Commissioner of Income Tax vs Panasonic Home Appliances

P.P.S. Janarthana Raja, J.—The above tax case appeal is filed by the Revenue against the order of the Income Tax Appellate Tribunal, Chennai "B" Bench dated June 27, 2008, made in I.T.A. No. 525(Mds.)/2008 by raising the following question of law:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the provision for encashment of leave of Rs. 1.19 lakhs claimed by the assessee was allowable on the basis of the Supreme Court''s decision in the case of Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, since in the assessee''s case the liability was only a contingent liability as clearly mentioned in the tax audit report and not an ascertained liability which was capable of being quantified with reasonable certainty?

The assessee is engaged in manufacture and sale of electric rice cookers and mixies. The relevant assessment year is 1998-99 and the corresponding accounting year ended on March 31, 1998. The assessee had filed its return of income on November 27, 1998, returning a total income of Rs. "nil" and the same was processed by the Assessing Officer u/s 143(1) of the Income Tax Act, 1961. Thereafter, the Assessing Officer noticed from the return that the assessee had debited the profit and loss account with the provision for warranty claims amounting to Rs. 5,23,197 and had not added back for the purpose of calculation of profits u/s 115JA. The said provision for expenditure was not allowable and there was reason to believe that the income chargeable to tax had escaped assessment by virtue of allowing wrong claim of expenditure. Therefore, the assessment was reopened u/s 147 by issuing notice u/s 148 of the Act on August 31, 2004. Later, the assessment was completed on March 24, 2006, u/s 143(3) read with Section 147 of the Act determining the book profit u/s 115JA at Rs. 88,36,818 and thereby arriving at the deemed income of 30 per cent, of the book profit at Rs. 26,51,045. While completing the assessment, the Assessing Officer has allowed the relief claimed in respect of the provision made for leave encashment of Rs. 1.19 lakhs. The Commissioner of Income Tax, Chennai-III, set aside the order of the assessment u/s 263 of the Income Tax Act, 1961, on the ground that it is erroneous and prejudicial to the interests of the Revenue. The Commissioner, while enhancing the assessment, has directed the Assessing Officer to modify the assessment by disallowing and adding back the provision for doubtful debts and the provision for leave encashment in computing the book profits for the purpose of Section 115JA. Aggrieved by the same, the assessee had filed an appeal before the Income Tax Appellate Tribunal. The Tribunal, by following the decision of the Supreme Court in the case of Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, , allowed the claim. Aggrieved by that order, the Revenue has filed the present appeal.

Learned Counsel appearing for the Revenue submitted that the Tribunal is wrong in allowing the appeal by relying on the decision of the Supreme Court in the case of Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, . He further submitted that the Tribunal erred in not observing that in the assessee''s case, the liability in question was only contingent in nature and not the ascertained/determined liability. He further submitted that the Tribunal erred in not noticing that the tax auditors had qualified the provision in the tax audit report in Form 3CD as liability of contingent nature and, hence, the order of the Tribunal is not in accordance with law and the same has to be set aside.

Heard learned Counsel appearing for the Revenue and perused the materials available on record.

It is seen that the issue involved in this appeal is squarely covered by the judgment of the Supreme Court in the case of Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, , which is decided in favour of the assessee. Therefore, we are of the view that the Tribunal is correct in following the judgment of the Supreme Court cited supra and we do not find any error or illegality in the order of the Tribunal warranting interference. Learned Counsel appearing for the Revenue has not produced any material or case law to take a contrary view of the Tribunal. In these circumstances, no question of law arises for consideration. Accordingly, the tax case appeal is dismissed.