Case Law Details
CIT Vs AMCO Batteries Ltd. (Karnataka High Court)
The issue under consideration is whether the provision for warranty is allowable as deduction when the assessee has not made provision on a scientific basis?
High Court states that, the A.O. is not justified in holding that in all cases the provision is to be disallowed as expenditure. This has become the strict law of the past after the pronouncement of the Supreme Court in several cases that a provision can also become an allowable deduction if it is computed with a certain degree of certainty. Thus, from close scrutiny, it is evident that the principles laid down by the Supreme Court in Rotork Controls India (P) Ltd. Supra had been taken into account by the Commissioner of Income Tax (Appeals) and the estimation of provision for the Assessment year 2008-09 has been found to be unscientific and unreasonable. The Tribunal has noted that admittedly, the Commissioner of Income Tax (Appeals) has considered the same working method of provision in previous two years and allowed the provision. It was further held that the Commissioner of Income Tax (Appeals) did not allow the provision for warranty for the Assessment year on the ground that the ration between the actual and the provision is less than 70:100. It was further held that the ratio adopted by the Commissioner of Income Tax (Appeals) is imaginary and arbitrary and is without any basis. It was also held that provision of warranty was made every year in accordance with accounting standards 29 and the provision is worked out scientifically every year merely because, the provision has come down to 59:100, the same cannot be disallowed. Accordingly, the finding recorded by the Commissioner of Income Tax (Appeals) that estimation of provision is unscientific and is unreasonable has been set aside. Thus, it is evident that the conditions laid down by the Supreme Court to assess a provision have been met in the instant case. Therefore, the submission made by learned counsel for the revenue that neither Commissioner of Income Tax (Appeals) nor Tribunal has examined the ratio laid down in Rotork Controls India (P) Ltd. Supra does not deserve acceptance.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2008-09.
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