Commissioner Of Income Tax v. M/S Gemi Motors India (P) Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.386 of 2009 (O&M)Date of decision: 2.9.2009 Commissioner of Income Tax. Vs. M/s Gemi Motors India (P) Ltd. -----Appellant -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:-Mr. Rajesh Katoch, Standing Counselfor the appellant. -----for the appellant. ----- ORDER: 1. Revenue has preferred this appeal under Section260A of the Income Tax Act, 1961 (for short, “the Act”) againstorder dated 24.11.2008 of the Income Tax Appellate Tribunal,Delhi Bench-C, Delhi in I.T.A. No.686(Del)/2008 for theassessment year 2000-01, proposing to raise followingsubstantial questions of law:- “ I. Whether, on the facts and in the circumstancesof the case, the Ld. ITAT was right in law inupholding the order of the Ld. CIT(A) in deletingthe addition of Rs.30,00,000/- made by theAssessing Officer to the book profit u/s 115JA ofthe Income Tax Act, 1961 declared by theassessee company on account of provision ofof the case, the Ld. ITAT was right in law inupholding the order of the Ld. CIT(A) in deletingthe addition of Rs.30,00,000/- made by theAssessing Officer to the book profit u/s 115JA ofthe Income Tax Act, 1961 declared by theassessee company on account of provision of warranty claims debited in the Profit and Lossaccount even though the provisions for warrantyclaims form part of unascertained liability as theactual warranty after sales services expenditurewas being debited in the Profit & Loss accounton year to year basis? II. Whether, on the facts and in the circumstancesof the case, the Ld. ITAT was right in law inconfirming the order of the Ld. CIT(A) in holdingthat there was no mistake apparent from recordwhich could be rectified u/s 154 of the IncomeTax Act, 1961 even though the error was patentand obvious and did not involve any set ofreasons?”of the case, the Ld. ITAT was right in law inconfirming the order of the Ld. CIT(A) in holdingthat there was no mistake apparent from recordwhich could be rectified u/s 154 of the IncomeTax Act, 1961 even though the error was patentand obvious and did not involve any set ofreasons?” 2. After making assessment for the assessment year inquestion, the Assessing Officer passed order of rectificationdated 5.7.2004 on the ground that the assessee wrongly debitedwarranty claims which was uncertain liability. On appeal, the CIT(A) upheld the plea of the assessee that warranty expenses weredebited, as per accounting principle, on accrual basis and in anycase, the issue being debatable, order under Section 154 of theAct was not justified. The Tribunal upheld the view of the CIT(A).The findings of the Tribunal are as under:- “5.On consideration of the decisions in the case ofBharat Earth Movers [(2000) 245 ITR 428] andVinitech Corporation [(2005) 196 CTR 369], it is clearthat if any expenditure is undertaken to be borne bythe assessee in respect of services received, salesmade etc., the same is a liability in present evenBharat Earth Movers [(2000) 245 ITR 428] andVinitech Corporation [(2005) 196 CTR 369], it is clearthat if any expenditure is undertaken to be borne bythe assessee in respect of services received, salesmade etc., the same is a liability in present even though it may not be capable of exact quantification.In such a circumstance, a provision made onreasonable basis, for example, by having regard tothe facts of earlier years or the report of an expert inthe matter, will be deductible in computing theincome. There is no evidence on record that theprovision made not of a reasonable amount. In law,such a provision is deductible in computing theincome. Therefore, we are of the view that thelearned CIT (Appeals) was right when he held thatthere was no mistake apparent from record whichcould be recrified u/s 154 of the Act.” though it may not be capable of exact quantification.In such a circumstance, a provision made onreasonable basis, for example, by having regard tothe facts of earlier years or the report of an expert inthe matter, will be deductible in computing theincome. There is no evidence on record that theprovision made not of a reasonable amount. In law,such a provision is deductible in computing theincome. Therefore, we are of the view that thelearned CIT (Appeals) was right when he held thatthere was no mistake apparent from record whichcould be recrified u/s 154 of the Act.” 3. It is well settled that power under Section 154 of theAct for rectification could not be exercised on a debatable issue.The said power can be exercised only when there is an errorapparent on the face of record. Reference may be made toT.S.Balaram, ITO v. Volkart Bros. (1971) 82 ITR 50 (SC) 4. In view of above, no substantial question of law arsies. 5. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE September 02, 2009ashwani ( DAYA CHAUDHARY ) JUDGE