TMI Blog2018 (4) TMI 1122X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-11 relevant amounts involved in two types of warranties DR fails to controvert the fact that the assessee has been following consistent method in creating similar warranty provision in subsequent assessment years as well. Relevant assessment order in such a case dated 30.04.2015 for assessment year 2011-12 indicates that there is no such disallowance made at the Revenue’s behest. The assessee is assessed at the same rate throughout. All the above narrated facts therefore make it crystal clear that the assessee has satisfied the relevant conditions for claiming the impugned warranty provisions as deduction Ad-hoc 10% disallowance on various expenditure being stores and spares, expenses on service operators and salary, wages and staff welfare expenses - Held that:- Assessee had produced all the relevant bills/vouchers in the first round of lower appellate proceedings (supra). The relevant issue is that on normal business expenditure wherein the Revenue has not made out any case of challenging its genuineness. We afforded sufficient opportunity to the learned Departmental Representative to rebut the CIT(A)’s above extracted findings under challenge deleting the impugned ad hoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us clear from both the parties above narrated pleadings. The first common issue in all these cases is that of correctness of disallowance of assessee s warranty provision(s). The CIT(A) s detailed discussion qua the instant issue reads as follows: 4.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. I have also carefully considered the remand report, and directions of Hon ble I.T.A.T. The Hon ble ITAT has directed undersigned to consider the issue of warranty expenses, in view of decision of Supreme Court in case of Rotork Controls India P. Ltd v. Commissioner of Income-fax 314 ITR 62(SC), wherein it is held that if claim of assessee in respect of warranty provision is found to be scientific, then no disallowance should be made towards warranty expenses. It is pertinent to note that, the Assessing Officer has given remand report for A.Y. 2000-2001 but facts involved in both the appeals are identical, hence, A. Y, 2001-02 is also adjudicated considering remand report submitted by Assessing Officer for A.Y. 2000-2001. For A.Y. 2000-2001, the Appellant during the course of remand proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne year warrant expenses and accordingly ₹ 94,080/- is excessive expenditure. On careful consideration of entire facts related to the issue, it is observed that one year warranty charges actually represents service charges paid to dealers carrying out General, cleaning maintenance services of AC in first year of sale and such services are provided to each customer at free of cost. The appellant has fixed the warranty amount to be given to its Sales Service Dealer for the different models sold by the company and considering the number of AC sold during the year, it has claimed such expenditure in Profit loss account. The details submitted by appellant clearly suggest that no adhoc provision is made but (expenditure is claimed on scientific basis. The details submitted by appellant are not found to be incorrect by Assessing Officer. The Assessing Officer has considered only ₹ 94,080/- as excess provision made during the year out of total expenditure of ₹ 1,77,10,631/-. Considering the totality of facts, and the fact that excess provision was only to the extent of ₹ 94,080/-, the amount of one year warranty charges is found to be made on actual basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses including the working for A.Y. 2008-2009 as provided by appellant is not relevant as the appellant should provide the details of working done by it for making the provisions for five year warranty expenses. The appellant has claimed expenses in the profit and loss account and it was its onus to provide the details. The honourable Supreme Court in the decision in the case of Rotok Control (supra) has also directed to allow warranty expenses on that basis. The honourable ITAT has also directed the undersigned to get the provisions verified in the light of the directions given by honourable Supreme Court. The appellant may have been consistently following the method of provision of warranty but in absence of any supporting evidence for the current year the claim cannot be allowed. The scientific formula on the basis of which the provision for five year warranty has been made by the appellant after taking into account the compressor failure ratio has not been given by the appellant. In view of this discussion, I am of the considered opinion that the five year warranty expenses claimed by the appellant cannot be allowed in absence of any details. The claim of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant case. The assessee admittedly is a manufacturer of air conditioner cooling units. It appears to have provided for two kinds of warranties i.e. five years and one year. Case file suggests that the above latter warranty represents service charges paid to dealers which has gone unrebutted from Revenue side. Former five year warranty provision appears to be cost of compressor replacement in the event of the same being turning out to be a defective one. The assessee s computation seems to be based on some products of model-wise number of units sold and per unit rate of five year warranty provision for the impugned assessment years. Coupled with this, it has also filed before us a detailed compilation chart of the impugned warranty provisions as well as sales figures of finished goods from financial year 2004- 05 to 2010-11 relevant amounts involved in two types of warranties, corresponding consistent percentage and corresponding sales of finished goods, movement of the former warranty provision, its opening balance, relevant provisions created during the years, utilized sums therein, reversal sums, closing balance, breakup of the amount utilized assessment year-wise alongwith the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 77.29 FY 2007-08 89.18 81.52 FY 2008-03 111.61 70.61 FY 2009-10 231.33 FY 2010-11 324.29 Total (Rs in Lakhs) 76.12 69.35 77.57 89.18 111.61 502.78 337.98 Utilization Year Wise FY 1999-00 - Total - FY 2000-01 7.15 5.93 13.08 FY 2001-02 11.85 11.35 4.83 1.22 29.25 FY 2001-03 7.83 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture @10% identical in both assessment years as deleted in the course of lower appellate proceedings by following common detailed adjudication: 5.3. Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. It is noted that the AO has given remand report only for A.Y. 2000-2001 but facts involved in both the appeals are identical and accordingly A. Y. 2001-02 is also adjudicated considering remand report submitted by Assessing Officer in A.Y. 2000-2001. While passing the original assessment order for A.Y.2000-2001, Assessing Officer has made ad-hoc 10% disallowance on various expenditure being stores and spares, expenses on service operators and salary, wages and staff welfare expenses treating them as used for warranty period for air-conditioning machines. During the course of appellant proceedings, my predecessor CIT (A) after considering details and break-up of various expenses as per enclosure to statement of facts has deleted the disallowance made by Assessing Officer. However, Hon'ble Ahmedabad ITAT has observed that these details were not available with the file of Assessing Officer, henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated with the warranty period but are normal business expenditure such as Provident Fund, ESI, Medical reimbursement etc. and as submitted by the Appellant the same are pertaining to normal business expenditure on maintenance of establishment. Considering the facts discussed herein above. Assessing Officer was not justified in making addition of 1 0% of expenditure on the ground that same was used for the warranty period for AC Machines. Thus, disallowance made in original assessment proceedings pertaining to Stores Spares for ₹ 19,40,400/-, expenses on Service Operators for ₹ 76,68,400/- and Salary Wages for ₹ 88,10,800/- is deleted. Further in A.Y 2001-02, the facts of the case of the Appellant are identical and the Appellant has also relied on the same argument as made for A.Y 2000-01. Considering the facts and the discussion made herein above, disallowance of ₹ 91,73,700/- towards service operation and ₹ 1,20,50,800/- out of salary and wages and staff welfare expenses are also directed to be deleted. The ground of appeal for both the assessment years are accordingly, allowed. 7. We have given our thoughtful consideration to riva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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