TMI Blog1993 (8) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ations. 3. The statements of facts filed by the CIT are opinionated and, therefore, cannot form the basis of consideration of the questions. It is to be noted that the reference is to be considered on the facts and in the circumstances of the case as found by the Tribunal in its order as held by the Hon'ble Supreme Court in the case of Aluminium Corpn. of India Ltd. v. CIT [1972] 86 ITR 11. 4. Now we come to the questions recorded in the reference applications for the assessment year 1982-83 after the disposal of which it would be easier to deal with the questions raised in the reference application for assessment year 1983-84. For the assessment year 1982-83 the first question by the revenue is whether on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the additions of Rs. 1,29.864 on account of provision for warranty claim and of Rs. 9,49,810 on account of free service charges. These issues have been determined by the Tribunal in paras 1 to 10 of its order mainly relying on the judgment of the Supreme Court in the case of Investment Ltd. v. CIT [1970] 77 ITR 533 and applying the ratio thereof to the facts of this case. The observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles Pvt. Ltd. This question also contains a portion in argumentative form which we have not reproduced. The Tribunal has dealt with this issue in paras 11 to 14 of its order. The Tribunal recorded a finding of fact on this issue that the correspondence between M/s Hero Cycles Pvt. Ltd. and the assessee as available in the paper book filed before it indicated that M/s Hero Cycles Pvt. Ltd. allowed the assessee-company the use of trade mark "Hero" which fact was supported by the resolution passed by M/s Hero Cycles Pvt. Ltd. fixing the amount of royalty therein. The Tribunal further recorded that the expenditure was not for any breach of law. It was observed that nothing was brought before the Bench on behalf of the revenue to show that the trade mark authorities took exception to the use of the trade mark by the assessee for any legal action in that regard. It was also projected that the payment by the assessee to M/s Hero Cycles Pvt. Ltd. was accepted. The Tribunal also projected an important fact that there was no room for doubt in so far as this transaction was concerned because there was no loss to the revenue by allowing this expenditure in so far as what was claimed as deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable on record in so far as the Tribunal observed that the claim has been allowed by the Income-tax Officer. In this regard, we find that this issue was determined in paras 15 and 16 purely on the facts of the case. No question of law, therefore, arises therefrom. There is no miscellaneous application filed challenging the finding of the Tribunal on facts regarding the ITO not having allowed the claim in the subsequent year. This question is accordingly rejected. This disposed of the reference application for the assessment year 1982-83. 9. Now coming to the assessment year 1983-84, questions serially numbered 2, 3 and 4 relating to royalty, disallowance on account of market feed back expenses and provision for warranty claim are the same and on same set of facts as in the assessment year 1982-83. Since we have rejected the questions for the assessment year 1982-83, for the same reasons mutatis mutandis we reject these questions for this year as well. 10. Coming to question No. 1 for this year, we find that it relates to the deletion of disallowance of Rs. 31,66,065 on account of sales-tax. This question is not referable because it is covered by the judgment of the Hon'ble P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1983-84. According to my learned brother, both these questions for both the years also do not require any reference; whereas, in my considered view, these two questions do indeed require reference, clearly being referable mixed questions of law and facts. I, therefore, prepare a draft statement of the case with respect to question No. 1 for the first year and question No. 4 for the later year. 2. For assessment year 1982-83, the assessee claimed a sum of Rs. 1,29,864 under the head 'other expenses' in the Moped division on account of provision for warranty claim/replacement. It was stated before the ld. ITO on behalf of the assessee that the assessee was providing facility for warranty replacement to the buyers of the Mopeds for six months from the date of sale by the dealers to the customers. It was also stated that the liability of the company existed for the Mopeds sold during the year. It was further stated that the total sale price of the Mopeds included the cost of warranty embedded in the sale price and the same is credited to the sales account. The estimated cost of parts to be replaced during the warranty period is a necessary debit of the year in which the credit fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and value of each coupon is fixed, the liability of the assessee-company existed. Therefore, a provision was made accordingly. It was also stated that the liability on account of free service was included in the sale price of the Moped and, therefore, the same had rightly been claimed. The ld. ITO held that it was only a provision and in the nature of contingent liability. The same was, therefore, not admissible. She also observed that in earlier years the claim was made on actual basis and, therefore, the same could not be allowed on mercantile basis and that too as a provision. She also observed that in the books of account, no liability was created with the sale so made which would surely have been made, if the assessee was genuinely following the system of accountancy. It was only at the end of the year that the assessee decides to create a provision and claimed it as a deduction. Further, the liability did not arise at the time of sale and it arises only when the customer make claims of free service and the dealer, in turn, after providing free service charges the assessee for the same. She, therefore, did not allow the claim. The ld. CIT(Appeals) upheld the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion No. 4 for assessment year 1983 84 are referable mixed questions of law and facts, or not?" THIRD MEMBER ORDER 1. These reference applications came up for hearing before the Chandigarh Bench. In these reference applications, the Revenue raised four questions, said to be questions of law, for the assessment year 1982-83 and seven questions for the assessment year 1983-84. 2. The learned Accountant Member came to the conclusion that both these applications were to be dismissed as no referable question of law arose from the orders of the Tribunal for these assessment years. But according to the learned Judicial Member question No. 1 for the assessment year 1982-83 and question No. 4 for the assessment year 1983-84 are mixed questions of law and facts arising from the order of the Tribunal and required to be referred to the Hon'ble High Court. Thus a difference of opinion arose as to whether any question of law arises from the orders of the Tribunal or whether only question as mentioned by the learned Judicial Member arise. The difference of opinion between the Members is therefore referred to me in the following words :--- "Whether in the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of warranty also which was credited in full to the sales account, the cost of warranty was estimated on the basis of the past experience and actuals quantified and a provision was made to meet the liability. The assessee also furnished the working to the Assessing Officer whereby it was shown that : Sales for October, November and December 16,233 Cost of Warranty replacement 1,30,386 Average Warranty replacement Rs. 8 per Moped Total sales of Moped effected in September to December 16,233 Provision at the rate of Rs. 8 per Moped Rs. 1,29,864 The Assessing Officer disallowed this claim on the sole ground that this liability did not arise and it was in the nature of a contingent liability. The Assessing Officer also observed that in the earlier years the assessee was claiming this warranty expenditure as and when the expenditure was actually incurred by supplying the necessary defective parts to the dealers. But in this year the assessee changed its method of accounting from cash to mercantile and therefore it was not permissible to allow the provision made as a deduction. According to the Assessing Officer only when a debit note was received from the dealer for supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated on the same basis for the unexpired warranty period for that year. Since the sale price included the amount collected for warranty, the cost of warranty has to be allowed as a deduction while computing the correct income of the assessee. Thus the Tribunal allowed the claim of the assessee. 7. It will be seen from the facts narrated above that the findings recorded by the Tribunal are that the change in method of accounting was proper and justified and called for and that the liability was calculated on a very scientific basis and was properly arrived at. These findings of the Tribunal on the strength of which the claim was allowed were pure findings of fact. There were ample reasons to show as to how this expenditure could not be said to be a contingent liability or an afterthought as was discussed by the Assessing Officer as reasons to justify the disallowance. I am therefore of the opinion that no question of law can be said to arise out of the order of the Tribunal in so far as this issue included in the first question for the assessment year 1982-83 was concerned. 8. I may also point out here that on similar facts a disallowance of Rs. 1,45,755 was made for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of this claim for more or less similar reasons. It held that the change in the method of accounting was called for and that was for good and sufficient reasons and that since it was followed thereafter, no objection or exception could be taken to the change in the method of accounting. In so far as ascertainment of the claim was concerned, the Tribunal found that there was a very scientific method adopted. In its opinion it was wrong to say that the liability for free service did not arise as and when a sale was made and since free service three times for a moped sold was a condition to the contract and bound to happen, the liability in respect of that obligation has to be provided for, inasmuch as, the sale price collected included the cost of the free service. Here also as on the other point, the findings arrived at by the Tribunal are pure findings of fact and those findings of fact do not give rise to any question of law. Here the facts show that the value of each coupon for free service was pre-fixed at Rs. 10 and there was therefore no difficulty in quantifying the cost of obligation. It cannot be said that on the facts of this case this is a contingent liability. I am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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