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The Commissioner of Income Tax, Faridabad Versus M/s Carrier Air-Conditioning and Refrigeration (Formerly known as Aircon Limited)

2015 (5) TMI 869 - PUNJAB & HARYANA HIGH COURT

Disallowance of warranty provision - whether 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? - Held that:- The question is answered in favour of the respondent by the judgment of Commissioner of Income Tax v. Majestic Auto Ltd. [(7) TMI 568 - PUNJAB & HARYANA HIGH COURT] which was also relied upon by the Tribunal.

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ve at a proper estimate of the liability having regard to all the circumstances of the case. Also see Rotork Controls India P. Ltd. v. Commissioner of Income Tax [ 2009 (5) TMI 16 - SUPREME COURT OF INDIA] 314 ITR 62 (SC)- Decided in favour of assesse. - Income Tax Appeal No. 434 of 2014, Income Tax Appeal No. 439 of 2014 - Dated:- 19-5-2015 - MR. S.J.VAZIFDAR AND MR. G.S.SANDHAWALIA, JJ. Mr. Tajender K.Joshi, Advocate, for the appellant Mr. Deepak Chopra, Advocate with Mr. Piyush Singh, Advocat .....

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r 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 circumstances of the case, .....

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ench of this Court and by a judgment of the Supreme Court. 5. The respondent filed a return of income of 11,72,00,980/-. The revised return declared the same income. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (for short the Act ) at a total income of 11,64,04,200/-. The assessee had debited an amount of 2,66,33,000/- on account of warranty expenses in the Profit and Loss account. The respondent stated that the warranty costs were determined on the basis of the .....

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ctual 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 .....

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was a liability that may or may not have to be discharged, the Assessing Officer added the amount of 60,25,000/- back to the respondent s net income and initiated penalty proceedings under section 271(1)(c) of the Act. The C.I.T. (A) allowed the respondent s appeal. The Income Tax Appellate Tribunal dismissed the appellant s appeal leading to the appellant s filing the present appeals. 8. The respondent follows the mercantile system of accounting. The warranty expenses are therefore included in .....

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of manufacture and sale of air conditioners. As noted by the C.I.T. (A), under the agreements entered into by it with its customers, the respondent gives free of cost repair and replacement warranty for a minimum period of one year 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 b .....

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to the warranty provision account. The contention that the provision was not made on any scientific basis is equally unfounded. The provision is based essentially on the respondent s past experience. 10. The question is answered in favour of the respondent by the judgment of a Division Bench of this Court in the case of Commissioner of Income Tax v. Majestic Auto Ltd. [2006] 156 Taxman 460 (P&H) which was also relied upon by the Tribunal. The Division Bench held as under:- 6. In Bharat Earth .....

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