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TMI Blog2014 (1) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... ersus Inox Leisure Ltd. [2013 (2) TMI 353 - GUJARAT HIGH COURT] followed - addition of gratuity as unascertained liability under clause (c) to explanation 1 to section 115JB was not warranted - The provision for warranty is an ascertained liability and cannot be added back for computing book profit u/s.115JB of the Act - provision towards leave encashment of employees was unascertained liability and added it book profit - The Tribunal had rightly held that provision for leave encashment could not be considered contingent liability for computing book-profit u/s.115JB of the Act – Decided against Revenue. - ITA No. 8579/Mum/2011, C.O. No. 251/Mum/2012, ITA No. 5282/Mum/2011 - - - Dated:- 20-12-2013 - S/Sh. H.L. Karva and Rajendra, JJ. For the Appellant : Shri Sunil M. Mala Priyanka Gada For the Respondent : Shri Surendra Kumar ORDER Per: Bench: Challenging the order of the CIT(A)-21,Mumbai,Assessing officer (AO) and the assessee have filed appeal/Cross Objection(CO) for the AY.2003-04. For the AY.2007-08,only AO has filed appeal. For the AY.2003-04, AO has raised following Grounds of Appeal: 1. On the facts and in the circumstances of the case and in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er be restored. 3. The appellant craves leave to amend, or alter any grounds or add a new ground, which may be necessary." Assessee-company is engaged in the business of manufacturing agricultural tractors, components. Details of dates of filing of returns, incomes returned, dates of assessment, assessed incomes, dates of orders of the CIT(A)can be summarised as under: Dt. of filing of Return Returned Income (Rs.) Date of assessment Assessed Income Dt. of orders of CIT(A) 2003-04 27.11.2003 (-) 26,75,48,290 11.11.2010 41,88,37,950 21.09.2011 2007-08 26.10.2007 NIL XXX 91,28,08,740 05.04.2011 ITA/8579/Mum/2011-AY.2003-04: First ground of appeal pertains to deleting the disallowance of provisions for warranty made by the AO. During the assessment proceedings AO found that the assessee warranted each part of the product sold for a certain period. For the said warranty obligation assessee made a provision of Rs.1.88 Cores for the year under consideration on account of anticipated claims for warranty.AO was of the opinion that amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when : (a) an enterprise has a present obligation as a result of a past event ; (b) it is probable that an outflow of resources will be required to settle the obligation, and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. The principle is that if the historical trend indicates that a large number of sophisticated goods were being manufactured in the past and the facts show that defects existed in some of the items manufactured and sold, then provision made for warranty in respect of such sophisticated goods would be entitled to deduction from the gross receipts under section 37." In the case under consideration assessee had an obligation as result of past event and a reliable estimate could be made of the amount of obligation. Not only this historical trend indicated large number of goods were sold and in the sold item defect existed to some extent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Section 115JB of the Act was incorporated in the statute with a specific purposes and it deals with special provision for payment of tax by certain companies. Explanation to section 2 provides the list of the items that are to be included or excluded while computing book profit. As per explanation the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities have to be included while computing book profit. In other words if ascertained liabilities are there same cannot be added while computing alternate minimum tax. In the case under consideration, provisions made under the head gratuity, warranty and leave encashment are not contingent/unascerained and therefore same cannot be adjusted while computing book-profit u/s.115JB of the Act. We find that in the case of Indian oil Tanking Ltd. (supra) Mumbai Tribunal has held that provision for warranty is an ascertained liability and cannot be added back for computing book profit u/s.115JB of the Act. Dealing with the issue of provision for gratuity to be considered for MAT purposes, Hon ble Gujarat HC in the case of Inox Leisure Ltd. (supra) has held that addition of gratuity as unas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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