TMI Blog2011 (11) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. The assessee filed its return of income on 01.11.2004 for the relevant Assessment Year 2004-05. Assessment was completed u/s. 143(3) of the Act on 22.12.2006 and assessed income at ₹ 12,22,423/-, by making addition of ₹ 7,11,823/- on account of disallowance of warranty expenses and ₹ 5,10,600/- on account of marked up expenses on account of adjustment in transfer pricing in respect of international transactions. The Assessing Officer during the course of assessment proceedings noticed that warranty expenses on sales are in the nature of provisions made by assessee in the Balance Sheet at ₹ 7,11,823/- and according to him, the expenses in the nature of provisions are not allowable. Accordingly, he disallowed warranty expenses provisions at ₹ 7,11,823/-. The Assessing Officer also noticed that the assessee has not made adjustment in respect of international transaction in view of transfer pricing authority s order dated 18.12.2006 to various expenses at ₹ 5,10,600/- and accordingly, he made adjustment in arms length price to assessee s international transactions. Assessing Officer also initiated penalty proceedings. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, provision of warranty expenses was made on scientific basis and on the basis of past experience using an appropriate statistical formula for estimation of warranty liability. The assessee has adopted a statistical formula to determine the warranty provision for each month and accordingly accounted for. He stated that the provisions for warranty expenses were claimed in view of the decision of this Tribunal in the case of Voltas Ltd. Vs. DCIT 64 ITD 232. He also relied on the decision of Hon ble Apex Court in the case of Rotork Controls India (P) Ltd. Vs. CIT (2009) 314 ITR 62 wherein Hon ble Apex Court has held as under: Thus, the decision on the warranty provision should be based on past experience of the company. A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty. Therefore, the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for the products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anty provision to the next year. However, Ld. Counsel in all fairness also stated that the Hon ble Apex Court in the case of Rotork Controls India (P)Ltd. Vs. CIT and CIT Vs. Wipro GE Medical Systems Ltd. and Hewlett Packard India (P) Ltd. (2009) 314 ITR 62 has clearly disallowed the provisions for warranty expenses but allowed the expenses under the matching concept if revenue is recognised on cost incurred to earn revenue including warranty, the cost has to be fully provided for. In the present case before us, the assessee could not provide that the actual amount has been reversed. It is not the case of revenue that the decision taken by the company on warranty provision is not based on past experience and the estimates of warranty provision remained unutilized at the end of period prescribed in the warranty. The principles laid down by Hon ble Apex Court in the case of Rotork Controls India (P) Ltd. (supra) i.e. provisioning which relates to present obligation, it arises out of obligating event, it involves outflow of resources and it involves reliable estimate of obligation, all these principles are not negated by revenue in the present case before us. Even otherwise th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; an item of receipt may be suppressed fraudulently ; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one s income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. In this behalf the observations of this court made in Sree Krishna Electricals v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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