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TMI Blog2010 (11) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... 80HHC of the Income-tax ACT, 1961, without appreciating the fact that the same has already been excluded from the profits of business. 3. (a) The learned CIT(A) erred in confirming the exclusion of 90% of income from services rendered amounting to ₹ 20,447,552 and sale of scrap amounting to ₹ 4,490,163 from the profits of business for the purpose of deduction under section 80HHC of the Income-tax Act, 1961. (b) The learned CIT(A) erred in confirming the exclusion of 90% of discount of ₹ 5,442 recovery of doubtful debt of ₹ 5,158,530 and sundry neutral revenue of ₹ 17,460,577 from the profits of business for the purposed of deduction under section 80HHC of the Income-tax Act, 1961. 4. Each one of the above grounds of appeal is without prejudice to the other. A.Y 1998-99 1.(a) The learned CIT(A) erred in confirming the exclusion of 90% of income from services rendered amounting to ₹ 11,341,201 and sale of scrap amounting to ₹ 3,936,363 from the profits of business for the purpose of deduction under section 80HHC of the Income-tax Act, 1961. (b) The learned CIT(A) erred in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the said 0.5% or (iii) evidences by way of actual expenditure in support of the working of the said claim of ₹ 48,85,000/-. Summary of the A.O s order as made out by the CIT(A) is given in para 4.2 of the impugned order which is as under:- 4.2 While examining the facts of the assessee for the purpose of ascertaining the allowable amount of provision, the Assessing Officer observed that the assessee has not furnished any details, basis or evidence in support of the working of the amount of provision made at ₹ 48,85,000/-. He also observed that the assessee has not furnished any details as regards amount of provisions made in earlier years, amount actually spent on account of repairs, free services etc. He further observed that the assessee has also not given the basis of making the provision @ 0.5% of the total sales. Even the quantitative details regarding number of products sold as well as number of products out of the same which required after sales service/ free service during the period of warranty were not furnished by the assessee. He therefore, concluded that no details whatsoever have been furnished by the assessee company to come to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars i.e. 2002-03 to 2005-06 show the provision claimed is always lesser than the incurring on the extent on the warranty. 2) No Basis for AO: A.O has no basis for arriving at 0.1% as the allowable provision for warranty and he has no reason to dismiss the assessee s estimation at 0.5% of the total sales. 3) Other arguments: The submissions made by the assessee during the first appellate proceedings were heavily relied upon and referred to page 11 of the paper book. Relevant extract is as follows:- The learned assessing office while passing an order u/s. 143(3)(ii) read with section 254 of the Act has erred by ignoring the submission made by the Company, in justification of its claim for provision made for warranty claims as an allowable expenditure. The learned assessing officer has merely stated that the Company has not furnished any quantitative details as regards number of product sold as well as number of product out of the same which required after sales service /free service during the period of warranty. We would like to draw your attention that the learned assessing officer has failed to appreciate the fact that warranty provision has been m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culiar to this case, the A.O had to resort to make the best judgment in the second round of the proceedings based on whatever information is available before him. 7. We have heard both the parties, perused the orders of the Revenue. We have also gone through the information made available before us. The AYs in question relates to 1996-97 and 1998-99. Claim under consideration are in the nature of deduction of expenditure debited to the P and L account. In such circumstances, as per the settled law on the issue, the onus is on the assessee to demonstrate the genuineness of the claim and correctness of the quantity claimed. Ld Counsel demonstrated the allowability of the claim in principle vide the decision of our order in the first round of the proceedings in his case. Ld DR has not demonstrated any need for deviating from the same. Therefore, the core issue for decision by us in this appeal relates to the correctness of the quantity of the claim. It is undisputed fact that the assessee does not have requisite and credible details to substantiate how 0.5% of the net sales constitutes the reasonable estimate of provision for warranty and how 0.1% of the net sales as held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had been provided for. The provision made was deductible as ascertained liability, as it was not a contingent liability. S. 37(1) of the Income Tax Act 1961. 8. From the above, it is evident that the onus is on the assessee to demonstrate that the provision for warrant is reasonably estimated if not correctly and such estimation has a reasonable basis. The correctness of the quantity of the claim is not relevant in presenti. Further, it is the settled law that for allowing such provisions, the incurring of the liability should be certain and it should be capable of being estimated with reasonable certainty. It is not the requirement of the law that the assessee must demonstrate the accuracy of the quantification of the warranty claim in these AYs. But it is certain that the assessee has been consistently claiming such provisions giving strength to the one limb of the above trite law i.e., certainty of the incurring expenditure; but there is no data to support to the other limbs i.e., quantification or reasonable quantification. In the absence of relevant data, it is not possible to infer that the reasonableness of the quantification. In the background of the above, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lesser side. Further, in our opinion, estimating the impugned warrant claims at the rate of 0.4% of the net sales should meet the both ends of the justice and it is a reasonable estimate. Accordingly, all the grounds raised in the appeal are partly allowed. 9. Other grounds raised in this appeal and also for the appeal for the A.Y 1998- 99 relates to-: 1) Treatment given to the receipts received from the insurance company in connection with the fire extrusion. 2) Inclusion of scrap sales in the turnover of the business. 3) Service charges recovered 4) Discount claims 5) Recovery of doubtful debt 6) Sundry neutral revenue The issue-wise details are as under:- 1. Treatment given to the receipts received from the insurance company in connection with the fire extrusion. 10. As per the Revenue, theses receipts did not form part of the main activities of the assessee and therefore they is not to be included in the eligible profits of the business for the purpose of deduction u/s. 80HHC of the Act. Accordingly, CIT(A) denied the benefit of deduction to the assessee. During the proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the any of the specific items and they could not fall into the residual items described as receipts of similar nature. Per contra, Ld. DR relied on the orders of the Revenue. After hearing the parties, we find that this issue should also be examined afresh in the light of the Bombay High Court judgement in the case of M/s. Pfizer Ltd. (supra) after ascertaining scrap involved and other applicable judgements. Accordingly, relevant grounds are set aside to the CIT(A). 3. Service charges recovered 12. Revenue authorities held that this income does not constitute operational income and they relied on the judgement of the Bombay High Court in the case of Bangalore Clothing Company 260 ITR 371 (Bom). During the remand proceedings by the CIT(A), A.O accepted that the services charges are not part of the turnover. However, A.O invoked clause (baa) and reduced 90% of these profits for the purpose of computing the deduction. During the proceedings before us, Ld. Counsel relied heavily on the applicability of the another judgement of Bombay High Court in the case of M/s. Pfizer Ltd. (supra) and stated that these amounts recovered are for rendering the after sale services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the counsel, the reimbursement of expenditure does not represent income. In this regard, we have perused the orders of the Revenue and find the issues were not decided by the CIT(A) by passing of a speaking order. Therefore, the CIT(A) has to adjudicate these issues afresh not only considering the decisions relied upon by the Ld. Counsel but also all the judicial pronouncements relevant to the issues discussed above. Accordingly, all the relevant grounds are set aside. 14. In the result, appeal of the assessee is partly allowed. 1425/ PN/07 - A.Y 1998-99 The grounds raised in this appeal revolve around the following issues and they are, - 1) Services rendered 2) Sale of scrap 3) discount 4) recovery of doubtful debt 5) sundry neutral revenue. 15. All these issues have to be set aside to the files of the CIT(A) for deciding the issue afresh after giving reasonable opportunity of being heard to the assessee. The reasons for the same are narrated while dealing with the appeal for the A.Y 1996- 97 in the preceding paragraphs. Accordingly, relevant grounds of this appeal are set aside. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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