COMMISSIONER OF INCOME TAX Vs. PANASONIC HOME APPLIANCES

JUDGEMENT

(1.) 2008 made in ITA No. 525/Mad/2008 by raising the following question of law :

(2.) The assessee is engaged in manufacture and sale of electric rice cookers and mixies. The relevant assessment year is Act. Thereafter, the AO noticed from the return that the assessee had debited P&L a/c with provision for warranty claims amounting to Rs. 5,23,197 and had not added back for the purpose of calculation of profits under s. 115JA. The said provision for expenditure was not allowable and there was reason to believe that the income chargeable to tax had escaped assessment by virtue of allowing wrong claim of expenditure. Therefore, the assessment was reopened under s. 2006 under s. 143(3) r/w s. 147 of the Act determining the book profit under s. 115JA at Rs. 88,36,818 and thereby arriving the deemed income at 30 per cent of the book profit at Rs. 26,51,045. While completing the assessment, the AO has allowed the relief claimed in respect of provision made for leave encashment of Rs. 1.19 lakhs. The CIT, Chennai -III, set aside the order of the assessment under s. 263 of the IT Act, 1961 on the ground that it is erroneous and prejudicial to the interest of the Revenue. The CIT, while enhancing the assessment, has directed the AO to modify the assessment by disallowing and adding back the provision for doubtful debts and the provision for leave encashment in computing the book profits for the purpose of s. 115JA. Aggrieved by the same, the assessee had filed an appeal before the Tribunal. The Tribunal, by following the decision of the Supreme Court in the case of Bharat Earth Movers vs. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC), allowed the claim. Aggrieved by that order, the Revenue has filed the present appeal.

(3.) The learned counsel appearing for the Revenue submitted that the Tribunal is wrong in allowing the appeal by relying on the decision of the Supreme Court in the case of Bharat Earth Movers vs. CIT (supra). He further submitted that the Tribunal erred in not observing that in the assessee's case, the liability in question was only contingent in nature and not the ascertained/determined liability. He further submitted that the Tribunal erred in not noticing that the tax auditors had qualified the provision in the tax audit report in Form 3CD as liability of contingent nature and hence the order of the Tribunal is not in accordance with law and the same has to be set aside.