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TMI Blog2010 (11) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... 961, without appreciating the fact that the same has already been excluded from the profits of business. 3. (a) The learned CIT(A) erred in confirming the exclusion of 90% of income from services rendered amounting to ₹ 20,447,552 and sale of scrap amounting to ₹ 4,490,163 from the profits of business for the purpose of deduction under section 80HHC of the Income-tax Act, 1961. (b) The learned CIT(A) erred in confirming the exclusion of 90% of discount of ₹ 5,442 recovery of doubtful debt of ₹ 5,158,530 and sundry neutral revenue of ₹ 17,460,577 from the profits of business for the purposed of deduction under section 80HHC of the Income-tax Act, 1961. 4. Each one of the above grounds of appeal is without prejudice to the other." A.Y 1998-99 "1.(a) The learned CIT(A) erred in confirming the exclusion of 90% of income from services rendered amounting to ₹ 11,341,201 and sale of scrap amounting to ₹ 3,936,363 from the profits of business for the purpose of deduction under section 80HHC of the Income-tax Act, 1961. (b) The learned CIT(A) erred in confirming the exclusion of 90% of discount of ₹ 25,512, recovery of doubtf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of ₹ 48,85,000/-. Summary of the A.O's order as made out by the CIT(A) is given in para 4.2 of the impugned order which is as under:- "4.2 While examining the facts of the assessee for the purpose of ascertaining the allowable amount of provision, the Assessing Officer observed that the assessee has not furnished any details, basis or evidence in support of the working of the amount of provision made at ₹ 48,85,000/-. He also observed that the assessee has not furnished any details as regards amount of provisions made in earlier years, amount actually spent on account of repairs, free services etc. He further observed that the assessee has also not given the basis of making the provision @ 0.5% of the total sales. Even the quantitative details regarding number of products sold as well as number of products out of the same which required after sales service/ free service during the period of warranty were not furnished by the assessee. He therefore, concluded that no details whatsoever have been furnished by the assessee company to come to the conclusion that provision for warranty in an amount of ₹ 48,85,000/- was reasonable. Keeping in view the direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no basis for arriving at 0.1% as the allowable provision for warranty and he has no reason to dismiss the assessee's estimation at 0.5% of the total sales. 3) Other arguments: The submissions made by the assessee during the first appellate proceedings were heavily relied upon and referred to page 11 of the paper book. Relevant extract is as follows:- "The learned assessing office while passing an order u/s. 143(3)(ii) read with section 254 of the Act has erred by ignoring the submission made by the Company, in justification of its claim for provision made for warranty claims as an allowable expenditure. The learned assessing officer has merely stated that the Company has not furnished any quantitative details as regards number of product sold as well as number of product out of the same which required after sales service /free service during the period of warranty. We would like to draw your attention that the learned assessing officer has failed to appreciate the "fact" that warranty provision has been made @ 0.5% of net sales. Consequently furnishing quantitative details as regards products sold, nos. which requires free services do not arise as warranty is offered for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties, perused the orders of the Revenue. We have also gone through the information made available before us. The AYs in question relates to 1996-97 and 1998-99. Claim under consideration are in the nature of deduction of expenditure debited to the P and L account. In such circumstances, as per the settled law on the issue, the onus is on the assessee to demonstrate the genuineness of the claim and correctness of the quantity claimed. Ld Counsel demonstrated the allowability of the claim in principle vide the decision of our order in the first round of the proceedings in his case. Ld DR has not demonstrated any need for deviating from the same. Therefore, the core issue for decision by us in this appeal relates to the correctness of the quantity of the claim. It is undisputed fact that the assessee does not have requisite and credible details to substantiate how 0.5% of the net sales constitutes the reasonable estimate of provision for warranty and how 0.1% of the net sales as held by the AO in the second round of the assessment proceedings constitutes the correct one. Reliance of Ld Counsel on the data pertains to subsequent years i.e. 2002-03 to 2005-06, in our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to demonstrate that the provision for warrant is reasonably estimated if not correctly and such estimation has a reasonable basis. The correctness of the quantity of the claim is not relevant in presenti. Further, it is the settled law that for allowing such provisions, the incurring of the liability should be certain and it should be capable of being estimated with reasonable certainty. It is not the requirement of the law that the assessee must demonstrate the accuracy of the quantification of the warranty claim in these AYs. But it is certain that the assessee has been consistently claiming such provisions giving strength to the one limb of the above trite law i.e., certainty of the incurring expenditure; but there is no data to support to the other limbs i.e., quantification or reasonable quantification. In the absence of relevant data, it is not possible to infer that the reasonableness of the quantification. In the background of the above, while reiterating the allowability of the claim in principle, we are of the view that the claim of the assessee is not fully allowable as he failed to discharge the onus with reliable data to support the claim at 0.5% of the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal are partly allowed. 9. Other grounds raised in this appeal and also for the appeal for the A.Y 1998- 99 relates to-: "1) Treatment given to the receipts received from the insurance company in connection with the fire extrusion. 2) Inclusion of scrap sales in the turnover of the business. 3) Service charges recovered 4) Discount claims 5) Recovery of doubtful debt 6) Sundry neutral revenue" The issue-wise details are as under:- 1. Treatment given to the receipts received from the insurance company in connection with the fire extrusion. 10. As per the Revenue, theses receipts did not form part of the main activities of the assessee and therefore they is not to be included in the eligible profits of the business for the purpose of deduction u/s. 80HHC of the Act. Accordingly, CIT(A) denied the benefit of deduction to the assessee. During the proceedings before us, relying on page 1 of the paper book, Ld. Counsel argued stating that the said amount stands excluded while computing the income chargeable to tax, if that be the case, the question of reducing the 90% of the said amount while arriving at the profits of business is patently erroneous. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pfizer Ltd. (supra) after ascertaining scrap involved and other applicable judgements. Accordingly, relevant grounds are set aside to the CIT(A). 3. Service charges recovered 12. Revenue authorities held that this income does not constitute operational income and they relied on the judgement of the Bombay High Court in the case of Bangalore Clothing Company 260 ITR 371 (Bom). During the remand proceedings by the CIT(A), A.O accepted that the services charges are not part of the turnover. However, A.O invoked clause (baa) and reduced 90% of these profits for the purpose of computing the deduction. During the proceedings before us, Ld. Counsel relied heavily on the applicability of the another judgement of Bombay High Court in the case of M/s. Pfizer Ltd. (supra) and stated that these amounts recovered are for rendering the after sale services and therefore, they are eligible business profits. On the other hand, Ld. DR relied on the order of the Supreme Court in the case of Liberty India Ltd (317 ITR 218) and mentioned that these amounts are not eligible profit and relied heavily on the orders of the Revenue. On considering the available information and the arguments forwarded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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