Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2017 (10) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (10) TMI 1246 - AT - Income TaxDisallowance of Provision towards recovery of cost of repairs - as per AO assessee failed to file any documentary evidence for making such provision and also the working of such provision - Held that:- As on completion of repair contracts, advance received from customers and other collections after completion of repair contracts are credited to ‘income from services’ in the profit and loss account and expenses incurred on repair contract and debited to Work In Progress (WIP) are transfer to the debit of profit and loss account. At the year-end, a review on progress of repair contracts is undertaken. During such an exercise, it is found that there are some contracts which are dormant in nature. These are the contracts, on which work was done long back and no further work is expected to be done. In such circumstances, expenses incurred on such dormant repair contracts and debited to WIP account are transferred to profit and loss account. Similarly, advances received from customers in respect of such contracts and credited to advances from customers account are also transferred to profit and loss account. Both these amounts are transferred to ‘miscellaneous expense’ under the sub head ‘provision for repair expense’. Thus the above the word ‘provision’ is a misnomer as, in reality, it is not a provision but write off of actual repair expenses (net of recovery). In view of the above, the disallowances made by the AO in AY 2009-10 and AY 2010-11 are deleted. - Decided in favour of assessee. Disallowance of provision for maintenance and free service warranty - Held that:- We find that as the expenses relating to warranty are the expenses for the year in which the elevator is sold, in accordance with the concept of matching revenue with cost, the assessee-company is making provision for the cost of warranty in the year in which the elevator are sold. In Rotork Controls India (P) Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA), it has been held that (i) for a provision to qualify for recognition, there must be a present obligation arising from past events, settlement of which is expected to result in an out flow of resources and in respect of which reliable estimate of amount of obligation is possible and (ii) if historical trend indicates that in past large number of sophisticated goods were being manufactured and defects existed in some of items manufactured and sold, then provision made for warranty in respect of army of such sophisticated goods would be entitled from gross receipts u/s 37(1), provided data is systematically maintained by the assessee. In view of the factual matrix narrated above, we delete the disallowance - Decided in favour of assessee. Addition u/s 40(a) on the basis of tax audit report - Held that:- As gone through the relevant record and found that documents relating to the above claim were not filed by the assessee-company before the AO or the Ld. CIT(A). Therefore, we set aside the order of the Ld. CIT(A) on the 3rd ground of appeal for the AY 2009-10 and restore the same to the file of the AO to make a fresh assessment after verifying the documents and giving reasonable opportunity of being heard to the assessee - Decided in favour of assessee for statistical purposes.
|