TMI Blog2010 (4) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the AO on account of provision for warranty expenses. 2. Brief facts are that in the present year, the assessment was completed by the AO after making addition of ₹ 31,82,677/- being the amount of provision of warranty expenses claimed by the assessee. There was one more addition made by the AO of ₹ 104.22 lakhs on account of foreign exchange loss, but this disallowance was deleted by the Tribunal and hence the only dispute before us is regarding the penalty imposed for first disallowance of ₹ 31.82 lakhs made by the AO on account of provision of warranty expenses. The assessee has made provision to the extent of 1% on gross sales. In the quantum appeal, the Tribunal has allowed deduction to the extent of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Reliance Petro Products Pvt. Ltd. as reported in 322 ITR 158. 4. We have considered the rival submissions and perused the material on record and have gone through the order of the authorities below. We also find that in the notes to the accounts, it has been stated by the assessee company that provision for warranty expenses is made @ 1% on gross sales of Tupperware products based on technical assistance and experience. This note is available on page 23 of the paper book. For this dispute in the present case, the Explanation 1 to section 271(1)(c) is very much relevant and hence, we reproduce the same here-in-below: [Explanation 1.-Where in respect of any facts material to the computation of the total income of any person unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such addition or disallowance represent the income in respect of which, particulars have been concealed. In the present case, it is not the case of the AO that no explanation was offered by the assessee. It is also not the case of the AO that the explanation offered by the assessee is false. Now, we have to see and examine as to whether the explanation offered by the assessee is bona fide or not and whether all the facts relating to same material to the computation of the total income of the assessee have been disclosed by the assessee or not. It was the submission of the assessee before the AO that it is worldwide policy of the assessee company to offer a life time warranty on Tupperware products being sold and based on worldwide past ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the basis of allowing expenditure to the extent of actual expenditure incurred by the assessee, but that is not the end of the matter. Since the warranty provided by the assessee company is life time warranty, such clam on account of sales in the present year can arise in future years also and in such year it has to be allowed on actual basis and hence it cannot be said that the assessee has made unreasonable claim on this account . Proper disclosure was duly made by the assessee company in its notes on account as available on page 23 of the paper book and it has been clearly stated in such note that provision for warranty expenses is made @ 1% of gross sales and the same is based on technical estimate and experience. Since this is only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual expenses is rising and hence it cannot be said that the basis adopted by the assessee company to make provision @ 1% of gross sales is arbitrary or unreasonable. Under these facts, we are of the considered opinion that he explanation offered by the assessee in support of 1% provision is bona fide, and therefore, Explanation 1 to section 271(1)(c) is not applicable in the present case and hence, in spite of part disallowance having been confirmed by the Tribunal on account of provision for warranty expenses, we feel that it is not a fit case for levy of penalty u/s 271(1)(c) because such disallowance of part expenses does not take the character of concealment of income or furnishing of inaccurate particulars of income because of bona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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