TMI Blog2013 (4) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of warranty provision is in consonance with accepted principles of commercial practice and accountancy followed year after year consistently. It is undisputed that the warranty clause is a part of the sales document and imposes a liability upon the assessee to discharge its obligations under that clause for the period of warranty. As decided in Rotark Controls India P Ltd. vs. C.I.T. [2009 (5) TMI 16 - SUPREME COURT OF INDIA] & C.I.T. vs. Majestic Auto Ltd. (2006 (7) TMI 568 - PUNJAB & HARYANA HIGH COURT) has affirmed that the provision for warranty claims and free services charges were allowable as deduction on the facts that quantification of warranty claim and liability of free services has been made on scientific basis. In favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision for warranty was only contingent liability and not allowable as eligible expenditure. 5. Upon assessee's appeal Ld. Commissioner of Income Tax (A) considered the issue and held as under:- "Admittedly, the appellant is engaged in the business of manufacturing and sale of air conditioners, compressors etc. and gives a free of cost repair and replacement warranty as per the agreed terms and conditions with the customers for a minimum period of one year at the time of sale. The provision for warranty has been recognized based on past warranty trends, warranty claims received during the year and the unspent provision for warranty for prior years. The treatment of warranty provision is in consonance with accepted principles of commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in the financial statements of the period to which they relate". Therefore, such method of making provision in the year of sale based on the historical trend is in accordance with the accrual concept of accounting and matching concept of preparation of accounts as the appellant follows mercantile system of accounting. The issue of allowability of warranty provision made on the scientific basis and past experience has specifically been settled by the Hon'ble Supreme Court in the decision in case of Rotork Controls India Pvt. Ltd vs. CIT (314 ITR 62) and the jurisdictional High Court in CIT vs. Majestic Auto Ltd. [156 Taxman [460], relevant text of which are already reproduced in the submissions of the appellant. As regards mode and manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to provision for warranty. Ld. Counsel of the assessee on the other hand relied upon the orders of the Ld. Commissioner of Income Tax (A) and submitted that the issue involved is squarely covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of Rotork Controls India Pvt. Ltd. vs. C.I.T. 314 ITR 62 and the Jurisdictional High Court in the case of C.I.T. vs. Majestic Auto Ltd. 156 Taxman 460. 8. We have carefully considered the submissions and perused the records. We find that in this case the assessee is engaged in the business of manufacturing and sale of air conditioners, compressors etc. and gives a free of cost repair and replacement warranty as per the agreed terms and conditions with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of such sophisticated goods would be entitled to deduction from the gross receipts under section 37." 9. We further find that the Hon'ble Jurisdictional High Court in the case of C.I.T. vs. Majestic Auto Ltd. (Supra) has affirmed the Tribunal's order and held that the provision for warranty claims and free services charges were allowable as deduction on the facts that quantification of warranty claim and liability of free services has been made on scientific basis. 10. In the background of the aforesaid discussions and precedents, we hold that the provision for warranty made in this cases has been arrived at on a scientific basis, as per the past trend and there is no infirmity in the order of the Ld. Commissioner of Income Tax (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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