Commissioner of Income Tax vs Gemi Motors India P. Ltd.

The Revenue has preferred this appeal u/s 260A of the Income Tax Act, 1961 (for short, "the Act") against the order dated November 24, 2008 of the Income Tax Appellate Tribunal, Delhi Bench-C, Delhi in I. T. A. No. 686(Del)/2008 for the assessment year 2000-01, proposing to raise the following substantial questions of law:

I. Whether, on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was right in law in upholding the order of the learned Commissioner of Income Tax (Appeals) in deleting the addition of Rs. 30,00,000 made by the Assessing Officer to the book profit u/s 115JA of the Income Tax Act, 1961 declared by the assessee company on account of provision of warranty claims debited in the profit and loss account even though the provisions for warranty claims form part of unascertained liability as the actual warranty after sales services expenditure was being debited in the profit and loss account on year to year basis?

II. Whether, on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was right in law in confirming the order of the learned Commissioner of Income Tax (Appeals) in holding that there was no mistake apparent from record which could be rectified u/s 154 of the Income Tax Act, 1961 even though the error was patent and obvious and did not involve any set of reasons?

After making assessment for the assessment year in question, the Assessing Officer passed order of rectification dated July 5, 2004 on the ground that the assessee wrongly debited warranty claims which was uncertain liability. On appeal, the Commissioner of Income Tax (Appeals) upheld the plea of the assessee that warranty expenses were debited, as per accounting principle, on accrual basis and in any case, the issue being debatable, the order u/s 154 of the Act was not justified. The Tribunal upheld the view of the Commissioner of Income Tax (Appeals). The findings of the Tribunal are as under:

On consideration of the decisions in the case of Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, and Commissioner of Income Tax Vs. Vinitec Corporation Pvt. Ltd., , it is clear that if any expenditure is undertaken to be borne by the assessee in respect of services received, sales made, etc., the same is a liability in present even though it may not be capable of exact quantification. In such a circumstance, a provision made on reasonable basis, for example, by having regard to the facts of earlier years or the report of an expert in the matter, will be deductible in computing the income. There is no evidence on record that the provision made not of a reasonable amount. In law, such a provision is deductible in computing the income. Therefore, we are of the view that the learned Commissioner of Income Tax (Appeals) was right when he held that there was no mistake apparent from record which could be rectified u/s 154 of the Act.

It is well settled that power u/s 154 of the Act for rectification could not be exercised on a debatable issue. The said power can be exercised only when there is an error apparent on the face of record. Reference may be made to T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, .

In view of the above, no substantial question of law arises.

The appeal is dismissed.