TMI Blog2009 (9) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... rranty inclusive of provision for warranty of ₹ 241.33 lakh. The Assessing Officer observed that since the assessee had not furnished any material to show the actual working of provision, the amount of ₹ 241.33 lakh was not allowable. This disallowance was confirmed by the Commissioner of Income-tax (Appeals). Subsequently, the Tribunal restored the issue to the file of Assessing Officer with the directions that the basis for disallowed amount should be ascertained after seeking clarification regarding the figures. 3. The Assessing Officer as directed by the tribunal examined the matter. The assessee vide letter dated 12.12.2006 submitted that the calculation of provision for warranty had been made @ 0.73% on the sales for as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had recurring liability of warranty to the extent of un-expired portion of warranty period. The assessee followed the consistent method of providing for warranty liability which was in line with the mercantile system of accounting being followed by the assessee thereby the expenses and income were to be matched, to correctly reflected the cost of goods sold and liability in respect of aforesaid amount accrued immediately on sale of goods. Provision for warranty was made on scientific method after considering the actual sale and actual warranty claimed during the three years immediately preceding assessment year 2002-03. Ld.AR of the assessee placed reliance on the decision of Hon'ble Apex Court in the case of Bharat Earth Movers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee submitted that provision for warranty was made on the basis of claims received by the assessee for last three years. 7. We have heard both the parties and gone through the material available on record carefully. In the case before us, the assessee has been making provision in respect of warranty on the basis of past history of the case. The assessee had also provided additional warranty in respect of heavy commercial vehicle and warranty for concord (motor parts replacement). The estimation of liability for warranty is based on past history of the case. Therefore, the issue is covered squarely by the decision of Hon'ble Apex Court in the case of Bharat Earth Movers (supra) wherein Hon'ble Apex Court held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of an amount of the obligation. If these conditions are not met, no provision can be recognized. The principle is that if the historical trend indicates that a large of number of sophisticated goods were being manufactured in the past and the facts show that defect existed in some of the items manufactured and sold, then provision made for warranty in respect of such sophisticated goods would be entitled to deduction from the gross receipt u/s 37 8. From above decisions of the Hon'ble Apex Court, it is clear that provision for warranty has to be estimated on scientific method. In the case before us, the assessee had estimat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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