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2017 (4) TMI 1146 - ITAT MUMBAIDisallowance for warranty expenses - addition of the said disallowance while computing total income under the normal provisions of the Act and also book profits u/s 115JB - Held that:- In the facts of the case before us, there is no allegation that the change in the method of accounting of making the claim by way of provision as against on actual basis was not bonafide or it was due to some ulterior motive of evasion of tax. It is also noted that Hon’ble Supreme Court in the case of Rotork Controls India (P) Ltd (2009 (5) TMI 16 - SUPREME COURT OF INDIA) has held that assessee is entitled to make claim on account of warranty expenses by way of provisions by estimating the amount on some scientific basis. Further, the Hon’ble Delhi High Court in the case of CIT vs Vinitec Corporation (2005 (5) TMI 54 - DELHI High Court) has held that assessee is entitled to change the method of accounting with respect to claim of warranty expenses from ‘actual basis’ to ‘provision basis’. Thus, taking into account the facts and circumstances of the case and legal position as discussed above, we find that assessee was entitled to make claim on account of provision for warranty expenses in the year before us. However, the amount quantified for the provision is also under dispute and rightly so. It is brought before us that computation made by the assessee for estimating the provision was incorrect. Ld. Counsel has also fairly agreed to this position. We have verified the facts and figures. It is informed that the basis for making provision in this year was on the basis of actual claim booked in FY 2007-08 as compared to the turnover of FY 2006-07. It is informed that the amount of actual claim booked in financial year 2007-08 was ₹ 5,03,93,000 and the amount of turnover for the FY 2006-07 was to the tune of 825,30,47,487 (i.e. ₹ 825.31 crores). Thus, the ratio of the two comes to around 0.61%. Now if we apply the ratio of 0.61% to the turnover of FY 2007-08 which is ₹ 900.52 crores, then we get an amount of ₹ 5,49,85,586 as per the chart provided by the assessee. The said figure has been accepted as correct by Ld. CIT-DR also. Thus, we find it proper that amount of provision should be allowed for the said figure of ₹ 549,85,586. The AO is accordingly directed to delete the disallowance to this extent and the balance of disallowance, if any, is upheld. The assessee gets part relief. With regard to the adjustment in book profit u/s 115JB is concerned, it is noted that this issue is squarely covered in favour of the assessee by the judgment of Hon’ble Delhi High Court in the case of CIT v. Becton Dickason India (P) Ltd. (2012 (12) TMI 210 - DELHI HIGH COURT), wherein it has been held that the provision for warranty cannot be treated as provision for diminution in value of any assets so as to be covered by Explanation 1(i) to section 115JB (2) and thus no additions to book profit can be made. Further, Hon’ble Supreme Court in the case of Rotork Controls India (P) Ltd. (supra) held that amount of provision made on account of warranty expenses cannot be said to be unascertained liability. Thus, taking into account both these decisions, we find that no addition could have been made u/s 115JB for this amount. Therefore, addition to book profit is directed to be totally deleted. Denying benefit of deduction u/s 80IC on the amount of scrap sales - Held that:- It is clear that the Tribunal on considering the facts of the case and various judgements held that assessee is eligible for deduction u/s 80IC on the amount of sale of scrap. Therefore, we direct the AO to grant the benefit of deduction u/s 80IC on the amount of sale of scrap. Denying deduction u/s 80IC on the interest income - Held that:- Tribunal for AY 2009-10 held that the claim of deduction u/s 80IC benefit shall not be allowed on the interest income. Therefore, respectfully following the order of the Tribunal for AY 2009-10 this ground is decided against the assessee and the action of AO is upheld.
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