TaxTMI 
TaxTMI 
2011 (4) TMI 1483
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....e from trading in industrial burners and spare parts. That on such industrial burners one year warranty is allowed. That the entire sale proceeds is taken as the income of the assessee, therefore, the assessee made provision for expenditure likely to be incurred in fulfilling the warranty in the subsequent year. That the provision is made at the rate of 1.5% of the sales. Considering the facts of the case, such provision for the expenditure to be incurred by the assessee in fulfilling the warranty of one year is quite fair and reasonable, the same should be allowed. He alternatively submitted that during the year under consideration the assessee made provision of Rs. 10,58,327/- and at the same time written back the provision of Rs. 9,19,458/- made in the last year. Thus, the net amount claimed against the warranty provision in the year under consideration was only Rs. 1,38,869/-. Therefore, if the assessee's claim is not accepted on merit, then the disallowance can be only Rs. 1,38,869/- and not Rs. 10,58,327/- disallowed by the AO. 4. The learned DR, on the other hand, stated that the assessee is only a trader not the manufacture of industrial burner. The warranty of any produ....
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....all infrastructures for its business for providing sales services. The assessee has also not brought on record any details or evidences in connection with the warranties provided and expenses borne by it for the warranties either during the year or in past years Since the assessee is incurring various expenses in connection with sales services under the various overheads, no separate deduction for the provisions can be allowed On this ground also, the provisions made for warranty is not admissible The claim of the assessee is therefore, rejected. The disallowance of Rs. 10,58,327/- is made to the total income." 6. At the time of hearing before us, the learned counsel for the assessee was unable to controvert the factually findings recorded by the AO. The learned DR has rightly stated that when a warranty is provided by the manufacturer for any product it is the liability of the manufacturer to fulfill such warranty. During the course of hearing before us, we had specifically asked the assessee's counsel whether there is any agreement between the assessee and the manufacturer which makes the assessee liable for fulfilling the warranty. The assessee denied the existence of such wr....
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....bsp; From the above, it is evident that the provision of Rs. 9,19,458/- made on 31-3-2004 was reversed on 1st April, 2004. Similarly, the provision of Rs. 10,58,327/- made on 31-3-2005 was reversed on 1-4-2005. In view of the above, we agree with the findings of the lower authorities that on the facts of the case of the assessee, the deduction for the provision of warranty cannot be allowed. However, we find force in the alternate contention of the assessee's counsel. The AO can disallow only the actual deduction claimed by the assessee by way of debit to the profit and loss account. It is not in dispute that during the accounting year relevant to the assessment year under consideration, debit to the profit and loss account on account of warranty was only Rs. 1,38,869/-, therefore, the disallowance on account of warranty provision is sustained at Rs. 1,38,869/-. Accordingly, the assessee will get relief of Rs. 9,19,458/-. 7. The Ground No.2 of the assessee's appeal is against disallowance of Rs. 30,000/- out of telephone expenses, while Ground No.2 of the Revenue's appeal is against the relief of Rs. 26,102/- allowed by the CIT(A) against the disallowance of Rs. 56,102/- made....
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....erification of the legal exp. Account, it is noticed that the assessee had debited Rs. 24,770/- and Rs. 1,20,450/- in cash on 25.01.2005. The payments are clearly in contravention of the provisions of sec. 40A(3) of the IT Act, 1961. Therefore, 20% of these expenses is not allowed as deduction. Accordingly, disallowance of Rs. 29,045/- and added to the total income." 12. At the time of hearing before us, the only explanation given by the assessee was that the expenditure was incurred for purchase of stamp duty in respect of loan agreement. No such explanation appears to have been given before the AO. Therefore, in our opinion, this issue needs reexamination at the end of the AO. We therefore set aside the order of the authorities on this point and restore the matter back to the file of the AO for re-adjudication in accordance with law. 13. Last ground of the assessee's appeal reads as under: "5. The ld.AO had disallowed a sum of Rs. 7,236/- as a prior period expenses. The CIT(A) has erred on facts and in law in not considering the same in his order and thereby upholding the said disallowance." 14. It is a settled law that for claiming prior period expenditure, it is the....