TMI Blog2012 (3) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... rding allowability of provision for warranty amounting to ₹ 60,697,849/- (net of actual expenses incurred by the assessee). The relevant effective grounds raised before us read as under: 2. The learned CIT(A) has erred in upholding the disallowance made by the Deputy Commissioner of Income Tax (DCIT) towards the net provision for warranty amounting to ₹ 60,697,349 (net of actual expenses incurred by the appellant). 3. The learned CIT(A) has erred in facts in concluding that the average failure rate computed by the appellant for laptops sold under warranty during the financial year 2005-06 is 70% of the units sold under warranty, as against 0.70% of the units sold under warranty. Accordingly, the learned CIT(A) has erred o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant s case. 7. The learned CIT(A) erred in law and on facts by not placing reliance on the decision of the Bangalore Income Tax Appellate Tribunal (ITAT) in the case of IBM India Private Ltd. (290 ITR 163). 8. The learned CIT(A) ought to have relied upon the decision of the Hon ble Bangalore ITAT in the appellant s own case for assessment year 2004-05 wherein the same issue relating to the provision for warranty has been decided in favour of the appellant. 9. The learned CIT(A) erred in law and on facts by disregarding the decisions relied upon by the appellant without providing adequate reasons for the same. 10. The learned CIT(A), relying on his decision in the case of Amco Batteries Ltd. (ITA No.265/AC- 11(1)/A-1/07-08) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for warranty stood crystallized as soon as the sale was made which a customer would like to be fulfilled within the warranty period and is at the cost of an assessee s goodwill. Therefore, the residual amount purported to have been held by the Assessing Officer as an excess provision cannot be considered as a contingent provision and not an ascertained liability. The warranty period continues beyond an year which fact was rightly considered by the ld.CIT(A) confining to the various decisions such as IBM India Ltd. (supra) reported in 290 ITR (AT) 183. Similar view has been taken by other co-ordinate Benches of the Tribunal therefore requires no further deliberation. In the light of the above, we hold the view that the decision of the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warranty for a period of 36 months from the date of supply. The said company considers following options: (a) account for warranty expense in the year in which it is incurred; (b) it makes a provision for warranty only when the customer makes a claim; and (c) it provides for warranty at 2% of turnover of the company based on past experience (historical trend) Under the circumstances, the third option is most appropriate because it fulfills accrual concept as well as the matching concept. For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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