9911796707
TMI Blog2015 (5) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2014. 2. Both these appeals are against the order of the Income Tax Appellate Tribunal dismissing the appellant's appeal against the order of the Commissioner of Income Tax (Appeals). The C.I.T. (Appeals) deleted the disallowance of warranty provision. The matter pertains to the assessment years 1998-99 and 2001-02. 3. The appellant contends that the following substantial question of law arises:- "i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in treating provision for warranty in the present case as an ascertained liability, despite failure on part of the assessee to establish historical or scientific basis of arriving at the said provision. ii) Whether on the facts and in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranty expenses based on actual expenses incurred in the past; that it consistently followed the practice of making a provision for warranty in its books of accounts; that the entire sale consideration in respect of which the provision was made had been recorded in the books as revenue; that the corresponding warranty expenses had to be necessarily deducted in order to arrive at the respondent's taxable income and the basis of making the warranty provision was also disclosed in the financial statements. 7. The Assessing Officer held that the warranty expenses are not an allowable deduction and that the liability was contingent and not in praesenti. The Assessing Officer held that the test was whether a provision provides for a known liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of sale. 9. The respondent contended that the amount debited to its Profit & Loss account was based on the past experience. The respondent has been in this same line of business for several years. It is not suggested that the records, including the books of account are not reliable or that the expenses towards meeting the obligations for fulfilling the warranties were not incurred. There is in any event no loss to the revenue. If the respondent does not incur any expenses towards meeting its obligation under the warranty clause on account of the claims thereunder not matching the provision for any reason including on account of the expiry of the warranty period without the warranty being invoked, the unspent/unutilized provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving regard to all the circumstances of the case..........." 11. The matter is also covered in the respondent's favour by the judgment of the Supreme Court in Rotork Controls India P. Ltd. v. Commissioner of Income Tax [2009] 314 ITR 62 (SC). It was contended on behalf of the Department that the provision for warranty is towards unforeseen liability which is not certain nor could it be foreseen with precision and was, therefore, only contingent. It was contended that being contingent, deduction as expense(s) was not available. The Supreme Court rejected the contentions. Further, in paragraph No. 14, the Supreme Court expressly held that if the warranty provisions are based on experience and historical trend(s) and if the working is robust, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
