TMI Blog2018 (9) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... for warranty. On the other hand without disputing the computation, disallowance was made by holding that actual expenditure on warranty claims and not provision for warranty was allowable as expenditure. This proposition is wrong and incorrect. Improvement in technology would not justify disallowance of claim/expenditure on account of provision for warranty, though in a given case on basis of data it could be relevant factor in making the calculations. Thus in view of the decision of the Supreme Court in Rotork Control India Pvt. Ltd. [2009 (5) TMI 16 - SUPREME COURT OF INDIA] no good ground or reason to accept the aforesaid contention of the Revenue. Capitalization of marketing expenses - Held that:- Finding regarding capitalization or business expenditure is a finding of fact. Obviously, assessee could not have claimed title and depreciation, once the mobile phones etc. had been given and ownership had been transferred to the employees, dealers, sales personnel and after-sales-service centres. In the absence of any material and evidence to show that the findings of fact are perverse, we do not see any reason to interfere with the impugned order on the said aspect. Addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantial increase in sales of mobile phones etc. from ₹ 58.9 crores to ₹ 830.5 crores. To support the disallowance made, the Assessing Officer held that the technology in the mobile phone industry was rapidly improving and therefore, past experience regarding warranty claims was not relevant to scientifically compute and calculate provision for warranty as ascertained expenditure. 3. The Commissioner of Income Tax (Appeals) vide order dated 25.03.2010 affirmed these findings holding that the provision for warranty was a contingent liability and was not an allowable expense. The warranty expense was to be allowed on actual basis, in the year of occurrence and not in the year in which provision was made. 4. The Tribunal vide the impugned order has allowed the appeal of the respondent-assessee as the accounts were maintained on mercantile basis. Provision for warranty was made on the basis of scientific principles and on actuarial basis. Reference was made to ratio in Rotork Control India Pvt. Ltd. Vs. Commissioner of Income Tax (2009) 314 ITR 62 (SC). The Delhi High Court in the respondent-assessee's own case in ITA Nos.841/2009 and 842/2009 relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d jump in sales year after year in the Assessment Years 2002-03, 2003-04, 2004-05 and 2005-06, from ₹ 58.97 crores to ₹ 830.51 crores to ₹ 2408.01 crores, and then to ₹ 4729.14 crores, respectively. The provision for warranty would accordingly increase in numerical terms. Pertinently, the percentage of closing provision of warranty with reference to quantum of sales had decreased and came down as is reflected in the figure in the column (h) of the table above. In the present case, we are only concerned with the Assessment Year 2003-04 in which the percentage of closing provision to sales was only 0.81%. Variation in figure would indicate that no thumb rule was applied. Moreover in case of doubt and debate, Income Tax Authorities should have asked for the basis and the formula/criteria applied by the respondent/assessee to compute provision for warranty. On the other hand without disputing the computation, disallowance was made by holding that actual expenditure on warranty claims and not provision for warranty was allowable as expenditure. This proposition is wrong and incorrect. Improvement in technology would not justify disallowance of claim/expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interfere with the impugned order on the said aspect. 11. The third issue raised by Counsel for Revenue relates to addition of more than ₹ 2.68 crores on account of stocks damaged during transportation etc., which had not been included in the closing stock. The Assessing Officer held that value of the mobile phones damaged in transit should be included the closing stock. The Commissioner of Income Tax (Appeals) had affirmed the addition observing that he would follow the orders of the earlier assessment years, though appeals on this issue was pending before the Tribunal. 12. The Tribunal has deleted the said addition on the ground that it would amount to double addition. No other reason is stated. 13. Counsel for respondent-assessee, at this stage, states that this issue may be remanded to the Tribunal for fresh decision as the reasoning given by the Tribunal is not correct and not germane to the issue in question. He states that the question of law need not be framed. Recording the said concession, this issue with regard to the damaged handsets and their inclusion in the closing stock is remitted to the Tribunal for fresh decision. 14. Fourth issue raised in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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