TMI Blog2015 (11) TMI 1762X X X X Extracts X X X X X X X X Extracts X X X X ..... cal trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. - decided against revenue - IT(TP)A Nos. 1179 & 1180(B)/2012 (A.Y. : 2007-08 & 2008-09) - - - Dated:- 4-11-2015 - Asha Vijayaraghavan, JM And Jason P. Boaz, AM For the Appellant : Shri G R Reddy, CIT, DR-I For the Respondent : Shri Sharath Rao, CA ORDER Per Jason P Boaz These are appeals by the revenue directed against the order of the CIT(A)-II, Bangalore both dated 21-06-2012 for the assessment years 2007-08 2008-09. 2. The assessee preferred appeal before the CIT(A) and submitted as follows; 2.1 The assessee is a company engaged in manufacture and trading of personal computers. Note book computers, servers, peripherals and IT related products. The assessee filed the return of income for the assessment year 2008-09 on 30-09-2008 and the assessment was completed u/s 143(3) of the iT Act on 02-12-2011. While completing he assessment the AO made disallowance of ₹ 10,85,61,747/- as warranty provision. Details in respect of provision for warranty The movement in the provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been held in favour of the company by the Hon'ble Bangalore ITAT for the AY: 2004-05 vide order ITA No.774 877(Bang.)08 dated January 30, 2009. Considering that the provision for warranty created on a scientific basis has been upheld to be an allowable expense in the assessee's own case and further considering that the Supreme Court has in the case of Rotork Controls India Pvt.Ltd Vs CIT (223 CTR 425) upheld that warranty provisions are an allowable deduction. It is submitted that the entire provision for warranty amounting to ₹ 76,357,022/- ought to be allowed as a deduction. Without prejudice to the above, in the event the provision for warranty expenses created during the year is proposed to be disallowed by your goodself in the computation of taxable income of the Company, we wish to submit that appropriate relight ought to be granted to the Company by disallowing only the net warranty provision (after reducing the actual warranty expenses incurred during the year) as against the gross warranty provision. The above view is in conformity with the position adopted by the AO in computing the assessee income of Company for prior AY's whereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Para-2 above. Therefore, the AO is directed to follow the decision of the Tribunal in assessee's own case for the assessment years 2004-05 and 26005-06 and grant the relief accordingly . 4.1 The department has filed grounds of appeal for 2007-08 as follows; 1. The order of the ld.CIT(A) in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2. The ld. CIT(A) has erred in deleting the addition amounting to ₹ 7,63,57,022/- made on account of disallowance of provision of warranty debited to P L account, without appreciating the facts and circumstances under which the disallowance was made by the AO. 3. The ld. CIT(A) erred in allowing the relief, relying on the decision of the Hon'ble ITAT in assessee's own acse for earlier years, which has not reached its finality and appeals u/s 260QA of the IT Act, 1961 have been filed before the Hon'ble High Court against such orders. 4. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed in so far as the above mentioned issue is concerned and that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee submitted that with reference to ITA No.1179(B)/12 there is a reversal where the provision for warranty created during the year is ₹ 21,273,806/- and by way of note it has been highlighted that the provision for warranty expenditure is net off payments made during the year. With respect to assessment year 2008- 09 the counsel referred to pages 201 202 where the provision for warranty created during the year is ₹ 108,561,747/- and is highlighted by note that provision for warranty expenditure is net off made during the year. 9. We have also heard the learned Departmental Representative and considered the facts and materials on record including the decisions cited before us. 9.1 While dealing with the issue in the order dated 30-1-2009 in ITA No. 774/Bang/2010 it has been observed as under: 5. We have heard the rival contentions and perused the material available on record. We are of the considered view that the assessee's case clearly falls in line with the legal ratio set out by the various appellate decisions cited at Bar in so far as the provision for warranty stood crystallized as soon as the sale was made which a customer wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 subsequently .. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way'. 11. In the assessee's own case in identical facts for the immediately preceding year, the Tribunal in ITA No.22/Bang/2011 assessment year 2006-07 vide order dated 16.03.2012 has decided the issue in favour of the assessee, following the orders of the Tribunal for earlier years namely. 2004-05 and 2005-06. 12. Following the above decisions for the earlier years passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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