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DCIT, Circle-8 (1) , CR Building, New Delhi Versus Showa India Pvt. Ltd. And Vice-Versa

2017 (9) TMI 431 - ITAT DELHI

Provision for warranty made @1% of weighted average turnover - AO disallowed the warranty Provisions -Nature of Contingent Liability - Matching Concept - Provision made on scientific estimation keeping in mind the anticipated liabilities likely to arise in the future. - Held That :- matter remitted back to the file of the Assessing Officer to examine the entire details of the provisions made by the assessee in the earlier years and also in the subsequent years and also to see whether such a prov .....

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it is found that the customers while making the payment before 30 days have deducted the cash discount, then same is to be allowed. - Appeal of revenue is allowed for statistical purposes. - ITA No. 4276/Del/2014 And CO. No. 54/Del/2015 - Dated:- 6-9-2017 - SHRI G. D. AGRAWAL, PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Revenue : Shri Aatiq Ahmed, Sr. DR For The Assessee : Ms. Priyanka Mogia, CA ORDER PER AMIT SHUKLA, JUDICIAL MEMBER: The aforesaid appeal and cross objection h .....

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tances of the case, the Ld. CIT(A) has erred in law and facts in deleting the additions of ₹ 94,62,769/- made by the AO on account of expenses towards cash discount." 3. "The appellant craves to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 3. The brief facts qua the first issue relating to warranty expenses are that, the assessee is engaged in the business of manufacturing of Power Steering and bulk of sale is .....

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6,973/- Provision for warranty made at the rate of 1% of weighted average turnover. ₹ 1,34,21,722/- Total Expenses ₹ 1,46,98,694/- 4. As regards the expenses of ₹ 12,76,973/-, the assessee has furnished payment advisory receipts from the customers; and for the provision of warranty, the assessee had given the calculation on the basis of which provision for warranty has been debited along with the copy of ledger accounts. The assessee during the year had made provision for warra .....

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warranty of ₹ 1,34,21,722/- was initially made @ 1% of weighted turnover and such provision was made on the basis of matching concept, i.e., if revenue is recognized then the cost to incur to that revenue also includes warranty cost which has to be fully provided in the books. When the product is sold and the warranty cost being an integral part of sale price, the assessee has to provide for such warranty costs in its account for the year otherwise the matching concept will fail. In suppo .....

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f accepted that the provision for warranty expenses has been reduced to 0.50% during the year as compared to 0.75% in the earlier year. He further noted that the excess provision for warranty made in the prior year s amounting to ₹ 1,44,49,381/- has been reversed in this year considering that no claim was made during the warranty tenure of the products for the earlier years and no adjustment for such reversal was made in the computation of income in A.Y. 2012-13. This itself shows that the .....

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file of the Assessing Officer for the provision of details/expenses, evidences filed by the assessee to allow the claim following the ratio laid down by the Hon'ble Supreme Court in the case of M/s. Rotork Controls India Pvt. Ltd. vs. CIT (surpa). However he submitted that in this all the details have been placed and duly considered by the authorities below, therefore, there is no requirement to set-aside the matter before the AO in this year. 8. We have heard the rival submissions and peru .....

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earlier. Similarly, in respect of emission related parts the warranty was for 36 months or vehicle running for 80,000 kms., whichever is earlier. The assessee in its account at the time of sale has been making the provision for warranty @ 1 % of weighted average turnover after adjusting the claim receipts and paid during the year. The excess warranty provision against which no claim is made during the warranty tenure has been reversed at the end. It is also an admitted fact that the assessee had .....

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s manufactured and sold, then the provision made for warranty in respect of such sophisticated goods would be entitled to deduction from the gross receipts under section 37. It would all depend on the data systematically maintained by the assessee. Thus, the judgment of Hon'ble Supreme Court clearly recognizes that if the provision made for warranty has been made on some proper estimate, then it has to be allowed as deduction as business expense from the gross receipt u/s 37. The Learned CIT .....

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ade by the assessee is correct or not and whether there is any excess provision made by the assessee in any of the year. We find that in the earlier year this issue has been set aside to the file of the Assessing Officer to consider the details and evidences to allow the assessee s claim following the ratio laid down by the Hon'ble Supreme Court in the case of M/s. Rotork Controls India Pvt. Ltd. vs. CIT. In this year also, we are remitting back the matter to the file of the Assessing Office .....

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een from the assessment order that AO had made the disallowance on the ground that no material evidences was furnished by the assessee in support of cash discount expenses claimed. The Assessing Officer had further noted that the assessee had not given details such as total amount of bill, date of bill, description of goods supplied, therefore, he came to the conclusion that correctness of amount; the quantum of deduction claimed; and what rate and for which period it has been given, is not veri .....

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charged from the customers. The assessee had filed copy of ledger account of cash discount for F.Y. 2008-09 and also filed the details of its main customer, M/s. Maruti Udyog Ltd. showing payments made after deduction of cash discount @ 12.2%. 10. The Learned CIT (Appeals) held that the Assessing Officer had not doubted the liability of cash discount expenses but had made the disallowance on the ground that it was not verifiable from the details, whether the assessee had computed the cash discou .....

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cussion appearing at para 9.2 of the appellate order. 11. The Ld. DR strongly relied upon the order of the Assessing Officer; whereas the Ld. Counsel for the assessee relied upon the order of the Ld. CIT (Appeals) but fairly pointed out that the Tribunal in the earlier year has set aside this issue to the file of the Assessing Officer. 12. After considering the rival submissions and on perusal of the finding given in the impugned orders, it is seen that, there is no dispute that the cash discoun .....

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ils as pointed out by the AO has to be seen. We find that exactly same issue had come up for consideration before the Tribunal, wherein the said issue has been set aside to the file of AO to verify the quantum of cash discount. Accordingly, in this year also relying upon the same direction, we set aside this issue to the file of the Assessing Officer to verify the details of cash discount and if it is found that the customers while making the payment before 30 days have deducted the cash discoun .....

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the eyes of law and on facts. 2. On the facts and circumstances of the case, the Ld. Assessing Officer has failed to appreciate the order the Ld, CIT(A). 2.1. On the facts and circumstances of the case, the Ld. Assessing Officer have failed in appreciating that the warranty expenses, as allowed by the Ld. CIT(A), are in the nature of a determined liability and not a contingent liability. 2.2. On the facts and circumstances of the case, the Ld. Assessing Officer has failed to appreciate the parti .....

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