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Facts
The assessee company engaged in manufacturing and selling industrial systems filed its return for AY 2014-15. The Assessing Officer (AO) initially made no disallowance on provision for warranty during assessment. However, the AO later passed a rectification order under Section 154 of the Act, disallowing the provision for warranty.
Held
The Tribunal held that the issue of allowability of provision for warranty is a debatable issue and falls outside the scope of Section 154 of the Act. Rectification under Section 154 is only for mistakes apparent from the record, not for issues requiring extensive reasoning or where two opinions are possible.
Key Issues
Whether the disallowance of provision for warranty through a rectification order under Section 154 of the Income Tax Act is valid when the issue is debatable and requires detailed examination.
Sections Cited
154, 143(3), 37(1), 251(1)(a)
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Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
O R D E R Per Rajesh Kumar, AM:
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 26.03.2025 for the AY 2014-15.
The assessee has raised following grounds of appeal:
“1.0 That on the facts and in the circumstances of the case and in law, the 14. Commissioner of Income Tax (Appeal) (CTT(Appeal)) and Ld. Assessing officer (AC) has grossly erred in not appreciating that allowability of provision for warranty is a debatable issue and falls outside the limited scope of Section 154 of the Act. Hence, rectification order passed by the 14. AO, disallowing provision for warranty, is without jurisdiction, bad in law and liable to be quashed. 1.1 That on the facts and in the circumstances of the case and in law, the ld. Assessing officer has grossly erred in invoking rectification proceeding u/s 154 of the Act, to review the issue of provision of warranty which has already been examined and adjudicated in the assessment order. 2.0 Without prejudice to Ground No. 1 to 1.1, that on the facts and in the circumstances of the case and in law, the Ld. AO has grossly erred in making
The facts in brief are that the assessee company is engaged in the business of manufacturing and selling of various types of plant sequencing, continuous weighing, Feeding, proportioning and on-line data handling, batching systems exclusively for industrial applications. The assessee filed belated return of income on 25.03.2015, declaring total income at ₹11,91,44,400/- under the normal provisions of the Act. The case of the assessee was selected for scrutiny and assessment u/s 143(3) of the Act was framed by the ld. AO vide order dated 29.12.2016. The ld. AO examined the issue a provision for warranty during the assessment proceedings and made no disallowance was made. Thereafter the ld. AO passed a rectification
Aggrieved assessee preferred an appeal before the ld. CIT (A), however, the ld. CIT (A) upheld the application of section 154 of the Act but simultaneously set aside the matter on merit to the file of the ld. AO for adjudication whether provisions for warranty was made on scientific basis or not.
After hearing the rival contentions and perusing the materials available on record, we find that the issue of allowability of provisions of warranty is a debatable issue and falls outside the ambit of Section 154 of the Act. In our opinion, where two opinions are possible on a issue, the ld. AO cannot resort to the provisions u/s 154 of the Act. In our opinion, the provisions are available only to rectify mistake apparent from the record which must be obvious and patent mistake and not something which can be established by long process of reasoning and points on which two opinions are possible. The case of the assessee find support from the various decisions which read as under: - (i) ITO Vs. Volkart Brothers (1971) 82 ITR 50 (SC), (ii) MC Mowjee& CO. Private Limited vs. ITO in vide order dated 17.03.2025 (iii) Lanshree products & Services Limited Vs. DCIT in vide order dated 12.07.2022 (iv) PCIT Vs. Lanshree Products & Services Ltd. (2023) 150 taxmann.com 389 (Calcutta) dated 31.03.2023 07. We note that in all the above decision it has been held that debatable issue cannot be a ground for adjudication in the proceeding
In the result, the appeal of the appeal of the assessee is allowed.
Order pronounced in the open court on 15.09.2025.