THE PRINCIPAL COMMISSIONER OF INCOME TAX 2 vs. FERROMATIC MILACRON(INDIA) LTD

Feeling aggrieved and dissatisfied by the impugned judgment and order passed by the learned Income Tax Appellate Tribunal, `A’ Bench, Ahmedabad, dated 06.07.2017 in ITA No.625/Ahd/2010 for the Assessment Year 2005-06, the Revenue has preferred the present Tax Appeal with the following proposed questions of law:- “Whether the Appellate Tribunal has erred in law and on facts in deleting the addition on account of provision for warranty in computation of Book Profit u/s.115JB of the Income Tax Act being liability not being an ascertained liability as the Appellate Tribunal had already set aside the issue to the file C/TAXAP/728/2018 ORDER of the Assessing Officer for computing income under normal provisions of Income Tax Act?”

So far as the proposed question is concerned, it is with respect to the addition made by the Assessing Officer on account of provision for warranty in computation of Book Profit under Section 115JB of the Income Tax Act, 1961. 3. Heard learned counsel appearing for the respective parties at length and perused and considered the impugned orders passed by the learned A.O., CIT(A) and ITAT. At the outset, it is required to be noted that the assessee claimed Rs.49,53,778/- as provision for warranty. The A.O. disallowed the same by observing that the said liability can be said to be contingent and depends on future happening, therefore, predicting the unpredictable event on the basis of past cannot make the contingent liability an ascertained liability and therefore, such provisions are not allowable as deduction from the business income of the assessee. The same came to be confirmed by the learned CIT(A). On appeal, the learned ITAT has deleted the said addition. The said issue is covered by the decision of the Hon’ble Supreme Court in the case of Rotork Controls India P. Ltd. v. CIT reported in [2009] 314 ITR 62 (SC) as well as the decision of the Division Bench of this Court C/TAXAP/728/2018 ORDER in the case of Deputy Commissioner of Income-Tax v. Inox Leisure Ltd. reported in [2013] 351 ITR 314 (Guj) (in the case of similar provision but with respect to the amount of gratuity). It is the case on behalf of the Revenue that there was no scientific data available before the learned ITAT, more particularly, that how many machines were sold etc. for which the provision for warranty was made. However, it is required to be noted that the learned A.O. did not make an addition on that count. The ground on which the learned A.O. made the addition is discussed hereinabove and according to the A.O., the said liability can be said to be contingent and not ascertained and depends on future happening, therefore, predicting the unpredictable event on the basis of past cannot make the contingent liability as ascertained liability. The aforesaid is just contrary to the decision of the Hon’ble Supreme Court in the case of Rotork Controls India P. Ltd. v. CIT (supra) and the decision of the Division Bench of this Court in the case of Deputy Commissioner of Income-Tax v. Inox Leisure Ltd. (supra).

In view of the above, it cannot be said that the learned C/TAXAP/728/2018 ORDER ITAT has committed any error in deleting the addition on account of the provision for warranty in computation of Book Profit under Section 115JB of the Act. We are in complete agreement with the view taken by the learned Tribunal. No substantial question of law arises. Therefore, the present appeal deserves to be dismissed. Accordingly, it is dismissed. (M.R. SHAH, J) (A.Y. KOGJE, J) sunil