TMI Blog2017 (4) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... econd hand machines and hence they may require frequent attendance/repairs. Since the assessee has been declaring profits at a higher level year after year, the Ld CIT(A) has also observed that the creation of provision and reversal of the same are revenue neutral. In any case, a business man would provide for such warranty claims on estimated basis for possible claims only and it is not necessary that the provision so made should be fully spent. The actual expenditure would depend upon the warranty claims actually lodged by the customers, which may vary year after year. In the instant case, it is not the case of the AO that the assessee has provided for amount at an excessive figure in order to suppress the profits. Hence, in our consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision for warranties to the tune of ₹ 1,15,35,985/-. The AO noticed that the provision so made works out to about 10% of the sale value of machineries. Further he noticed that the assessee has not fully used the provision amount in the earlier years, i.e., it has been reversing major portion of the provisions made in the earlier years after expiry of warranty period. Accordingly the AO took the view that the past year s data did not support the quantum of provision made by the assessee, i.e., the assessee has been reversing about 62.82% of the amount of provision made in the earlier years. Accordingly the AO took the view that the assessee did not provide for warranty claims in accordance with best possible estimates as prescribed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... periences/data of the assessee would show that the provision made by the assessee is excessive and disproportionate. Accordingly the Ld D.R submitted that the Ld CIT(A) was not justified in deleting the addition made by the AO. 6. On the contrary, the Ld A.R submitted that the assessee is engaged in the business of selling second hand machineries after refurbishing them. Those machineries carry a warranty period of about 2 years. He submitted that the probability of failures is more in respect of second hand machineries, which require frequent attendance and repairs. Hence the assessee has provided for Warranty claims year after year. He submitted that the said claim has been allowed in the past years. He submitted that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion which was found excessive. 8. We notice that the Ld CIT(A) has deleted the addition with the following observations:- 8.0 Ground No. 5(a) (b) is directed against the disallowance of ₹ 1,15,35,985/- of provision for warranty. (i) I have carefully considered the submissions of the appellant, the observations of the AO in the assessment order, remand report of the Assessing Officer, Reply to remand report filed by the Authorized Representative, case laws relied upon by the appellant and the facts of the case, and therefore, I proceed to decide the appeal of the appellant. (ii) The Assessing Officer has discussed in Paras 4.1 4.3 of the assessment order and the AO, further observed that the provisioning o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). CIT vs Maruti Suzuki India ltd. in ITA Nos. 903/993/1029 - 2011(Delhi High Court);(b). CIT vs. Vinitec Corporation Pvt. Ltd. reported in 278 ITR 337 (Del); (c) Rotork Controls India Ltd. vs. CIT reported in 314 ITR 62(SC); (d) Bharat Earth Movers vs. CIT reported in 245 ITR 428(SC) and (e) CIT vs. Inductotherm (India) Pvt Ltd. reported in ITA No.2087 of 2010 dated 27.12.2011 wherein the provisions of warranty were upheld. (v) On going through the above, the claim of provision for warranty expenses is justified on the following grounds: a) The appellant is in the business of selling refurbished Medical devices such as imaging systems, X-ray machines, CT scans, Dopplers etc and these are purchased from hospitals or imports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a reliable estimate could be made of the amount of obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income tax Act, 1961 . (e) The amount of warranty provision has been scientifically and statistically followed for example, the current year provision for warranty is ₹ 1,15,35,985/- and out of which, ₹ 85,28,300/- has been utilized and the balance amount of ₹ 30,07,685/- has been reversed and offered to tax in A.Y.2013-2014. In fact, the Assessing Officer should have verified the genuineness of the expenses claimed in A.Y.2011-12 of ₹ 3,95,500/-; ₹ 55,17,800/- in A.Y.2012-13 ₹ 26,15,000/- in A.Y.2013- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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