9911796707
|
Home
Issues involved:
The judgment involves the determination of two questions of law: 1. Whether provision of warranty for repairs/replacement is an existing liability at the time of sale and is allowable as deduction? 2. Whether the credit in the Modvat account is not to be treated as the income of the assessee although the assessee is entitled for set off of this amount against the payment of Excise Duty to this extent? Issue 1: Provision of Warranty for Repairs/Replacement The case pertains to assessment years 1987-88 to 1989-90. The assessee, a firm dealing in transformers, claimed a provision for warranty against manufacturing defects. The Assessing Officer disallowed the claimed amounts, stating that the provisions were not for determined liabilities. The CIT(A) upheld this view, noting that the assessee was claiming the deduction of warranty twice and was using accounting methods to postpone tax payments. However, the Tribunal allowed the provision amount for all assessment years, stating it was allowable. Issue 2: Treatment of Modvat Credit For the assessment year 1988-89, the Assessing Officer added an unutilized modvat credit amount to the total income of the assessee. The CIT(A) disagreed, stating the credit was not available in cash and could only be utilized under statutory conditions. The Tribunal upheld the CIT(A)'s view that the modvat credit cannot be treated as total income of the assessee. Key Legal Precedents: 1. The Division Bench referred to the judgment in CIT v. Majestic Auto Ltd., where it was held that a liability, even if quantified and discharged in the future, should be treated in the present time and not as a contingent liability. 2. In CIT v. Indo Nippon Chemicals Co. Ltd., the Supreme Court ruled that modvat credit, being an irreversible credit, does not amount to taxable income and should not be valued using the 'gross method' for raw materials and the 'net method' for stock on hand. In conclusion, the High Court answered both questions against the revenue and in favor of the assessee, citing relevant legal precedents to support their decision.
|
