TaxTMI 
TaxTMI 
2007 (2) TMI 200
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....e facts in all these appeals centre on the question of warranty charges. Taking T. C. No. 163 of 2003 for consideration of facts, it may be seen that the assessee made a provision as regards warranty charges payable under the terms of sale. It is stated that such a provision is made in the accounts to meet out the future requirements arising on account of the warranty clause in the sale agreement. It is admitted by the assessee that the warranty provision made as against the liability had not crystallised against the assessee. Consequently, holding the provisions as unascertained liability, the assessing authority rejected the plea of the assessee. The Assessing Officer followed the orders passed earlier, in respect of similar claims. Aggrieved of the same, the assessee preferred an appeal before the first appellate authority, who followed the earlier orders of the Tribunal and allowed the claim. Aggrieved of this, the Assessing Officer further went on appeal, following the orders passed earlier under similar circumstances. Hence, these appeals. 5. It is a matter of fact that in all these cases, the claims are not made on the basis of any particular data available for earlier ye....
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....ec Corporation P. Ltd. [2005] 278 ITR 337 (Delhi) and CIT v. Indian Transformers Ltd. [2004] 270 ITR 259 (Ker). 8. Per contra, Mr. Vijayaraghavan, learned counsel for the assessees, submits that a committed liability is an accrued liability and, hence, even though the exact quantification is postponed to a future date, yet a provision in terms of the agreement undertaken has to be considered for deduction. In short, he submits that the determination of exactness of the liability on a future date does not make a liability as on the date of agreement a contingent liability. In this connection, he placed reliance on section 37(1) and drew support from Indian Smelting and Refining Co. Ltd. v. CIT [2001] 248 ITR 4 (SC) and Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC). In the above circumstances, learned counsel for the assessees prays that the order of the Tribunal be upheld. 9. We agree with the submission made by learned counsel for the Revenue, that considering the nature of the liability, which is yet to crystallise but loaded with uncertainty of the event to cause a liability, there is no justification to accept the plea of the assessees to uphold the order of the Tribu....
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.... of show-cause notice, which the assessee did not admit as a liability, was not deductible ; that was only a contingent liability and, hence, could not constitute as an expenditure for the purpose of Income-tax. CIT v. Dynavision Ltd. [2004] 265 ITR 289 is the decision of this court, on the question of the character of a liability as the contingent liability. Referring to the decision in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC), this court held that " the basic requirement is that the amount sought to be excluded should be an expenditure and the expenditure, which is deductible for Income-tax purposes, is one which is towards a liability actually existing at the time, but the putting aside of money, which may become expenditure on the happening of an event is not an expenditure" . 11. The Revenue as well as the assessees placed reliance on Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC). This relates to a claim on leave encashment. The assessee, in that case, created a fund making provision for meeting its liability, arising on account of accumulated earned/vacation leave. A certain sum was set apart in a separate account as provision for encashment of accrued l....
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....clause on the basis of a fixed percentage on the turnover. In the absence of any details, accepting the claim of percentage on the turnover could not be sustained. 17. As to the reliance placed on the decision in Commissioner of Inland Revenue v. Mitsubishi Motors New Zealand Ltd. [1996] 222 ITR 697 (PC) as rightly submitted by learned standing counsel for the Revenue, the said decision was prompted by the statistical data available that in respect of 63 per cent. of the vehicles sold by the taxpayer, they were returned to the dealers for some kind of work to be done under the warranty clause. The Privy Council held that the taxpayer could reasonably make an accurate forecast, based on the previous experience, as to what would be the total cost of remedial work for all the vehicles sold in a given year. Taking note of the commercial practice, the Privy Council granted the relief in the assessee' s appeal. 18. With no such details in the appeals at any stage of the proceedings, we do not find any justification to grant 1.5 per cent. on the total turnover, as provision for the warranty clauses. 19. Learned counsel for the assessee placed reliance on CIT v. Vinitec Corpor....
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....ard to the nature of services rendered by the holding company. The assessee explained the increase in the payment of commission, on account of the increase in the turnover. Hence, a sum of Rs. 25 lakhs extra was paid to the holding company. The first appellate authority, confirming the order of the assessing authority, held that the disallowance of Rs. 15 lakhs was reasonable and hence allowance of Rs. 10 lakhs was upheld. The Commissioner also held that the assessee had not produced any data regarding the services rendered extra, justifying the huge payment. 26. On appeal, the Tribunal held that the assessee had produced the necessary calculation sheet ; that the assessee had spent less amount towards the charges, consequent to the fact that where it had no branches, it took the services of the holding company to get its business. The Tribunal held that there was nothing to show that the calculation given by the assessee was found to be false. Consequently, it was not open to the Revenue to reject the contention in an ad hoc manner. 27. Learned standing counsel referred to the decisions in CIT v. Shatrunjay Diamonds [2003] 261 ITR 258 (Bom) and V. S. T. Motors Ltd. v. CIT [2....