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TMI Blog2015 (12) TMI 907X X X X Extracts X X X X X X X X Extracts X X X X ..... nt payable by the assessee was quantified and discharged in future. Learned counsel for the revenue was not able to rebut the aforesaid contention. Accordingly, this question is answered in favour of the assessee and it is held that the authorities below were not justified in rejecting the claim of the appellant assessee that 5% to 10% of the sale price in each year of supplies does not accrue as income for the year on the basis of terms and conditions attributed to warranty/guarantee/after sale service or on account of non completion of the contractual obligation and the assessee has to offer performance security under the contract. It shall, however, form part of the income to the extent the liability ceases to exist in the year in which the obligation of the assessee stands discharged. The said question is thus answered in favour of the assessee and against the revenue. Deduction u/s 32AB - whether the deduction to be allowed under section 32AB is to be restricted to each profit making unit of the assessee or by taking the utilization of the plant and machinery purchased by the assessee as a whole? - Held that:- Tribunal following the decision of Phoneix Overseas Limited vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of such profits? ii) Whether under the facts and circumstances of the case, the Hon'ble Tribunal is justified by not referring the matter to a special bench on the issue in dispute? In ITA No.187 of 2002 for the assessment year 1990-91, in addition to the above two questions, the third question claimed by the assessee reads thus:- iii) Whether under the facts and circumstances of the case, the Tribunal was justified in rejecting the claim of the appellant that in respect of 5% to 10% of the sale price in each year of supplies no income accrues or arises for which the amount was released against the bank guarantees as the performance of the contract was not completed by giving a finding that the claim of the appellant is against a contingent liability and which has not accrued or arisen during the year under appeal? ITA No.200 of 2002, has been filed by the revenue for the assessment year 1990-91 claiming the following substantial question of law:- (iv) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is justified in law in directing the Assessing Officer to recompute the claim of the assessee under section 32AB by tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 32AB of the Act. Hence the instant appeals by the assessee. 5. We have heard learned counsel for the parties. 6. A perusal of the findings recorded by the authorities below shows that the Assessing Officer did not allow the claim of the assessee under Sections 80I and 32AB of the Act on the ground that the assessee did not qualify for the said deduction being in the manufacture of items specified in Schedule 11 of the Act. On appeal by the assessee, the CIT(A) decided the issue in favour of the assessee but while giving effect to the orders of the CIT(A), the Assessing Officer allowed deduction under Sections 80I and 32AB of the Act for the assessment years 1987-88 and 1988-89 and while computing the quantum of deduction under section 80I of the Act, reduced the amount of deduction available to the assessee under Section 32AB of the Act. The assessee preferred appeal before CIT(A) challenging the said order where the issue was decided in favour of the assessee and the Assessing Officer was directed to compute deduction under Section 80I of the Act without reducing the deduction allowable to the assessee under Section 32AB of the Act. On appeal by the revenue, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an High Court in the case of CIT vs. Rajendra Textiles, 225 ITR 516 wherein it has been held that the special deduction under Section 80HH is to be calculated on net income after deduction of depreciation, investment allowance etc. The Hon'ble High Court followed its decision reported in 218 ITR 71. The said decision was also followed in the case reported in 225 ITR 374. We may further refer to the decision of the Hon'be Supreme Court in the case of Moti Lal Pesticides (India) Pvt. Limited vs. CIT, 243 ITR 26 wherein the provisions of sections 80AA, 80AB and 80HH have been considered and it has been held that as a result of insertion of section 80AA and 80AB, special deduction under section 80HH is to be allowed only on net income and not on gross income. The Apex Court observed that the provisions of section 80AB were introduced w.e.f 1.4.1981 and they were made applicable to all the sections in Chapter IA except Section 80M. The Apex court noted that it had specifically overruled its earlier decision in Cloth traders Pvt. Limited 11B ITR 243 (SC) and held that deduction was to be allowed only on the net dividend income and not the gross income. It observed that with refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isen and it could not be said that the probable obligation which may or may not arise under the warranty clause did not give rise to the income. 8. Learned counsel for the assessee relied upon judgments in CIT vs. Jay Bee Industries, (2008) 171 Taxman 386 (P H), ITA No.167 of 2002 (Haryana Roadways Engg. Corporation Limited, Gurgaon vs. Commissioner of Income Tax, Rohtak) decided on 8.11.2010 (P H) and CIT vs. Sony India (P) Limited, (2007) 160 Taxman 397 (Delhi) to contend that the warranty security for repair/replacement was an existing liability at the time of sale and was thus an allowable deduction. On the other hand, learned counsel for the revenue supported the order passed by the Assessing Officer, CIT(A) and the Tribunal. 9. We find merit in the submission of learned counsel for the assessee-appellant. The various judgments relied upon by learned counsel for the assessee supports his contention. In Jay Bee Industries' case (supra), the question before this Court was whether provision of warranty for repairs/replacement was an existing liability at the time of sale and was allowable as deduction. It was answered in the affirmative. In Haryana Roadways Engg. Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of the Tribunal in the case of Phoneix Overseas Limited vs. CIT reported in 56 ITD 274 directed the Assessing Officer to recompute the claim of the assessee under Section 32AB of the Act in respect of each unit taking the utilization of the plant and machinery purchased by the assessee as a whole and not relate it with each profit making unit of the assessee only, with the following observations:- 11.1 The assessee claimed deduction under section 32AB as per his computation given at page 43 to 45A of the paper book i.e. on the basis of 20% of the profit of eligible business limiting it to the extent the amount has been deposited with IDBI or utilized for the purchase of plant and machinery by the assessee. The AO computed the claim of the assessee by restricting it to the extent of plant and machinery purchased for each unit and not to the extent of purchases made by the assessee for other units also. The assessee submitted that this is fully covered by the decision of ITAT Delhi Branch in the case of Pheonix Overseas Limited vs. CIT reported in 56 ITD 274 to which the learned DR did not object but relied on the order of the CIT(A). 11.2 We have heard both the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X
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