TMI Blog2013 (7) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of the Supreme Court in the case of Rotork Controls India P. Ltd. v. CIT [2009] 314 ITR 62 relied on and cited before it at the time of hearing - Court explained the provision by quoting the judgement of Rotork Controls India P. Ltd. v. CIT (2009 (5) TMI 16 - SUPREME COURT OF INDIA) - in considering the claim on a provision made for warranty claim, the apex court held that 'a provision is recognised when : (a) an enterprise has a present obligation 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 recognized - the apex court pointed out that the provision has to be made based on reliable estimation of the obligations - Unless the three conditions recognising the liability are satisfied the claim could not be automatically allowed as a provision made on a historical trend - the provision for service charges payable by the assessee by way of warranty provision was not made on any scientific data - it was further observed therein that the provision made was only on ad hoc basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,45,20,006 represents the claim paid during the year and the provision for warranty liability based on technical estimate has been made during this year also. It was further submitted by the assessee that the Assessing Officer did not call for the details of product warranty cost while taking up the case for scrutiny, obviously, for the reason that in the earlier years the allowability of the expenditure had been gone into and there has been no change in the facts during the instant year. Thus, according to the assessee, the provision is not of a lump sum, ad hoc or arbitrary and the same was on technical estimate. After considering the reply submitted by the assessee, the Commissioner of Income-tax passed an order on March 11, 2009, under section 263 of the Income-tax Act thereby rejecting the assessee's contention and directed the Assessing Officer to quantify the correct amount of provision for warranty created during the year by calling for and examining the relevant details and then to disallow the same in computing the total income. Aggrieved against the order of the Commissioner, the assessee went on appeal before the Tribunal. By its order dated September 11, 2009, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respective submissions made by the counsel appearing for the parties, it is seen that the Assessing Officer completed the assessment and assessed the loss as Rs. 4,65,01,833. However, the Commissioner, on finding that a sum of Rs. 1,78,13,444 had been debited towards warranty expenses ; that a sum of Rs. 94,75,847 was shown as outstanding towards product warranty cost and that a sum of Rs. 32,93,438 represented provision towards warranty cost which was not added back to the income computed, initiated proceedings under section 263 as he felt that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. The assessee though filed a reply to the show-cause notice and asserted that the provision for warranty liability was made based on technical estimate, he himself admitted that the Assessing Officer did not call for the details of product warranty cost. The assessee only presumed that the Assessing Officer did not call for the details of product warranty cost for the reason that in the earlier assessment years, the allowability of the expenditure was decided in favour of the assessee. The learned Commissioner, however, pointed out that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act, 1961, since such an order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. Similarly, the hon'ble Supreme Court in a decision reported in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) has observed that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. It is further observed that in the said case as follows (page 88) : "In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of the obligation. If these conditions are not met, no provision can be recognized . . . Thus, the apex court pointed out that the provision has to be made based on reliable estimation of the obligations. Unless the three conditions recognising the liability are satisfied, the claim could not be automatically allowed as a provision made on a historical trend." After observing so, the hon'ble Division Bench further held at paragraph 18 that the provision for service charges payable by the assessee by way of warranty provision was not made on any scientific data. By applying the facts of the case to the law declared by the apex court, it was further observed therein that the provision made was only on ad hoc basis which was a fact recorded by the Tribunal. Here also, the Commissioner as well as the Tribunal categorically found that the assessee had not proved the provision of warranty expenses based on any scientific method in such circumstances, the assessee cannot place reliance on the decision of the hon'ble Supreme Court reported in Rotork Controls India P. Ltd. v. CIT [2009] 314 ITR 62 (SC) as the facts are totally distinguishable. Even otherwise the assessee has to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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