2010 (11) TMI 1091 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of provision for warranty.
2. Exclusion of insurance claim from profits for deduction u/s 80HHC.
3. Exclusion of income from services rendered, sale of scrap, discount, recovery of doubtful debt, and sundry neutral revenue from profits for deduction u/s 80HHC.

Summary:

1. Disallowance of Provision for Warranty:
The CIT(A) confirmed the disallowance of the provision for warranty to the extent of Rs. 3,908,000 for A.Y 1996-97. The Tribunal had earlier directed the AO to verify the amount of provision made and allow a reasonable amount. The AO fixed the reasonable amount at 0.1% of net sales, rejecting the assessee's claim of 0.5% due to lack of supporting details. The CIT(A) upheld this decision. The Tribunal, upon review, found the AO's estimation of 0.1% unreasonable and increased it to 0.4% of net sales, partly allowing the assessee's appeal.

2. Exclusion of Insurance Claim from Profits for Deduction u/s 80HHC:
The CIT(A) excluded 90% of the insurance claim from the profits of business for the purpose of deduction u/s 80HHC. The Tribunal noted that the insurance receipts should be considered eligible business profits as per the Bombay High Court's judgment in M/s. Pfizer Ltd. The matter was set aside to the CIT(A) for reconsideration in light of this judgment and other relevant facts.

3. Exclusion of Income from Services Rendered, Sale of Scrap, Discount, Recovery of Doubtful Debt, and Sundry Neutral Revenue from Profits for Deduction u/s 80HHC:
- Services Rendered and Sale of Scrap: The CIT(A) excluded 90% of income from services rendered and sale of scrap from the profits for deduction u/s 80HHC. The Tribunal directed the CIT(A) to reexamine these issues in light of the Bombay High Court's judgment in M/s. Pfizer Ltd.
- Discount, Recovery of Doubtful Debt, and Sundry Neutral Revenue: The AO reduced 90% of these receipts from the profits for deduction u/s 80HHC. The Tribunal directed the CIT(A) to reconsider these issues, taking into account relevant judicial pronouncements and the arguments presented by the assessee.

Conclusion:
The appeals for both A.Y 1996-97 and 1998-99 were partly allowed. The Tribunal directed the CIT(A) to reexamine several issues, including the treatment of insurance receipts, inclusion of scrap sales, service charges, discount claims, recovery of doubtful debt, and sundry neutral revenue, in light of relevant judicial pronouncements and after providing the assessee a reasonable opportunity to be heard.