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2019 (3) TMI 1782 - AT - Income TaxDisallowance of Provision for Warranty - provision made is on estimate basis and the reliability and correctness of the basis cannot be ascertained - CIT-A deleted the addition - HELD THAT:- When the year under assessment is first year of operation of the assessee who is manufacturer and trader of tyres of heavy vehicles sold along with warranty and was under obligation of replacement of the tyre sold during the warranty period on free of cost, if any component is found to be suffering from manufacturing defect, the basis for creating provision for warranty is scientific one. So when the provision of warranty expenses has been made on the basis of actual warranty expenses met out during the period 01.04.2010 to 25.09.2010 qua the product sold during the year under assessment the entire estimate is based on the scientific basis. Moreover the provision for warranty made by the assessee has been duly audited at the time of auditing the financials of company. So in these circumstances we are of the considered view that Ld. CIT(A) has rightly deleted the addition made by AO on account of disallowance of provision for warranty. - Decided against revenue Disallowance of Technical Know-How / Royalty - As alleged section 32(1)(ii) provides for depreciation @ 25% in case of intangible assets where the Technical know-how is specifically included under this category - HELD THAT:- Following the ratio of the judgment CIT vs. Sharda Motor Industries Ltd., CIT vs. Hero Honda Motors Ltd [2015 (2) TMI 368 - DELHI HIGH COURT] we are of the considered view that assessee company satisfied the test that transfer of technical know how / royalty by the continental AG to the assessee company was “non-exclusive and non-transferable” licence for the use of technology for manufacturing of tyres in India, which was only a production licence and for limited purpose for use for manufacturing of tyres. Even the termination clause 11.8 is very categoric as Even the termination clause 11.8 is very categoric. Expenditure incurred by the assessee in accordance with TEA agreement pertaining to the technical “know-how” is quantified on the basis of sale / production effected by using such technical know-how is of revenue nature and as such allowable as business deduction. CIT(A) has also relied upon Circular no. 21 of 1969 issued by CBDT / clarified that when a licence is obtained for user of technical knowledge from a foreign participant for a limited period together with or without the right to use the patents and trademarks of the foreign party, the payment would not bring into existence an asset of enduring advantage to the Indian party. - Decided against revenue.
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