2021 (2) TMI 1337 - HC - Income Tax

Estimation of provision done for warranty - Whether the Tribunal has committed an error of law in holding that the estimate of provision done by the assessee for warranty is scientific and satisfies the condition set out in M/s. ROTORK CONTROLS INDIA PRIVATE LIMITED 2009 (5) TMI 16 - SUPREME COURT and by not taking into account the facts enumerated by the assessing officer in the assessment order from which it is evident that the assessee has done excessive provisioning for warranty for reducing the tax liability? - HELD THAT - For the reasons assigned by us in the judgment passed today in I.T.A.No.1034/2017 the first substantial question of law is answered against the revenue. Allowance of additional provision for leave encashment and provision on warranty to the book profit for the purpose of calculating the book profit under Section 115JB - The second substantial question of law has been answered against the revenue in decision of the Supreme Court in Bharath Earth Movers vs. Commissioner of Income Tax 2000 (8) TMI 4 - SUPREME COURT the aforesaid submission could not be disputed by learned counsel for the revenue.

Summary

Issues:
1. Interpretation of provisions for warranty and its impact on tax liability.
2. Allowance of additional provisions for leave encashment and warranty for calculating book profit under Section 115JB of the Income Tax Act, 1961.

Analysis:
1. The appeal under Section 260A of the Income Tax Act, 1961 involved the interpretation of provisions for warranty and its effect on tax liability for the Assessment year 2011-12. The Tribunal's decision was challenged on the grounds that the estimate of provision made by the assessee for warranty was considered scientific and met the conditions outlined by the Hon'ble Apex court in a specific case. The assessing officer contended that the assessee had made excessive provisioning for warranty to reduce tax liability. The High Court, in a related judgment, answered the first substantial question of law against the revenue, indicating that the Tribunal's decision was upheld in this regard.

2. The second substantial question of law revolved around the allowance of additional provisions for leave encashment and warranty for the purpose of calculating the book profit under Section 115JB of the Income Act, 1961. The Senior counsel for the assessee referred to a Supreme Court decision in Bharath Earth Movers vs. Commissioner of Income Tax', 245 ITR 278, to support their argument. The High Court concurred with the Senior counsel's submission and, based on the reasoning provided in the aforementioned decision, answered the second substantial question of law against the revenue.

In conclusion, the High Court found no merit in the appeal and subsequently dismissed it, upholding the decisions on both substantial questions of law in favor of the assessee.