2010 (2) TMI 682 - HC - Income Tax

Reassessment - Income escaping assessment - Disallowance - Since the assessee has incurred the expenditure more than the provision made, the assessee s case would squarely fall within the ratio laid down by the apex court in the decision of the Bharat Earth Movers 2000 -TMI - 5816 - SUPREME Court - Some objection was raised by Mr. Bhatt for the Revenue that since these figures were not on record, the same should not be taken into consideration in second appeal - Held that the issue raised in the tax appeal is squarely covered by the decision of the apex court and the Tribunal has rightly decided this issue in favour of the assessee - Appeal is dismissed

Summary

Issues:
- Validity of section 147/148 notice
- Disallowance of provision in respect of warranty obligation for different assessment years

Validity of section 147/148 notice:
The judgment involves multiple tax appeals with common parties. The first issue pertains to the validity of a notice under section 147/148 of the Income-tax Act, 1961. The assessee filed an appeal challenging the Tribunal's decision upholding the notice's validity for the assessment year 1995-96. The court examined whether the Tribunal was correct in law in validating the notice.

Disallowance of provision in respect of warranty obligation:
The other issues revolve around the disallowance of provisions for warranty obligations for various assessment years. The Revenue filed appeals for the assessment years 1996-97 and 1997-98, questioning the Tribunal's decision to delete disallowances. The key contention was whether the provisions made by the assessee were contingent liabilities and whether they were allowable deductions. The court considered the judgments in similar cases and analyzed the nature of the expenses incurred by the assessee in relation to the provisions made.

The judgment highlighted the difference in treatment between the assessment years, with specific emphasis on the adequacy of provisions and actual expenses incurred. The court examined the principles laid down by the apex court in previous cases regarding the treatment of business liabilities and contingent liabilities. The court scrutinized the details submitted by the assessee regarding expenses incurred over subsequent years and compared them to the provisions made. The judgment emphasized the importance of certainty in incurring liabilities and the ability to estimate them with reasonable certainty.

The court ultimately dismissed the Revenue's appeals, upholding the Tribunal's decisions in favor of the assessee. The court found that the assessee had incurred expenses exceeding the provisions made, aligning with the principles established in previous legal precedents. As a result, the court did not find any substantial question of law to be formulated based on the Revenue's contentions. Consequently, all four tax appeals were dismissed, with the assessee's challenge against the reopening of assessment also being deemed infructuous and dismissed accordingly.