: "I have carefully considered the submissions made by the AR of the appellant and the discussions made by the AO and direction of the ld. JCIT reprodu....
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....e Ld. AR of the appellant that it is the true nature and substance of a particular transaction that determines its allowability or otherwise and not the accounting entry. AO and Ld JCIT have completely misconceived the deduction claimed by the appellant and went into nomenclature of accounting head and accounting treatment of the transaction which is not decisive from the impugned claim. It is noticed that P & L account shows gross sales of Rs. 20,28,66,289/- as against this on the basis of debit notes of buyers. Quality claim expenditure of Rs. 2,90,20,000/- has been debited and this accounting is proper. Other method could be to reduce sales of Rs. 20,28,66,289/- by quality claim expenditure of Rs. 2,90,20,000/- and take net sales figures....
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....d already made. Under such circumstances, the quality claim cannot be said to be a contingent or unascertained liability. Even in a case where a claim is not quantified but it is possible to reasonably estimated; the deduction would be permissible. The Tribunal referred to the decision of Supreme Court in case of Bharat Earth Movers Ltd. vs. CIT reported in (2000) 245 ITR 428 (SC). 8. From the material on record, it can be seen that the Commissioner as well as the Tribunal concurrently held that there was sufficient evidence on record to establish that the assessee had, in fact, suffered a loss of Rs. 2.90 crores on account of quality claim. The assessee pointed out that some of the exports suffered from total rejection or objection of i....