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2013 (9) TMI 4 - AT - Income TaxDisallowance of warranty provision - Held that:- Expenditure incurred by an assessee for warranty liability is allowable expenditure, provided it is covered by the principles enumerated by the Courts, from time to time, in this regard. As per the established law warranty liability can be considered part and parcel of the sale and might be allowed in computing the taxable income. But, for claiming the allowance one has to furnish a fair, scientific and reasonable basis to the AO - company has not scrutinised the ‘historical trend’ of warranty provisions made and compared it with the actual expenses incurred. Appellant has failed to prove that figures furnished by it are based on a ‘sensible estimate’ - appellant has not ‘maintained data systematically’.assessee has claimed that gross sales had increased over the years. Assessee in not only dealing in computer peripherals, but it is also engaged in the business of exporting of chemicals and dye stuff, bulk pharmaceuticals and intermediaries. It is not known whether the increase in sales was result of selling of computers or other items - scientific data is not available - there is no need to interfere with the order of the FAA - Decided against assessee. Disallowance u/s 14A - Held that:- AO has not mentioned anywhere as how much exempt income was declared by the assessee-company for the year under consideration. He has also silent about the expenditure incurred by the assessee for earning such income. He has disallowed Rs. 23.83 lacs on the assumption that assessee had made investment in shares of two companies and must have earned exempt income. AO/FAA has not enquired about the investments made by the assessee and the availibility of funds with it. Both of them have discussed the legal principles, but have totally missed the facts. In our opinion, if no exempt-income was shown by the assessee in the return of income and no expenditure was claimed by it to earn said income, provisions of section 14A as well as Rule 8D would not be applicable. As the FAA has not discussed these vital issues before rejecting the claim of the assessee, so, we are unable to endorse his views. In short, the basic facts of claim of exempt income and incurring expenses for earning the said income are missing in the matter under consideration - Decided in favour of assessee.
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