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Issues involved: Whether the sustentation of the addition of Rs. 58,720 representing the amount earmarked for expenditure to be incurred by the assessee to discharge its liability by way of post warranty services of the Eicher Tractors is justified.
Comprehensive details: 1. The assessee, a registered firm dealing in Eicher Tractors, adopted a method of incorporating transactions in its books of account for post warranty services. The firm included a fixed sum in the sale price of each tractor, earmarked for post warranty services, which was kept separately. The assessee incurred expenses on post warranty services during the assessment year 1979-80, resulting in a balance carried forward to the next year. 2. During the assessment year 1979-80, the assessee collected an amount of Rs. 88,420 on account of post warranty service charges. The ITO added this amount to the total income, but the Commissioner (Appeals) reduced it to Rs. 58,720 after considering the expenses incurred by the assessee on post warranty services during the year. 3. The assessee argued that the method of accounting for post warranty services charges was consistent and in accordance with law. The revenue contended that the assessee had given different treatment to this transaction compared to its general mercantile method. The Tribunal noted that the assessee's method was justified as it provided for future contingencies and was not intended to evade tax liability. 4. The Tribunal observed that the assessee's treatment of post warranty service charges was in line with the law and the authorities erred in disturbing it. The entire addition made by the ITO and partly sustained by the Commissioner (Appeals) was deemed unjustified. Therefore, the Tribunal reversed the order of the Commissioner (Appeals) and deleted the entire addition. Judgment: The Tribunal allowed the appeal, ruling in favor of the assessee and deleting the addition of Rs. 58,720 made by the tax authorities.
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