TMI Blog2012 (6) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... ial. hence, order of the Tribunal does not call for any interference - Decided in favor of Revenue - ITA 255/2012 - - - Dated:- 29-5-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Ajay Vohra with Ms. Kavita Jha Mr. Somnath Shukla, Advocates. For Respondent: Mr. N. P. Sahni, Sr. Standing Counsel. SANJIV KHANNA, J: (ORAL) The impugned findings recorded by the Income Tax Appellate Tribunal ( Tribunal‟, for short) in their order dated 16.09.2011 in the case of Eicher Motors Ltd. are as under: - Thus, the CIT (A) has granted the part relief. The CIT (A) has accepted the settled legal position. Provisions for warranty based on scientific study and calculated on the basis of actuarial and past history of case is allowable. In all cases relied upon by learned AR, it has been held that provision for warranty is allowable only when it is based on scientific study basis and past history of case. Provision of warranty is a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of obligation. As stated above, assessee has been granted part relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lacs Total Rs. 1424.12 lacs 3. Learned counsel for the appellant has produced before us a chart which for the sake of convenience we are reproducing as table A. The said chart shows the domestic sales during the financial years 2001-02 to 2004-05. It also discloses the average warranty claim made during the last three preceding years on the basis of which provision for warranty was computed. The chart also states the actual warranty claim made on domestic sales: - TABLE A Particulars FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05 Sales Domestic 43847.98 59724.68 79397.12 129194.67 Average of actual warranty to total sales in last three years Domestic 0.56% 0.42% 0.33% 0.39% Normal provision for warranty (on domestic sales) 245.54 421.61 224.64 885.28 Actual warranty claims on Domestic sales 117.73 229.75 375.80 683.32 % of actual warranty to domestic sales 0.27% 0.38% 0.46% 0.53% Addl. Provision for warranty (upward revisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02-03 to 2004-05 deduction towards warranty claim of 0.39% was made and has been allowed for the assessment year 2005-06. The figure is Rs. 951 lakhs. Additional warranty has been allowed both in respect of LCV and HCV of Rs. 285.69 and Rs. 95.73 lakhs, respectively. 7. The claim of the appellant-assessee is that as the warranty claims had shown an increase and therefore the appellant-assessee wanted to make an additional warranty of Rs. 91.70 lakhs in the assessment year 2005-06. It is this claim, which has been rejected by the Tribunal holding that the assessee has been regularly following and computing the provision of warranty claim on average of last three years. In this year, because of extended warranty claim further benefit as additional warranty has been given to the assessee. 8. The appellant submits the additional warranty claim is justified as the claims have shown an upward trend. The appellant‟s right has been abbrograted and denied 9. We notice from the Table No.B above that the opening balance as on 01.04.2004 in respect of commercial vehicle division was Rs. 462.98 lakhs and addition towards provision towards warranty of Rs. 1034.76 was made during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 37 of the said Act. This aspect is not noticed in the impugned judgment. We may add a caveat. As stated above, the principle of estimation of the contingent liability is not the normal rule. As stated above, it would depend on the nature of business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting being adopted by the assessee ... 12. In the said case the Supreme Court had examined, what is a warranty provision and whether the provision is a liability which can be claimed as an expense. The observations record that an assessee is entitled to compute the warranty provision on the basis of estimate every year for future warranty expenses. Such estimates may be re-assessed every year but the re-assessment has to be on some scientific method of accounting which is to be adopted by the assessee. In the present case the Tribunal has noticed that the scientific method constantly adapted and followed by the assessee was on the basis of average of last three years. In the present case the warranty provision was increased from 0.28% to 0.39% of the turnover. We have also noticed that earlier in point of time in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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