QLAR India Private Limited Vs DCIT (ITAT Kolkata)
Background
Qlar India Pvt. Ltd., a Bengaluru-based manufacturer of plant sequencing, batching & weighing systems, filed its return of income belatedly for AY 2014-15 declaring income of ₹11.91 crore. The assessment was completed u/s 143(3) on 29.12.2016, wherein AO examined the issue of provision for warranty & made no disallowance.
Subsequently, the AO invoked rectification proceedings u/s 154 on 17.09.2019 & disallowed warranty provision of ₹1.27 crore, holding it not allowable under Section 37(1).
CIT(A)’s Order
Assessee challenged this action before NFAC (CIT(A)). CIT(A) upheld AO’s right to use Section 154 but remanded the issue to AO to verify whether the warranty provision was made on a scientific basis in line with the Supreme Court ruling in Rotork Controls India Pvt. Ltd. (314 ITR 62).
Arguments Before ITAT
Assessee’s contention: Provision for warranty is a debatable issue, hence cannot be rectified u/s 154 which is restricted to mistakes apparent from record.
Revenue’s stand: AO rightly applied Section 154 & disallowed the claim.
Tribunal’s Observations
- A debatable issue falls outside the scope of Section 154. Only obvious, patent mistakes can be rectified, not matters requiring long reasoning or where two views are possible.
- The allowability of warranty provision has been settled as a contentious matter, supported by precedents:ITO vs. Volkart Brothers (SC, 82 ITR 50), MC Mowjee & Co. Pvt. Ltd. vs. ITO (ITAT Kolkata, 2025), Lanshree Products & Services Ltd. vs. DCIT (ITAT Kolkata, 2022), PCIT vs. Lanshree Products & Services Ltd. (Calcutta HC, 2023, 150 taxmann.com 389)
Following these, the ITAT held that the AO exceeded jurisdiction in invoking Section 154.
