TMI Blog2016 (9) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was forced to give huge discounts. The purchasers had raised debit note, and thus charged such discounts to the assessee. This was thus, neither a case of unascertained nor a case of contingent liability. Merely because the assessee in the accounts, mentioned as a provision would not be conclusive of a nature of claim. This is precisely what the Commissioner held and observed. In fact, the assessee had charged such sum to the profit and loss account thereby deducting the expenditure for all practical purpose. In the present case the liability was not only certain, it was also discharged presently and not differed for a later date. The assessee had received debit notes from the buyers and accepting such liability, had debited a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the Assessing Officer asked the assessee to justify such claim. The assessee pointed out that such claim was towards quality claim expenses which was debited to the profit and loss account. In the course of export business, there are rejections and the buyer does not pay the consideration either in part or in full. 4. The Assessing Officer, however, was of the view that the quantification of such claim was not on the basis of any evidence on record. The same was made only on estimation basis. He was also of the opinion that a mere provision for such expenditure would not be allowable deduction. He, therefore, rejected the claim and added said sum of ₹ 2.90 crores to the income of the assessee. 5. The assessee carried the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant were not defective or of inferior quality. It is an admitted fact that the readymade materials supplied were found defective by the foreign buyers who in turn raised the debit notes on the appellant towards quality claim. The reasons for disallowance of claim as cited by the AO are that the appellant has not written off debts and has not reduced sales in the books and that the claim is towards provision for uncertain recovery of loss and such provision is not allowable. On careful consideration of submissions made by the AR of the appellant and documents placed on record in the paper book, I find the contentions raised by the AO and Ld. JCIT patently incorrect because the appellant's claim towards quality allowance was never a clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by AR also shows that it is only different way of accounting but net effect will be same and it would not affect net income any way. As far as balance sheet is concerned, accumulated provision (mis nomenclature) if not shown separately would reduce the debtors of ₹ 28,53,25,089/- by same amount of ₹ 8,04,93,365/- balance sheet would still tally. The word provision has been wrongly read by the AO Ld JCIT it is an amount by which liability towards debtors for sales in respect of quality claim would be discharged. This claim is actual and not uncertain loss or provision. The real nature of transaction is required to be understood. Hence, addition made by the AO on the basis of directions issued by the Ld. JCIT is found devoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India which would be economically unviable, the assessee sold it to traders in the country of export for which the assessee was forced to give huge discounts. The purchasers had raised debit note, and thus charged such discounts to the assessee. This was thus, neither a case of unascertained nor a case of contingent liability. Merely because the assessee in the accounts, mentioned as a provision would not be conclusive of a nature of claim. This is precisely what the Commissioner held and observed. In fact, the assessee had charged such sum to the profit and loss account thereby deducting the expenditure for all practical purpose. 9. In the judgement in case of Bharat Earth Movers Ltd .(supra), Supreme Court held and observed as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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