TMI Blog2017 (5) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years in question qua warranty claims - Decided in favour of assessee. Disallowance on account of provision for bad and doubtful debts - Held that:- Following the decision the case of T.R.F. Limited [2010 (2) TMI 211 - SUPREME COURT] we are of the view that the assessee’s claim of bad debt and doubtful debt is covered by the decision of the Hon'ble Supreme Court and as per the decision of the Hon'ble Supreme Court wherein the Hon'ble Supreme Court has categorically restored this matter to the file of the Assessing Officer to examine whether the bad debt or part thereof has been written off in the accounts of the assessee, the matter has to be examined by the Assessing Officer de novo and considering all the above aspect, the matter may be decided. We, therefore, restore this issue to the file of the Assessing Officer to do the needful after providing the assessee reasonable opportunity of being heard. - I.T.A. Nos. 258/Ind/2015, I.T.A. Nos. 232/Ind/2016 - - - Dated:- 19-1-2017 - Shri D.T. Garasia, Judicial Member And Shri O.P. Meena, Accountant Member Assessee by : Shri Girish Agrawal Revenue by : Shri K.G. Goyal ORDER Per Shri D. T. Garasia, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses which are accounted on accrual basis and the provisions by applying match concept. Here in this case, the assessee is claiming warranty expenses which are allowable expenditure as held by the Hon'ble Supreme Court in the case of Rotork Control India Private Limited; 314 ITR 62. As per the decision of the Hon'ble Supreme Court, the warranty expenses are allowable and in that case, the matter was restored to the Assessing Officer to verify whether the provision is made on structure policy of last 8 quarters of warranty cost and last quarter sales were used for quantifying the provisions. The assessee is following these provisions based on the policy which was disclosed as mandated in the accounting standard. The assessee has made structure policy by taking the actual warranty cost and sales of last 8 quarters to make estimate of provisions for warranty claim. The accounting standard 29 issued by the Institute of Chartered Accountant mandates making such provision where reliable estimate can be made. Therefore, warranty expenses debited cannot be considered as contingent liability. During the course of hearing, the learned counsel for the assessee has drawn our attent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y made and utilised and reversed during the year as per the accounting standard 29 issued by the Institute of Chartered Accountants of India. The amount was disclosed as under :- Financial year Opening balance Additions Utilisation/ Reversal Closing balance F.Y.2006-07 F.Y.2005-06 16,20,000 1,200,000 3,471,507 1,620,000 2,177,465 1,200,000 2,914,042 1,620,000 Details of above figures are as under :- S.No. Particulars Amount F.Y.2006-07 1 Opening balance of warranty provision 16,20,000 2 Add:Provision made during the year 34,71,507 3 Less : Payment of warranty charges during the year 17,71,240 4 Less : Reversal of credit amount lying in the warranty provision at the year e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such sophisticated goods would be entitled to deduction Assessee is manufacturing value actuators in large numbers and statistical data indicates that some of them turn out to be defective every year Being a sophisticated item no customer is prepared to buy value actuator without warranty and, therefore, warranty became an integral part of the sale price Assessee made a provision for warranty at the rate of 1.5 per cent of the turnover Such provision needs to be recognised as the assessee has a present obligation as a result of past events which would result in outflow of resources and a reliable estimate can be made of the amount of the obligation Warranty cost being an integral part of the sale price, assessee must provide for such warranty costs in its accounts for the relevant year, otherwise the matching concept fails It is appropriate to provide for warranty as a percentage of turnover based on past experience as it satisfies the accrual concept as well as the matching concept Therefore, assessee incurred liability during the relevant assessment years on the facts and circumstances of the case, and the provision made by it is allowable as deduction under s. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It is well settled by the decision of the Hon'ble Supreme Court in the case of T.R.F. Limited vs. CIT; 190 Taxman 391(SC) which specifies that the proposition of law is well settled after 1.4.1989. It is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Therefore, in the instant case, the decision of the Hon'ble Supreme Court in the case of Vijaya Bank; 323 ITR 166 (SC) is completely applicable and, therefore, relying upon the decision of the Hon'ble Supreme Court and following the decision of the Hon'ble Bombay High Court in the case of Tainwala Chemicals Plastics India Ltd. (2013) 34 taxmann.comn. 159 (Bom), it must be allowed. 8. On the other hand, the learned DR submitted that as per the decision of the Hon'ble Supreme Court in the case of T.R.F. Ltd. (supra) after 1.4.1989 if the bad debt is written off as irrecoverable in the accounts of the assessee, it is allowable as bad debt. The learned DR submitted that the assessee has relied upon the decision in the case of Vijaya Bank (supra) which is completely misplace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, the case related to Vijaya Bank and the bank is in the business of money lending and in that case the Hon'ble Supreme Court has held that after 1.4.1989 the assessee is required not only to debit the profit and loss account but also simultaneously reduce the loans and advances or debtors from the asset side of the balance sheet to extend the corresponding amount, so at the end of the year the amount of loans of advances/debtors is shown as net provision for impugned bad debt. We are of the view that the assessee is not in money lending business, therefore, this decision is not applicable to the facts of this case. During the course of hearing, the learned counsel for the assessee was specifically asked by the Bench as to whether the assessee wants to pursue this decision and still he wants to argue the matter or he wants the matter to be restored to the file of the Assessing Officer as per the decision of the Hon'ble Supreme Court in the case of T.R.F. Ltd. (supra), the learned counsel for the assessee specifically submitted that it is the wisdom of the Tribunal. Thereafter, again the same question was put to the learned counsel for the assessee and the learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X
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