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TMI Blog2010 (9) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... on of claims afresh without considering the arguments on merits. 5. On the facts and circumstances of the case and in law, the ld CIT has erred in not considering the claims/written submissions of the appellant on merits with regard to: a) allowability of provision for warranty/guarantee and provision for contractual obligations amounting to ₹ 2,70,69,789/- and 3,68,90,441/- respectively. b) allowability of prior period expenses debited to the Profit and loss account. c) Amount of ₹ 1,85,36,298/- suo-motu offered to tax by way of credit to the Profit and loss account: based on the favourable decision of the Hon ble Member ITAT in the appellant s own case in respect of provision for warranty/guarantee and contractual obligations, and prior period expenses for AY 1996-97 and 1998-99 in ITA no.4057/Mum/2000 and 5367/Mum/2001 respectively. 6. Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the appellant. 3. We have heard both the parties and have carefully perused the orders of the authorities below. 4. In this case, the assessee filed its return of income on 29th November, 2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not added this amount to the total income of the assessee company. He therefore, issued notice under sec. 263 of the Act and asked the assessee to show cause as to why an order under sec. 263 should not be passed to revise the assessment order passed by the Assessing Officer under sec. 143(3)/147 of the Act. Before the CIT(A), the assessee stated that all the necessary enquiries were made by the AO and thereafter, the assessment was made under sec. 143(3) read with section 147 of the Act. It was further submitted that the points raised in show cause notice issued under sec. 263 of the Act, were not at all a subject matter of reasons recorded for initiating re-assessment proceedings u/s 147 of the Act by the AO. On merits of the issues, the assessee submitted that the provision for Warranty/Guarantee and provision of Contractual Obligation has also been allowed as business expenditure in the assessment of the earlier years. It was further submitted that the sum of ₹ 1,85,36,298/- was already added to the total income of the assessee by the assessee itself while declaring the income in the return of income. It was further submitted that as per system of accounting followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was prejudicial to the interests of the revenue. At this stage, a reference may be made to the decision of the jurisdictional High Court of Delhi in the case of Jay Bharat Maruti Ltd. vs. CIT reported in (2009) 180 Taxman 192 (Del.), where it has been held that proceedings under sec. 147 cannot be impinged upon items which have no connection to or relation with items of income and/or expenditure which form basis of a notice under sec. 148(1) of the Act. In the present case, it is clear that various points raised by the Commissioner of Income-tax in his notice issued under sec. 263 of the Act, have no connection to or relation with the payment of ₹ 1,82,48,673/- paid by the assessee company to its parent company and as such these items cannot form part of re-assessment made by the AO under sec. 147 of the Act. Further, Explanation 3 to section 147 inserted by the Finance (No.2) Act, 2009 with retrospective effect from 01.04.1999 will also be of no help to the revenue inasmuch as at the time when the assessment was completed under sec. 143(3)/147 of the Act by the AO on 26.11.2007, the aforesaid Explanation 3 was not on Statute and therefore, the AO was not competent to deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s claim for provision for warranty/guarantee is admissible and the Commissioner of Income-tax has misdirected himself in directing the AO to decide the matter afresh. 10. Next issue is about the point whether the assessee s claim towards provision made for contractual obligation amounting to ₹ 3,68,49,441/- towards contractual liability/obligation is a deductible expenditure. This issue has also been decided in favour of the assessee by the Tribunal in the above referred decision where the Tribunal vide Para 4.7 of the order has taken a view that the legal character of the provision for contractual obligation is in a way similar to the provision for warranty/guarantee, and therefore, the discussion made in respect of the issue regarding provision for warranty equally applies to the provisions of contractual obligations also. Therefore, the Tribunal did not find any reason to disallow the provision by way of contractual obligation, which was actually discharged by the assessee. Therefore, this issue is also covered in favour of the assessee by the order of the Tribunal in the assessee s own case. 11. Next issue raised by the assessee is that the amount of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12B, point 3 of the annual accounts of the assessee company for the year under consideration wherein it has been stated by the assessee that the amount debited to Profit and loss account in respect of provision of warranty/contractual obligation aggregating to ₹ 6,39,60,230/- is net of ₹ 3,71,00,675/-, being provision no longer required written back/credited to the Profit Loss Account. Accordingly, the same was automatically included in the figure of net profit displayed as per Profit Loss Account. 13. In the light of the aforesaid clarification, we therefore, do not find any basis for the Commissioner of Income-tax to direct the AO to decide the issue afresh. 14. The third issue raised by the CIT in his order under sec. 263 is about a sum of ₹ 15,93,118/- on account of prior period expenses. This issue is also covered in favour of the assessee vide above referred decision of the Tribunal in ITA No. 4057/Mum./2000 wherein the assessee s claim of prior period expenses has been allowed by holding that as a matter of practice, these expenses were booked by the assessee on receipt of the bills, which were issued subsequently and therefore, the expenses of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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