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2015 (5) TMI 1241 - AT - Income TaxAddition made in respect of warranty provision - AO stated that if the assessee's estimation of warranty provisions is considered in the light of above observation of the Supreme Court, it can be seen that the assessee has not made its working in a proper manner - HELD THAT:- Supreme Court in the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT] held that if a business liability has definitely arisen in a financial year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though actual quantification with accuracy may not be possible, if these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. In the present case, the assessee has not produced any basis on which the provision of warranty was determined before the Assessing Officer. However, it has produced actual working of warranty before the CIT(Appeals). It is not clear that what extent the liability actually required in the assessment year under consideration while framing the assessment by the AO. The provision made whether on actual quantification or not, was not verified by the AO. CIT (A) after getting the assessee’s actual working of warranty not get verified from the AO and he has decided himself that it is correct. Therefore, in our opinion it is appropriate to remit the issue to the file of the Assessing Officer to examine the actual quantification of the provisions made towards warranty and decide in the light of the judgment of Supreme Court in the case of Rotork Controls India Pvt. Ltd. [2009 (5) TMI 16 - SUPREME COURT] Disallowance of provision towards electricity, additional energy and demand charges and provision for interest on VABAL - AO observed that an amount as shown as provision made during the year towards litigation and related disputes in addition to the amount outstanding as at the beginning of the year - HELD THAT:- It is necessary to make provision for ascertained liability towards expenses at the end of the year. In this background, in the accounting frame work, the assessee ought to have recorded the expenses in the relevant accounting year, wherein the liability to incur such expenses arisen. A.R. tried to justify the assessee’s case that it has issued demand notice seeking the payment and it was crystallised the expenditure in this assessment year only. He is not able to say whether that expenditure entirely relates to the assessment year under consideration or not. The assessee’s accounts are mandatorily audited both, under the provisions of the Company’s Act as well as Income-tax Act, 1961. Therefore, the assessee should be made the provisions in the relevant accounting period for the expenses based upon the consumption/bill. The contention of the assessee that it is following mercantile system of accounting consistently, does not help the cause of the assessee in asmuch as, as if a practice is adopted, which is not correct as per the law, then claim is liable to be rejected, as said practice violated the principles of matching of cost with revenue and also resulting in hybrid system of accounting, which is not at all permitted now. Accordingly, in our opinion, it is not allowable expenditure in this year under consideration. In other words, in our opinion, the disputed dues of electricity charges for earlier years are not to be allowed in this assessment year and claim of deduction relating to the present assessment year to the extent it is ascertained to be allowed in this assessment year. The issue of disallowance of provision for interest on VABAL is to be considered on similar line as in para 12 above and this ground is partly allowed. Accordingly, both these two issues are remitted back to the AO to consider afresh in the light of our observations.
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