L.N. Aggarwal, Judicial Member - (1.) THESE two appeals have been filed by the revenue against the order of the CIT(A) dt. 1.2.85 for the assessment years 1980-81 and 1981-82. As some of the facts are common in both the appeals, they are disposed of by this single order for the sake of convenience.
(2.) Following grounds have been taken in the respective appeals:- ITA 2771/BOM/85 (A.Y. 1980-81) (1) CIT(A) has erred in directing the ITO to allow provisions for guarantee liability of Rs. 3,64,311. (2) CIT(A) has erred in allowing provisions for repairs of Rs. 1,64,372. ITA 2772/BOM/85 (A.Y. 1981 -82) (1) CIT(A) has erred in allowing provisions for guarantee liability of Rs.2,11,157 (2) CIT(A) erred in applying provisions of Section 40(c) instead of Section 40(a)(5) in the case of directors correctly applied by the ITO. (3) CIT(A) erred in allowing Rs. 28,999 as professional fees correctly disallowed by the ITO. (4) CIT(A) erred in allowing set off of loss of Rs. 8,66,511. Brief facts are that the company, in the assessment year 1980-81, was engaged in the manufacture of transformers and was supplying the same to various electricity boards. It had also given a warranty and undertaken the repair of manufacturing defects found out during the use of transformers by the electricity boards. With a view to enforce the warranty, the assessee had given a bank guarantee of the cost of 5% for this after-sales service and, consequently, had to incur certain expenditure for this after-sales service. Consequently, it made a provision in the balance-sheet to the extent of 1 % of the price of transformers which was likely to be incurred for the repair of the defective transformers found during their use by the electricity boards. It also claimed provision for repairs of Rs. 1,64,372 which it had incurred for repair of certain transformers, although in the assessment year 1981-82, but as the accounts for 1980-81 had not been closed, the said provision of the actual expenditure incurred in the subsequent year was claimed for this assessment year itself. Both the provisions were disallowed by the ITO but these were allowed by the CIT(A). Being aggrieved, the revenue has preferred appeals on both the issues.
(3.) IN the assessment year 1981-82, besides this issue of provision for guarantee liability, there were certain other issues as well. During this year, one company, Emco Estar Capacitors, which was engaged in the manufacture of capacitors, which were required for the manufacture of the transformers by the assessee, was merged in the assessee company under the orders of the High Court dt. 14.4.81 as it was incurring losses. The assessee claimed set off of loss of the merged company amounting to Rs. 8,66,511 which was not allowed by the ITO but was allowed by the CIT(A). Being aggrieved, the revenue has come up in appeal on this issue.;