TMI Blog2010 (3) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... ciate that (a) The warranty provision is made in accounts on the basis of technical evaluation and the previous experience based on the category wise actual warranty expenses in the last preceding three years. (b) The warranty is a simultaneous obligation undertaken in the year of sale, the purchase order includes warranty as part of the sales contract and the appellant also considers estimated warranty cost in the sales price quoted. 2 Adverting to the only issue in ground nos.1.1 1.2 relating to the disallowance of provision for warranty expenses in this appeal of the assessee facts, in brief, as per relevant orders are that return declaring income of ₹ 27,66,82,074/- filed on 27.10.2004, by the assessee, manufacturing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and expenses were being disallowed from the A.Y. 2000-01 onwards and excess warranty provision written back in the accounts for ₹ 20,38,209/- out of provisions for A.Y. 2002-03 and ₹ 39,28,448/- for the A.Y. 2003-04 aggregating to ₹ 59,66,657/- were not eliminated, thereby amounting to double addition. It was also contended that the material consumption and expenses aggregating to ₹ 38,16,038/- incurred in connection with sales for A.Y. 2002-03 and 2003-04 but charged to warranty provision account and not to current year profit and loss account, should be allowed on the basis of incurring actual expenses and this was not done by the AO. In the light of these submissions, the ld. CIT(A) concluded in the following ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/Ahd./2006 contended that issue of provision for warranty expenses is squarely covered in favour of the assessee. The ld. DR did not oppose these submissions of the ld. AR on behalf of the assessee. 5 We have heard both the paties and gone through the facts of the case as also the decision relied upon. A co-ordinate Bench of the ITAT in their aforesaid order dated 22-01-2010 in the assessee s own case, following the decision of the Hon'ble Supreme Court in the case of Rotork Controls India P Ltd. vs. CIT 314 ITR 62 (SC) allowed the claim of provision for warranty expenses in the following terms:- 5. We have heard both the parties and gone through the facts of the case as also the decision relied upon. Undisputedly, the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. Where there are a number of obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole; iv) In the case of a manufacture and sale of one single item the provision for warranty could constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the aforesaid decision, we have no alternative but to allow the claim of the assessee. Therefore, ground nos.1.1 1.2 in the appeal of the assessee for these three assessment years are allowed. 5.1 Undisputedly, facts obtaining in the year under consideration are similar to facts prevailing in the period relevant to the AYs 2000-01, 2001-02 2003-04 and since the assessee has provided for the warranty expenses based on technical evaluation and past experience, warranty stood attached to the sale price of the product and a reliable estimate of the expenditure towards such warranty is allowable. Considering the facts and circumstances of the case, in light of the view taken by the Hon'ble Apex Court in the aforesaid decision, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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