2009 (1) TMI 359 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of provision for warranty u/s 263.
2. Reduction of claim u/s 10B for interest on staff loan and miscellaneous income.
3. Disallowance of interest income of software division u/s 10B.

Summary:

1. Allowability of Provision for Warranty u/s 263:
The appellant contested the order u/s 263 by the Commissioner of Income-tax, which disallowed the provision for warranty allowed by the Assessing Officer (AO). The AO had allowed the provision following precedents like Wipro GE Medical Systems Ltd. v. Deputy CIT [2003] 81 TTJ 455. The Commissioner deemed the AO's order erroneous and prejudicial to the Revenue, asserting the liability was contingent. The appellant argued the provision was based on past experience and was an accrued expenditure. The Tribunal noted that the jurisdictional High Court in CIT v. Wipro GE Medical Systems had allowed such provisions, confirming they are not contingent. The Tribunal held that the AO's view was permissible and the Commissioner was not justified in directing the disallowance.

2. Reduction of Claim u/s 10B for Interest on Staff Loan and Miscellaneous Income:
The appellant's grievance regarding the reduction of the claim u/s 10B for interest on staff loan and miscellaneous income was dismissed as not pressed.

3. Disallowance of Interest Income of Software Division u/s 10B:
The AO disallowed interest income of Rs. 1,36,34,010 from the Gurgaon unit, stating it did not fall within the purview of export business income. The Commissioner of Income-tax (Appeals) upheld this view, citing no direct nexus between the industrial undertaking's activity and the interest income. The appellant argued that the interest income related to the export undertaking and should be allowed u/s 10B(4). The Tribunal, referencing decisions like CIT v. Menon Impex P. Ltd. [2003] 259 ITR 403, concluded that the interest income did not have a direct nexus with the export activity and upheld the disallowance.

Conclusion:
The appeal in I.T.A. No. 694 was allowed, and the appeal in I.T.A. No. 589 was dismissed. The order was pronounced in the open court on January 16, 2009.