COMMISSIONER OF INCOME TAX Vs. MAJESTIC AUTO LTD

JUDGEMENT

(1.) This order will dispose of ITC Nos. 199 and 200 of 1994 as the similar question of law is involved in both the cases. The facts have been taken from ITC No. 200 of 1994.

(2.) This is a petition under Section 256(2) of the IT Act, 1961 (for short, 'the Act') seeking direction to the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short 'the Tribunal') for referring the following question of law to this Court for opinion: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the additions of Rs. 1,29,864 on account of provision for warranty claim and of Rs. 9,49,810 on account of free service charges despite the fact that the claims made are merely provisions/contingent liabilities and hence not allowable as per the settled law ?

(3.) Brief facts are that the assessee-company is engaged in the business of manufacturing of spokes, Nipples and Moped. For the accounting period ending on 31st Dec, 1981, relevant to the asst. yr. 1982-83, return of income was filed by the assessee on 29th July, 1982, declaring a taxable income of Rs. 23,90,960 which was later on revised to Rs. 23,68,000. During the course of assessment proceedings, the AO observed that an amount of Rs. 1,29,864 on account of warranty claim and for an amount of Rs. 9,49,810 for free service charges had been made by the assessee. Both these provisions made by the assessee were disallowed by the AO treating that to be contingent liabilities and accordingly added back to the income of the assessee. Aggrieved against the order of assessment, the assessee went in appeal before the Commissioner of Income-tax (Appeals) [for short, 'CIT(A)'] who vide its order dt. 2nd Nov., 1987, dismissed the appeal. Still aggrieved against the order passed by the CIT (A), the assessee went in appeal before the Tribunal, who accepted the appeal of the assessee vide its order dt. 21st Sept., 1988. Against the order passed by the Tribunal, the Revenue moved an application under Section 256(1) of the Act which on a difference of opinion amongst the Members constituting the Bench was referred to third Member and ultimately, the same was rejected by majority opinion of the Members.