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TMI Blog2015 (2) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of 50% of the provisions out of the expenditure claimed under the head 'post sales expenses' for warranty expenses, on the basis of the judgement of Hon'ble Supreme Court given in the case of Rotork Control India Vs. CIT (2009) 314 ITR 62 (SC), completing ignoring that the above case law was distinguished on the facts by the AO in the assessment order." 3. At the time of hearing before us, learned DR stated that there is a typographical error in the above ground and there was a disallowance of 100% of the provisions by the Assessing Officer which is deleted by the CIT(A). In the ground, it has been wrongly mentioned as 50%. She, therefore, submitted that either the Revenue should be allowed time to modify the ground of appeal or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008, no provision is made but the provision utilized was `25.78 lakhs. In the year ended on 31st March, 2009, neither any provision was made nor any provision was utilized for fulfilling the warranty conditions. That this clearly indicates that the assessee is not following any scientific method and moreover, the provision made is very excessive. She, therefore, submitted that the order of learned CIT(A) should be reversed and that of the Assessing Officer may be restored. 7. Learned counsel for the assessee, on the other hand, stated that the assessee is a unit of Fiamm Group. It is engaged in manufacturing horns for four wheelers and the assessee provides manufacturing warranty of three years which is in-built in the contract of sales. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, that the valve actuators, manufactured by the assessee, were sophisticated goods and statistical data indicated that every year some of these were found defective; that valve actuator being a sophisticated item no customer was prepared to buy a valve actuator without a warranty. Therefore, the warranty became an integral part of the sale price; in other words, the warranty stood attached to the sale price of the product. In this case the warranty provisions had to be recognized because had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of the obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that there should be a reliable estimate of such liability based upon the nature of product manufactured and sold, there should be some scientific method for estimating the liability and such estimate should also be based upon the past experience. The CIT(A) has given the chart in his order giving the year-wise details of the provision for warranty and the provision actually utilized for fulfilling the warranty and the provision reversed. The same is reproduced below:- Warranties 31.3.10 31.3.09 31.3.08 31.3.07 31.3.06 31.3.05 Opening balance 38,01,467 1,27,64,810 2,53,77,350 1,33,43,468 3,47,106 3,47,106 Additional provision during the year 74,05,358 1,29,29,833 1,65,11,140 Provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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