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TMI Blog2011 (2) TMI 1554X X X X Extracts X X X X X X X X Extracts X X X X ..... f M/S. ROTORK CONTROLS INDIA (P) LTD. VERSUS COMMISSIONER OF INCOME TAX, CHENNAI [ 2009 (5) TMI 16 - SUPREME COURT] would be squarely applicable to the facts of the case. The Hon ble Supreme Court has held that provision made on past experience is a scientific method and is the most appropriate method. Thus, disallowance of provision of warranty is to be deleted and it is ordered accordingly. Deduction u/s 80-IB - Exclusion of the interest income from the profits of the eligible units - Whether the CIT(A) is justified in upholding the exclusion of the interest income from the profits of the eligible units for the purpose of computing deduction u/s 80-IB of the Act? - HELD THAT:- For the purpose of section 80IB of the Act, the expression profits and gains from any business of the undertaking has to be interpreted in a wider sense. There need not be any direct nexus between the activity of the industrial undertaking and profits and gains. Further, the Hon ble Delhi High Court in ELTEK SGS (P) LTD [ 2008 (2) TMI 17 - DELHI HIGH COURT] in this case, has distinguished the principles laid down by the Apex Court in the case of PANDIAN CHEMICALS LTD. VERSUS COMMISSIONER OF INCOME- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 31/10/2005 declaring a total income of ₹ 3,28,93,910/-. The case was selected for scrutiny and assessment u/s 143(3) of the Act was completed vide order dated 26.12.2008 by making the following adjustments to the returned income:- a) Disallowance of provision for warranty amounting to ₹ 2,26,05,903/- and b) Exclusion of the interest income of ₹ 25,83,813/- from the profit derived by the Pondicherry unit ( Unit ) for the purpose of computation of deduction u/s 80-IB(4) of the Act. 6. Aggrieved by the assessment, the assessee carried the matter in appeal before the first appellate authority. 7. The CIT(A) dismissed the appeal of the assessee vide his impugned order dated 2/2/2010. 8. Aggrieved by the order of the CIT(A), the assessee is in second appeal before us. 9. The learned AR reiterated the submissions made before the authorities below. 10. The learned DR, on the other hand, supported the impugned orders of the Income Tax Authorities. 11. We have heard the rival submission and perused the material on record. Provision for Warranty The assessee had debited a sum of ₹ 8,24,29,136/- in the P L account on account of provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) it makes a provision for warranty only when the customer makes a claim; and (c) it provides for warranty at 2% of turnover of the company based on past experience (historical trend) Under the circumstances, the third option is most appropriate because it fulfills accrual concept as well as the matching concept. For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently .. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way . 11.4 In the assessee s own case in identical facts for the immediately preceding year, the Tribunal in ITA No.774 877/Bang/2008 vide order dated 30.1.2009 has decided the issue in favour of the assessee. The relevant finding of the Tribunal at para 5 of its order reads as follows:- We have heard the rival contentions and perused the material available on record. We are of the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om deposit made for opening the letter of credit with the banks for the purpose of availing credit facility was for the purpose of carrying on the business and there is a direct nexus with the business activity carried on by the industrial undertaking of the assessee company. He relied on the decision of the Hon ble Delhi High Court in the case of CIT v Eltek SGS Pvt. Ltd. (300 ITR 6) and also the unreported decision of the Mumbai Bench of Tribunal in the case of Bajaj Healthcare P. Ltd. 13.2 The relevant provisions of section 80IB(1) of the Act reads as follows:- Section 80IB-(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in subsections (3) to [(11), (11A) and (11B)] (such business being hereinafter referred to as eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section .. (Emphasis supplied) . 13.3 The decision of the Hon ble Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been pointed out that above judgement have been delivered in connection with the deduction u/s 80HH in which the deduction was allowable in respect of profit derived from the undertaking whereas the language used in section 80IB is profit arrived from the business of undertaking. The Hon ble High Court of Delhi in case of SGS Pvt. Ltd. (300 Page 10 of 11 ITA 10 No.784/Bang/2010 ITR 6) after noting the said difference have allowed the deduction in respect of duty drawback and following the said judgement the Tribunal in assessee s own case in assessment year 2001-02 allowed the deduction in respect of export incentives and term deposits as well as dividend income from the bank. The Tribunal held that term deposit had been used as a collateral security for the purpose of business and dividend had been received from the bank in respect of shares which had been purchased with a view to secure loan from the bank and therefore the interest and dividend income was inextricably linked with the business of the assessee. We have to follow the decision of the Coordinate Bench of the Tribunal in assessee s own case and respectfully following the same, we allow the deduction in respect of DEP ..... X X X X Extracts X X X X X X X X Extracts X X X X
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