High Court Of Madras
CIT vs. Panasonic Home Appliances
K. Raviraja pandian & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 108 of 2009
23rd March, 2009
Counsel Appeared :
K. Subramaniam, for the Appellant
JUDGMENT
P.P.S. JANARTHANA RAJA, J. :
The above tax case appeal is filed by the Revenue against the order of the Tribunal, Chennai ‘B’ Bench dt. 27th June, 2008 made in ITA No. 525/Mad/2008 by raising the following question of law :
“Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the provision for encashment of leave of Rs. 1.19 lakhs claimed by the assessee was allowable on the basis of the Supreme Court’s decision in the case of Bharat Earth Movers vs. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC) since in the assessees case the liability was only a contingent liability as clearly mentioned in the tax audit report and not an ascertained liability which was capable of being quantified with reasonable certainty ?”
2. The assessee is engaged in manufacture and sale of electric rice cookers and mixies. The relevant assessment year is 1998-99 and the corresponding accounting year ended on 31st March, 1998. The assessee had filed its return of income on 27th Nov., 1998 returning total income of Rs. ‘nil’ and the same was processed by the AO under s. 143(1) of the IT Act. Thereafter, the AO noticed from the return that the assessee had debited P&L a/c with provision for warranty claims amounting to Rs. 5,23,197 and had not added back for the purpose of calculation of profits under s. 115JA. The said provision for expenditure was not allowable and there was reason to believe that the income chargeable to tax had escaped assessment by virtue of allowing wrong claim of expenditure. Therefore, the assessment was reopened under s. 147 by issuing notice under s. 148 of the Act on 31st Aug., 2004. Later, the assessment was completed on 24th March, 2006 under s. 143(3) r/w s. 147 of the Act determining the book profit under s. 115JA at Rs. 88,36,818 and thereby arriving the deemed income at 30 per cent of the book profit at Rs. 26,51,045. While completing the assessment, the AO has allowed the relief claimed in respect of provision made for leave encashment of Rs. 1.19 lakhs. The CIT, Chennai-III, set aside the order of the assessment under s. 263 of the IT Act, 1961 on the ground that it is erroneous and prejudicial to the interest of the Revenue. The CIT, while enhancing the assessment, has directed the AO to modify the assessment by disallowing and adding back the provision for doubtful debts and the provision for leave encashment in computing the book profits for the purpose of s. 115JA. Aggrieved by the same, the assessee had filed an appeal before the Tribunal. The Tribunal, by following the decision of the Supreme Court in the case of Bharat Earth Movers vs. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC), allowed the claim. Aggrieved by that order, the Revenue has filed the present appeal.
The learned counsel appearing for the Revenue submitted that the Tribunal is wrong in allowing the appeal by relying on the decision of the Supreme Court in the case of Bharat Earth Movers vs. CIT (supra). He further submitted that the Tribunal erred in not observing that in the assessee’s case, the liability in question was only contingent in nature and not the ascertained/determined liability. He further submitted that the Tribunal erred in not noticing that the tax auditors had qualified the provision in the tax audit report in Form 3CD as liability of contingent nature and hence the order of the Tribunal is not in accordance with law and the same has to be set aside. Heard the learned counsel appearing for the Revenue and perused the materials available on record. It is seen that the issue involved in this appeal is squarely covered by the judgment of the Supreme Court in the case of Bharat Earth Movers vs. CIT (supra), which is decided in favour of the assessee. Therefore, we are of the view that the Tribunal is correct in following the judgment of the Supreme Court cited supra and we do not find any error or illegality in the order of the Tribunal warranting interference. The learned counsel appearing for the Revenue has not produced any material or case law to take a contrary view of the Tribunal. In these circumstances, no question of law arises for consideration. Accordingly, the tax case appeal is dismissed.
[Citation : 323 ITR 344]
