TMI Blog2009 (9) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... world including India and that consistent application of the same principle over the years would remove any advantage which, according to the Revenue, the assessee may have by deferring of its income to the extent of warranty provision to the next year. The present appeals are accordingly dismissed. - I T A NO 733/08, 714/07 , 721/07 , 843/07 - - - Dated:- 25-9-2009 - SIKRI A. K. and VALMIKI J. MEHTA JJ. Judgment: Valmiki J. Mehta J.- The common issue which arises in these appeals under section 260A of the Income-tax Act, 1961, from the order of the Income-tax Appellate Tribunal is whether the assessee/respondent was entitled to make a provision for warranty charges holding the same to be definite business liability allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered for taxation under section 41(1) of the Act. The business of the assessee-company commenced in the assessment year 1997-98 when the provision was first made. 3. The only issue which was argued before the Tribunal was whether such a provision made for warranty is towards liabilities which are only contingent or the same are in presentie, though the same are discharged at a future date. 4. At the outset, senior counsel for the respondent has contended that the issue in this regard as to whether provision for a warranty is a contingent liability or a liability in presentie is now fully covered in favour of the assessee by the decision of the Supreme Court in Rotork Controls India P. Ltd. v. CIT [2009] 314 ITR 62. In this judgment, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation as a result of a past event ; (b) it is probable that an outflow of resources will be required to settle the obligation ; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognised. 5. The principle is that if the historical trend indicates that a large number of sophisticated goods were being manufactured in the past and the facts show that defects existed in some of the items manufactured and sold, then provision made for warranty in respect of such sophisticated goods would be entitled to deduction from the gross receipts under section 37. 6. Learned senior counsel for the respondent in the facts of the present appeals further contended by referrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the respondent, counsel for the appellant/Revenue has by referring to a chart made for the assessment years 1997-98, (which is the first year of operation of the company) to 2001-02 strenuously contended that the huge differences in the provisions made and the actual payment for warranty charges indicates, that there is no scientific basis for making of the provision and relying on various observations of the Supreme Court in Rotork Controls India P. Ltd. [2009] 314 ITR 62 it is urged that it is only a reliable estimate of a warranty amount which can be made as a provision. She further contended that the factual figures in the chart show that only a small portion of the warranty provision is utilised in the subsequent years towards m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gures thereafter as provided by senior counsel for the respondent and which are as under : Assessment year Provided during the year from profit and loss account Paid during the year/ actual expenses incurred 2002-03 33,935,196 8,940,242 2003-04 88,898,820 4,303,350 2004-05 90,412,453 60,152,183 2005-06 95,279,000 64,711,000 7. We feel that, in the facts of the present case, the contentions of the respondent merits acceptance and the appeals are liable to be dismissed. This is because the entire stress of counsel for the Revenue on the aspect of the historical trend is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r year by making a huge provision because in fact, it is only the provision which is made in the first year which is carried forward in the subsequent years and in which subsequent years the provision is only for the additional difference on account of a higher turnover. It is only this difference of net amount which is additionally debited in the provision account because the difference in the earlier years is credited and a reversal entry made to the profit and loss account by non-utilised amount being offered to tax as income. The consistency being maintained with reference to application of this principle irons out the creases of any undue benefit to the assessee-company over a period of time and which can be said to be similar to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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