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TMI Blog2018 (9) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, the Tribunal was right in law in holding that the appellant is not entitled to deduction in respect of provision for warranty? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal failed to appreciate that the provision was made on a scientific basis on the basis of actual warranty cost incurred in the year and the outstanding warranty risk and not an adhoc estimate?" 3. The facts, which are necessary for the disposal of this appeal are as hereunder : (i) The Assessee is engaged in the business of manufacturing, assembling and marketing of pumps and components. For the Assessment Year 2002-2003 (year under consideration), it filed its return of income on 28.11.2003 admitting an income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be sufficient for us to set aside the order and remand the matter for fresh consideration. However, we refrain from doing so, keeping in mind that the Assessment Year was 2003-2004 and the Tribunal passed the impugned order on 23.01.2008 and after about ten years we are taking up this appeal for disposal. Thus, we proceed to decide the substantial questions of law framed for consideration. 6. The Tribunal allowed the case of the Revenue on the ground that the Assessee did not submit any details regarding the incurrence of the liability and therefore, held that it is squarely covered by the decision of the Division Bench of this Court in the case of CIT V. Rotork Controls India Limited, 293 ITR 311 (Mad.). The said decision of the Div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer, while considering the stand taken by the Assessee, held that the Assessee has made only a provision for warranty based on the past practice and experience and it is only a contingent liability, the contingency being that the product sold by the Assessee undergoes repairs during warranty period. Further, the Assessing Officer observed that it is not that all the products sold became repairable and the Assessee has to incur expenditure and there is nothing wrong on the part of the Assessee to debit the actual expenditure incurred every year on warranties given as revenue expenditure and claim the same as a deduction. Further, the Assessing Officer held that the provision made by the Assessee is an expenditure, which would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the said amount is based on turnover of the last three years and it is based on the provision for expenses on repairs during the warranty period as contemplated in the sale agreements. Keeping in view the above factual position, the CIT(A) accepted the case of the Assessee and the additions made by the Assessing Officer was deleted. 11. As mentioned earlier, the Tribunal failed to examine the factual issue and made a factually incorrect statement that the details were not submitted. We need not labour much to decide the substantial questions of law as framed for consideration in this appeal, since the said questions have been settled by the Hon'ble Supreme Court in Rotork Controls India (P) Limited (cited supra). The Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y set aside. 13. The Hon'ble Supreme Court pointed out that the second option is also inappropriate as it is not based on matching concept and held that the third option must be the most appropriate, because it fulfills the accrual concept as well as matching concept. The observation of the Supreme Court in this regard is as follows : "13. .... The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is prohibited both under the Companies Act as well as by the Accounting Standards which require accrual concept to be followed. In the present case, the Department is insisting on the first option which, as stated above, is erroneous as it rules out the accrual concept. The seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done on a scientific basis. The assessee has been able to produce the details from the year 2001 onwards. Thus, the CIT(A) was perfectly correct in coming to the conclusion that the Assessee has explained the basis for working of the provision for warranty based on past experience and it is not on adhoc basis and moreover, it is based on the turnover of the last three years and based on provision for expenses on repairs during the warranty period as contemplated in the sale agreements. 16. For all the aforesaid reasons, we are of the considered view that the Tribunal has erroneously reversed the order passed by the CIT(A) that too without assigning any reasons and without considering the materials, which are available on record. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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