2010 (4) TMI 1096 - AT - Income Tax

Summary

Issues involved: Revenue appeal against CIT(A) order for AY 2001-02 regarding penalty on provision for warranty expenses.

Brief facts: AO made addition of &8377; 31,82,677/- for provision of warranty expenses. Tribunal allowed deduction of &8377; 7,29,428/- as actual expenses. AO imposed penalty of &8377; 53,33,101/- for both disallowances. CIT(A) deleted entire penalty. Revenue appealed for penalty on provision of warranty expenses confirmed by Tribunal.

Legal analysis: Explanation 1 to section 271(1)(c) relevant. Situations where addition or disallowance represent concealed income outlined. Assessee made provision @ 1% of gross sales for warranty expenses based on technical estimate and experience. Tribunal allowed deduction based on actual expenditure incurred. Tribunal's basis not that provision was excessive or unreasonable. Assessee disclosed provision in notes, stating it's based on technical estimate. Tribunal noted year-wise provision and actual expenses, showing rising actual expenses each year. Assessee's explanation considered bona fide, no concealment of income found. Section 271(1)(c) not applicable. CIT(A) deletion of penalty upheld.

Conclusion: Revenue appeal dismissed.