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2007 (9) TMI 623 - HC - Income TaxDeduction u/s 80O, 80-IA and 80-HHE - gross income - disallowance u/s 37 - ‘provision of warranty’ based on management estimation - deduction as it had accrued on the date of sale - Contingent Liability - Mercantile System of Accounting - concessional taxes - total turnover - HELD THAT:- The important aspects notified in the Notification issued by the Central Government u/s 145(1)(2) of the I.T. Act are read along with Section 209(1) clauses (q-d) of sub-section (3) of the Companies Act and the accounting standard Notification regarding procedure to be followed for maintaining Accounts of a company issued by the Central Government in the year 1979 wherein it is stated “accrual” extracted in the said Notification. It mandates the assesses to maintain mercantile systems of accounting. Therefore the phrase ‘accrual’ occurred in the notification has got importance to interpret the phrase “laid down” occurred in section 37(1) of the I.T. Act. Accordingly, we answer the said substantial questions of law Nos. 14, 9, 12 and 13 framed in these Appeals in favour of the assesses against the Revenue. The assesses who were aggrieved of the assessment orders passed by the Assessing Authorities, whose orders are confirmed by the Appellate Authority have questioned the same before the ITAT in disallowing the special benefits claimed by them u/s 80A, 80IA and 80HHE of the I.T. Act for the respective assessment years mentioned in their returns by disallowing certain mounts and giving certain benefits which were the subject matter of appeals before the appellate Tribunal. The Appellate Tribunal accepting the case of the assesses has set aside that portion of the assessment orders under the aforesaid provisions of the Act by accepting the grounds urged in the appeal and placing strong reliance upon the decision of the Calcutta High Court in M.N. Dastur’s [1997 (1) TMI 118 - ITAT BANGALORE]. No doubt, it has referred to in the impugned judgment the judgments of various other High Court in justification of its findings. aggrieved by the said impugned judgments of the Appellate Tribunal, the revenue filed these appeals before this Court framing certain substantial questions of law which are extracted above in this judgment and in support of the same has urged various legal grounds and requested this Court to answer the said substantial of law in favour of the revenue. In our considered view having regard to the finding of fact recorded by the Assessing Authority in its order, whose findings are referred to supra by us have been rightly concurred with by the First Appellate Authority with valid reasons. The said concurrent findings of fact recorded by the First Appellate Authority on the Claim of the assessee for deduction in respect of the various items referred to supra has been allowed by the Appellate Tribunal on erroneous assumption of facts and material produced by the assessee which is not only contrary to the relevant statutory provisions of the I.T Act referred to supra but also the law laid down by the Supreme court and various other High Courts in the decisions referred to in the First appellate Authority’s order, wherein it has held that expenditures made by the assessee to do its business and therefore, that amount will be the capital receipt, but not revenue expenditure erroneously held by the Tribunal. In our view, the said finding of fact of the Tribunal recorded on contentious point is not only erroneous but also suffers from error in law and therefore the same is liable to the set aside. Therefore, the deductions allowed by the tribunal in the impugned judgment in respect of those items from the gross income turnover of the assessee is totally impermissible in law. The learned counsel appearing on behalf of M/s. K.R. Prasad for the assesssee has placed reliance upon the Circular and also the decision of the Apex court in the case of Cloth Traders Pvt. Ltd. Vs. Addl. CIT [1979 (5) TMI 2 - SUPREME COURT] in support of the concessional taxes u/s 80-O of the I.T. Act, the said decision is overruled by the Apex court in its later judgment in the case of Distributors (Baroda) P.Ltd. Vs. Union of India & Ors.[1985 (7) TMI 1 - SUPREME COURT] upon which strong reliance is placed by the learned counsel on behalf of the Revenue in support of his submission to answer the substantial question No. 6 in its favour. Accordingly for the forgoing reasons, the appeals filed by the revenue framing the aforesaid substantial question of law Nos. 15, 16, 10, 13, 14 and 6 framed in these Appeals are answered against the assesses and in favour of the Revenue. The appeal of the revenue in so far as the payment claimed by the assessee for deduction from their income under the warranty provisions, the relief is granted in favour of the assessees. Hence, the appeal of the revenue in this regard is dismissed. Thus, we have answered all the substantial question of law regarding warranty in favour of the assessee and in respect of all other substantial questions of law regarding the benefit claimed by the assesses under the provisions of Sec. 80-O 80IA, Sec. 80HHE are answered in favour of the revenue by allowing the appeals partly as indicated above.
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