M.M.KUMAR, J. - (1.) INCOME -tax Appellate Tribunal, Amritsar Bench, Amritsar ('the Tribunal'), in ITA Nos. 1153 to 1155/Asr/1990 and 49/Asr/1991, in respect of asst. yrs. 1987 -88 to 1989 -90.
(2.) THE Tribunal by exercising its power under s. 256(1) of the IT Act, 1961 ('the Act') has referred the following questions of law for determination of this Court : "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that provision of warranty for repairs/replacement is an existing liability at the time of sale and is allowable as deduction ? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the credit in the Modvat account is not to be treated as the income of the assessee although the assessee is ultimately entitled for set off of this amount against the payment of excise duty to this extent -
(3.) IT is appropriate to notice that first question is sought to have emerged in respect of asst. yrs. 1987 -88 to 1989 -90, whereas second question relates to asst. yr. 1988 -89. Facts as emerged from the statement of the case drawn by the Tribunal in respect of first question are that the assessee firm was dealing in the business of manufacture and distribution of transformers. Its major customers were various State Electricity Boards such as Punjab State Electricity Board, U.P. State Electricity Board, Delhi Electricity Supply Undertaking, etc., to whom it was supplying the distributions transformers against their orders as per their terms and conditions like price, payments, delivery, time warranty period, etc. For the asst. yr. 1987 -88, the AO while completing assessment noted that the assessee firm debited an amount of Rs. 2,74,119 into P&L a/c under the narration 'Inbuilt liability', which was to be borne by the assessee. After issuance of notice as to how amount was claimed as deduction, the stand taken by the assessee was that against the goods supplied to different State Electricity Boards it was giving warranty for 12 to 18 months and in some cases even upto 60 months against manufacturing defects and the amount of Rs. 2,74,119 was claimed as provision for carrying out the necessary manufacturing defects or replacement, etc. The assessee placed reliance on a judgment of the Hon'ble Supreme Court in the case of Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC), While disagreeing with the submissions made by the assessee, the AO disallowed the claim of provision of Rs. 2,74,119 for alleged inbuilt liability under the head of 'Warranty'. Similarly, in respect of asst. yrs. 1988 - 89 and 1989 -90, the AO disallowed the claimed amounts of Rs. 8,85,274 and Rs. 14,03,843, respectively.;