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TMI Blog2017 (4) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... ership firm and is carrying on the business of repairing, refurbishing, sale and installation of imported second hand medical equipments, i.e., the assessee is engaged in the business of selling refurbished imported second hand Medical Devices like imaging systems, X-ray machines, CT- Scans, Dopplers etc. These machines hold a warranty of two years during which period replacement/repair expenses are borne by the assessee. Hence the assessee was following the practice of providing for Warranty and Guarantee claims every year. After the expiry of warranty period of two years, the unutilised amount of "Provision for warranty" was reversed and offered to tax. 3. During the year under consideration, the assessee made provision for warranties to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate proceedings, the Ld CIT(A) agreed with the contentions of the assessee and accordingly allowed the claim of the assessee. Aggrieved by the order passed by Ld CIT(A), the revenue has filed this appeal before us. 5. The Ld D.R submitted that the Provision for Warranty is normally made in the accounts when (a) Warranty clause is available, (b) the warranty may result in outflow of funds and (c) warranty claims can be quantified on the basis of part experiences/data on a scientific basis. The Ld D.R submitted that, in the instant case, the warranty clause is available and the warranty may result in outflow of funds. However, the assessee's claim fails on "quantification aspect", i.e., the past experiences/data of the assessee would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7. We have heard rival contentions and perused the record. There appears to be no dispute to the fact that the machineries sold by the assessee carries warranty promise and the assessee is required to repair/replace parts as per the terms and conditions of warranty given. The only concern of the assessing officer seems to be that the assessee is not actually incurring expenses in meeting out the warranty claims to the extent of the amount provided for. Accordingly he has taken the view that the amount provided for by the assessee is excessive and disproportionate. However, the AO has chosen to disallow the entire amount of provision made by the assessee instead of disallowing only that portion which was found excessive. 8. We notice tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from A.Y.2005-06 onwards the appellant started purchasing Second Hand imported electronics machines and refurbishing etc and sell it with warranty of two years free maintenance. The current year warranty has to be spent for 3 A.Ys. i.e. 2011-12, 2012-13 & 2013-14 and during the year reversal amount of Rs. 30,07,685/- has been offered as income. The AR furnished the details of customers in whose cases warranty were provided during the year along with copy of sale bills. The AR, in reply to the remand report has stated that the AO reiterates what has been discussed in the assessment order. (iv) The appellant has also placed reliance on various court decisions a). CIT vs Maruti Suzuki India ltd. in ITA Nos. 903/993/1029 - 2011(Delhi Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting since long time, which has never been disallowed. (c) The appellant is claiming provision for warranty expenses in the year in which sales have taken place and claimed 10% on the total sales because the risk of replacement or repairs are much higher in the case of imported second sales than the manufactured sales. (d). The Honible Supreme Court in the case of Rotork Controls (India) at page 71 states that " The warranty became an integral part of the sale price; in other words, the warranty provisions had to be recognized because the assessee had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of obligation. Therefore, the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter 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 considered view, the Ld CIT(A) has taken judicious view of the matter and the same does not call for any interference. Accordingly we uphold the order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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