Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

Deputy Commissioner of Income-Tax, Circle-7, Kolkata Versus M/s B.C.H. Electric Ltd.

Disallowance of provision of warranty expenses - CIT(A) allowed the claim - Held that:- The provision for such warranty is being made on the basis of past experience and has been computed in a systematic and scientific manner, as in the present case, surely we have to appreciate that these warranty expenses are towards expenses which have been incurred or are likely to be incurred within the period for which warranty has been assured to the customers against the sale of products and as such, suc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

R N Bajoria, Sr. Adv ORDER Per Shri Mahavir Singh, JM Both these appeals by revenue are arising out of separate orders of CIT(A)-VIII, Kolkata vide Appeal Nos. 527/CIT(A)-VIII/Kol/08-09 and 462/CIT(A)-VIII/Kol/09-10 dated 04.08.2011 and 05.08.2011 respectively. Assessments was framed by ACIT, Circle-7, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2006-07 and 2007-08 vide his separate orders dated 23.12.2008 and 31.12.2009 re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

under: "1. That under the facts and circumstances of the case the Ld. CIT(A) has erred in law as well as in facts in holding that the entire provision of warranty expenses amounting to ₹ 1,50,43,597/- as an allowable expenses and deleting the entire addition. Whereas, only the part of such provision which got crystallized during the relevant previous year i.e. the amount of actual payment made during the year under the said head only should be allowed and the closing provision as on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e assessee explained before the AO that these expenses consist of two portions, firstly, the expenses actually incurred for meeting the warranty liability known as warranty replacement expenses and the second portion being in the nature of provision. The assessee contended that these expenses are in the normal course of business and likely to be incurred over a period of warranty. The assessee filed the working of three years of expenses, which reads as under: Financial Year 2002-03 Financial Ye .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ses at ₹ 1,50,43,597/- out of total expenses debited by the assessee at ₹ 1,56,85,757/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) allowed the claim of assessee by observing as under: "5.2 Ground No.2 - This ground of appeal is directed against the disallowance of ₹ 15043597/- claimed towards the warranty expenditure. It is seen that the A. O. has disallowed such expenses on the ground that the actual expenses incurred are hardly 5% of what has been de .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l course of business and likely to be incurred over the period of warranty. In support of its contention the appellant produced the quantum of expenses actually incurred in last three years with detailed working of warranty, replacement expenditure then warranty expenses and total pertaining to F.Y. 2002-03, 2003-04 & 2004-05. At the appellate stage the appellant submitted that it is true that in F.Y.2002-03 & 2003-04 there was no warranty replacement expenses but the same was incurred o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

current year i.e. the relevant year 2006-2007, provisions of such warranty expenses is being made on the basis of past experience and had been computed in a systematic and scientific manner and hence the same is allowable expenses. In support of its contention that such expenses are clearly allowable expenditure; the appellant relied upon a numbers of decisions of the various High Courts and Supreme Court. My attention was drawn to the decision of the Hon'ble Supreme Court in the case of Rot .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

obligation. If it is so made it is a liability allowable as deduction U/s.37 of the IT Act. It is seen that the Hon'ble Apex Court has also laid down that the estimate of liability has to be on the basis of statistical data available in the past. In the present case the appellant had filed the necessary data on the basis of which the provision of warranty expenses had been made but the same was not considered by the A.O. Since the appellant has made the provisions on the basis of a principl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f hearing, Ld. Counsel for the assessee drew our attention to assessee's paper book consists of pages 1 to 198 wherein complete details of working of warranty provision is given at pages 196 and 197 for the relevant AY 2006-07 and 2007-08 respectively. The relevant details from page 196 for AY 2006-07 reads as under: "Warranty expenses: Warranty Expenses Booked as per warranty claimed processed during the year 10,956,851 Provision made for the year ended 31.03.2006 4,086,746 Add: Warran .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. Ld. Counsel for the assessee drew our attention to the chart reproduced by AO and even by us in para 3 above. He narrated that by applying the percentage on the sale for AY 2005-06 relevant to FY 2004-05 the warranty expenses works out and he filed the details as under: Year Sales Actual year of pay out Amount of pay out 2003-04 Rs.81,84,78,271/- 2004-05 ₹ 80,28,072/- 2002-03 Rs.68,87,60,046/- 2003-04 Rs.66,90,068/- Aggregate Rs.150,72,38,317/- Rs.1,47,18,140/- Average - 1,47,18,140/150, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nty expenses is only for ₹ 18,67,185/-. Ld. Counsel for the assessee stated that the contention of the AO that only 5% of the amount has been paid is totally incorrect. According to him, indeed this method is being following since earlier years and on the basis of past experience such provision is being made in the books of account and similar provision is made in the current assessment year i.e. 2006-07 as well as the provision has been made as under: Year Sales Actual payout (Year) Amoun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ision E 1,867,185.00 Provision required F 2,219,561.18 D-E Detail of Warranty Expenses Current year expenses 10,956,851 Provision made 4,086,746 Total 15,043,597 Add: Warranty Replacement Exp. 642,160 15,685,757" Ld. Counsel for the assessee explained that such warranty expenses are towards expenses which have been incurred or are likely to the incurred within the period of which warranty has been assured to the customer against products sold and as such, such expenses are deductible busine .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

) wherein Hon'ble Supreme court held that such estimated provision for warranty as an allowable expenses. Hon'ble Supreme court finally held as under:- "18. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation. As stated above, the case of Indian Molasses Co. [1959] 37 ITR 66 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er two gratuity schemes and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out its estimated liability on actuarial valuation. It had made provision for such liability spread over to a number of years. In such a case it was held by this court that the provision made by the assessee-company for meeting the liability incurred by it under the gratuity scheme would be entitled to deduction out of the gross receipts for the accounti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e employees, was entitled to deduction out of gross receipts for the accounting year during which the provision is made for that liability. The principle which emerges from these decisions is that if the historical trend indicates that a large number of sophisticated goods were being manufactured in the past and in the past if the facts established show that defects existed in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticate .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     Latest Happenings     ↓  

Forum: Excise duty credit on finished stock at additional place of business.

Forum: Duty Drawback & Input Credit - under GST

Forum: Credit on Repair of Company Car & Its Insurance

Highlight: Rate of exchange of conversion of the foreign currency with effect from 22th September, 2017 - Notification

Highlight: Companies (Acceptance of Deposits) Second Amendment Rules, 2017 - Notification

Highlight: Implementing Electronic Sealing for containers by exporters under self-sealing procedure prescribed by Circular 26/2017-Cus dated 1st July, 2017 and Circular 36/2017 dated 28 th August, 2017. — reg. - Circular

Highlight: Amendment to Paragraph 2.72 (b) of the Handbook of Procedures of the Foreign Trade Policy (FTP) 2015-20 - Public Notice

Notification: Amendment in Appendix 3 (SCOMET items) to Schedule- 2 of ITC (HS) Classification of Export and Import Items 2012

Circular: Amendment to Paragraph 2.72 (b) of the Handbook of Procedures of the Foreign Trade Policy (FTP) 2015-20

Notification: Companies (Acceptance of Deposits) Second Amendment Rules, 2017

Notification: Rate of exchange of conversion of the foreign currency with effect from 22th September, 2017

Forum: Trans1 return

News: Exchange Rate of Foreign Currency Relating To Imported and Export Goods Notified

Circular: Promote the officers of the Indian Revenue Service (Customs and Central Excise) to the grade of Principal commissioner of customs, GST & CX

Circular: Allocate the charges amongst the Members of the Central Board of Excise and Customs

Circular: Strategy for audits in 2017-18 consequent to GST - Audit by Central Excise and service Department to continue for the accounting year 2016-17 and for the past period

Circular: Appoint the IRS (C&CE) officers as Principal Commissioner (Revision Application) and ex-officio Additional Secretary

Circular: Time limit for filing intimation for composition levy under Rule 3(1) of the CGST Rules, 2017 extended to 16-8-2017

Circular: Extension of time limit for submitting the declaration in FORM GST TRAN-1 under rule 120A of the Central Goods and Service Tax Rules, 2017

Circular: C.B.E. & C. Advisory on Customs related matters on introduction of Goods and Services Tax regime

Circular: List of Reduced Tax Liabilities under GST regime in comparison to present combined Indirect Tax rates

Circular: Works Contract for construction of Flats, Complex — Builders to pass on GST benefit to buyer otherwise anti-profiteering provisions of Section 171 of GST Act to apply

Circular: Clarification regarding applicability of section 16 of the IGST Act, 2017, relating to zero rated supply for the purpose of Compensation Cess on exports – Regarding.

Circular: Clarification on Inter-state movement of various modes of conveyance, carrying goods or passengers or for repairs and maintenance- regarding

News: RBI Reference Rate for US $

Highlight: Addition u/s 23(1)(a) - deemed rent - once the property is let out and at any point of time this remained vacant during the same cannot be brought to tax under the head House properties income.

News: Haryana constitutes screening committee on anti-profiteering

Highlight: Valuation of imported goods - it is necessary to re-examine the matter of both license agreement as well as supply contract simultaneously, to see if the enhanced royalty was in the guise of adjustment of the price of components.

Notification: Levy of anti dumping duty on New/unused pneumatic radial tyres with or without tubes and/or flap of rubber (including tubeless tyres) having normal rim dia code above 16 originating in, or exported from China PR

Highlight: Cenvat credit availed on Club Membership for the Director is not admissible as it cannot be said to be remotely connected with the activity of manufacture

Circular: Amendments in Hand Book of Procedures 2015-20 –reg.

News: Jaitley asks biz not to wait till last day to file GST returns

Circular: Implementing Electronic Sealing for containers by exporters under self-sealing procedure prescribed by Circular 26/2017-Cus dated 1st July, 2017 and Circular 36/2017 dated 28 th August, 2017. — reg.

Article: 20 Things You must know about E Way Bills in GST Law

Article: ‘DUTY DRAWBACK’ CANNOT BE EQUATED WITH ‘REBATE OF DUTY’

Highlight: Notification regarding GST rate for branded cereal, pulses and flour

News: Notification regarding GST rate for branded cereal, pulses and flour

Highlight: Anti-dumping duty on import of bus/truck tyres from China

Highlight: Cabinet approves Extension of time period of the Scheme "Special Industry Initiative for J&K" (Sll J&K) - Udaan

Highlight: Non-payment of service tax - maintenance and repair charges - appellants had knowingly and deliberately shown the repair charges as job work charges to mislead about their taxability - demand confirmed.

Highlight: BAS - execution of the project of smart card for vehicle registration – implementing the SOC-VRC project - The fact that the Government has outsourced some part of the work and paid certain consideration for such outsourced work, does not make the activity subject to service tax.

News: Cabinet approves Extension of time period of the Scheme "Special Industry Initiative for J&K" (Sll J&K) - Udaan

Highlight: Constitution of National Anti-profiteering Authority (NAA) under GST-reg. - Trade Notice

Highlight: Amendments in Hand Book of Procedures 2015-20 –reg. - Various amendments are made in Chapter-4 of Hand Book of Procedures 2015-2020.

Circular: Constitution of National Anti-profiteering Authority (NAA) under GST-reg.

Highlight: Sharing of expenses - BAS - promotion of business of group companies - sharing of expenditure for common facilities cannot be treated as service by one to another in such arrangement.

News: RBI Reference Rate for US $

Article: Credit of unsold stock [Section 140(3)] - Actual Credit as well as Notional Credit - Part-I - GST Transitional provisions

Circular: Certain Clarifications sought on Construction Services provided in the Real Estate Sector – reg.

News: Anti-dumping duty on import of bus/truck tyres from China



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version