TMI Blog2011 (7) TMI 1259X X X X Extracts X X X X X X X X Extracts X X X X ..... ield of installation and commissioning of a variety of electrical equipment used in diverse industrial sectors. 5. During the assessment proceedings u/s 143(3) of the Incometax Act, the Assessing Officer observed that the assessee has made a provision for warranty of ₹ 58,70,794/-. The assessee was asked to furnish the details substantiating the claim. In response, the assessee submitted the details of opening provision for warranty, provision charge for the year and closing provision of warranty and warranty expenses incurred during the year. The Assessing Officer also considered the reliance placed by the assessee upon judicial pronouncement of the Hon'ble Supreme Court in the case of Bharat Earth Movers vs. CIT reported in 245 ITR 428 and also the decision of Bangalore Tribunal in the case of Wipro GE Medical Systems Ltd. vs. ACIT in ITA Nos. 320 to 398/Bang 2001. After considering the facts of the case and the above legal precedents, the AO held that the provision made by the assessee in respect of warranty given at the time of sales cannot be allowed as a deduction as the discharge of the obligation depends on the happening of so many events and also that the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eversal of excess provision made in any particular year. He placed reliance upon the decision of the Delhi High Court in the case of Ericsson Communications Pvt. Ltd., reported in 318 ITR 340 to submit that any provision for warranty made without any scientific basis is not allowable. 8. Having heard both the parties and having considered their rival contentions, we find that the assessee is selling its goods and the warranty period varies from product to product. Once the product is sold with a warranty, the assessee has an obligation to fulfill the warranty obligation and has to provide for the same and as seen from the figures reproduced by the CIT(A) at page 6 of its order, the assessee has in fact incurred certain expenditure for fulfilling its obligation of the warranty. Therefore it cannot be said that in the assessee's products there are neither any defects nor that they arise no obligation on the part of the assessee due to the warranty provisions. Once, it is established that the assessee has incurred expenditure for discharging its liability towards a warranty, it is also to be accepted that a prudent business man has to provide for such a warranty. Therefore depe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aging schedule and that provision which has been debited to the profit and loss account for the current year is the difference between the closing provision computed for the current year and the closing provision for the immediately preceding year. In support of its contention that where the provision is made on a scientific basis it has to be allowed, he placed reliance upon the following decisions: 1. Chainrup Sampatram vs. CIT, 24 ITR 481 2. Investment Ltd vs. CIT, 77 ITR 533 3. British Paints India Ltd., vs. CIT, 188 ITR 44 4. CIT vs. UCO Bank, 200 ITR 68 13. He also drew our attention to page 11 of the written submissions showing the policy of the company in making the inventory provision. 14. The learned DR on the other hand supported the orders of the authorities below and submitted that the assessee has not furnished any evidence before the CIT(A) in support of its contention that the basis for making the provision is scientific. He drew our attention to the CIT(A)'s finding that the assessee has only put forward the legal argument and no factual details have been provided in support of its contention. Thus according to him, the evidence filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , cited Supra, wherein it has been held if telecommunication expenses are to be reduced from the export turnover, the same are to be excluded from the total turnover also. Therefore, this ground of appeal is allowed and AO is directed to reduce the same from total turnover also. 22. In the result, the assessee's appeal for the assessment year 2002-03 is allowed. ITA No. 186/Bang/2010 23. Ground No. 2 is same as in the assessment year 2002-03 and as per the detailed reasons therein, this ground of appeal is also allowed. 24. Ground No. 4 is same as ground No.3 for the assessment year 2002-03 and for the detailed reasons given therein, this ground of appeal is allowed for statistical purposes. 25. Ground No. 5 is same as ground No.4 for the assessment year 2002-03 and for the detailed reasons given therein, this ground of appeal is also allowed. 26. The ground No.3 relates to disallowance of software expenditure. 27. The learned counsel for the assessee submitted that the assessee had purchased software during the previous year relevant to the assessment year 2002-03 and claimed the same. The Assessing Officer however allowed 1/3rd of the same for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. He has allowed the same for these assessment years and must have also allowed the same for the assessment year 2004-05 also. We, therefore, direct the AO to reconsider the issue and after due verification allow the same if it is not allowed. 38. This ground is also allowed for statistical purposes. 39. Ground No.4 relates to the same as ground No.3 for the assessment year 2002-03. For the detailed reasons given therein, this ground of appeal is allowed for statistical purposes. 40. Ground No.5 has two parts, one is deduction of telecommunication charges from the export turnover for the purpose of computation of deduction u/s 10A and not reducing the same from the total turnover and second is of reducing freight expenses from the export turnover, while computing the deduction u/s 10B of the Income-tax Act. 41. As regards the issue of telecommunication charges being reduced from the export turnover and not reduced from total turnover for the purposes of deduction u/s 10A of the Income-tax, we find that it is covered by the decision of the Hon'ble Chennai Special Bench in the case of Sak Soft Ltd., 313 ITR 353 (AT) and it is accordingly allowed. 42. As regards th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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