TMI Blog2022 (10) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... rvation of ours and the directions of the Tribunal in AY 2010-11. Hence, we set aside these three appeals to the file of the AO for fresh adjudication in term of the above directions. Appeals filed by the assessee allowed for statistical purposes. - ITA Nos.: 2632, 2633 And 2634/CHNY/2019 - - - Dated:- 24-8-2022 - Shri Mahavir Singh, Vice President And Shri Manoj Kumar Aggarwal, Accountant Member For the Appellant : Shri R. Vijayaraghavan, Advocate For the Respondent : Shri AR.V. Sreenivasan, Addl.CIT ORDER PER MAHAVIR SINGH, VICE PRESIDENT: These appeals by the assessee are arising out of the common order of Commissioner of Income Tax (Appeals)-12, Chennai in ITA Tr. Nos.192, 193 194/CIT(A)-9/2018-19 dated 31.07.2019. The assessments were framed by the DCIT, LTU-II, Chennai for the assessment years 2011-12, 2012-13 2013-14 u/s.143(3) r.w.s. 92CA(3) of the Income Tax Act, 1961 (hereinafter the Act ) vide orders of different dates 19.03.2014, 31.12.2014 29.12.2016 respectively. 2. The only issue in these three appeals of assessee is as regards to the order of CIT(A) confirming the action of AO in disallowing the provision for warranty amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in creating warranty provisions. The Hon'ble ITAT set aside the matters to the file of the A.O. and asked for examining whether ratio of Rotork Controls India Pvt Ltd is applicable and if not then only the actual amount incurred will be allowed. Pursuant to this, the A.O. examined and found that the provisions were made on an unscientific basis and the same was again retained. The relevant orders for the same are enclosed. 2. It is also brought to your kind notice that the Hon'ble DRP for the A.Y. 2014-15 has also upheld the issue of provisions tor warranty in form of expenses. The relevant order is enclosed. 3. In view of the above the AO/DRP has already examined the applicability of M/s Rotork Controls India Pvt Ltd in this case and found that the assessee has not made provision in a scientific manner. Since the issue is already examined, no opportunity is provided to the assessee and this office is not in receipt of any new evidences in this case. The CIT(A) adjudicated the issue and confirmed the disallowance by observing in para 6.7 (iv) (c) (d) (v) as under:- 6.7 . (iv) .. (c) In the case under consideration, the appellant is manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.61% 78.07% Provision for outstanding warranty as on March 2011 F=D*E*C 0.00 12.79 0.00 6.14 18.94 Add: Additional claims G 8.68 Less: Disputed claims H -0.42 Total provision for the year ended 31.3.2011 I=F+G-H 27.2 Opening provision as on 1.4.2010 J 27.07 Net amount debited to P L as warranty expenses K=I-J 0.13 Actual warranty expenses debited to P L 45.04 Provision for warranty workings for the Assessment Year 2012-13 Particulars Reference Truck Non truck Total April 2011 to September 2011 October 2011 to March 2012 April 2011 to September 2011 Oct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4397.65 3798.4 4544.23 Actual warranty claims for the above period B 31.41 48.25 17.62 22.98 % of actual warranty expenditure C=B/A 0.0089 0.0110 0.0046 0.0051 Current year (AY 2013-14) Sales for the year ended 31.3.2012 D 2231.96 2370.18 2361.78 2416.47 Average % of outstanding warranty E 15.08% 72.61% 24.09% 80.95% Provision for outstanding warranty as on March 2013 F=D*E*C 2.98 18.89 2.62 9.85 34.35 Add: Additional cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spread over to a number of years. In such a case it was held by this Court that the provision made by the assessee-company for meeting the liability incurred by it under the gratuity scheme would be entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The same principle is laid down in the judgment of this Court in the case of Bharat Earth Movers (supra). In that case the assessee company had formulated leave encashment scheme. It was held, following the judgment in Metal Box Company of India (supra), that the provision made by the assessee for meeting the liability incurred under leave encashment scheme proportionate with the entitlement earned by the employees, was entitled to deduction out of gross receipts for the accounting year during which the provision is made for that liability. The principle which emerges from these decisions is that if the historical trend indicates that large number of sophisticated goods were being manufactured in the past and in the past if the facts established show that defects existed in some of the items manufactured and sold then the provision made for warranty in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss accounts of the assessee. Further, when the provision created is more than the claim, it is reversed in the next year and this provision was consistently followed by the assessee. In the light of the circumstances, a legal obligation to make payment in future said to have been accrued. According to the AR, it is not required to wait for the contingency to offer and it can be inferred that a better liability has definitely arisen in the assessment year under consideration though the quantification is discharged on this warranty liability at a future date. The assumption of the assessee's liability is in praesenti. Though the liability discharged at a future date, it is not a contingent one. The contention of the ld. DR is that the assessee has not provided details of actual working of warranty before the Assessing Officer. According to him, expenditure which is deductible under income-tax is one which is towards a liability actually existing at the time, but putting aside of money which may become expenditure on happening of an event which IS not expenditure. The former is deductible but not the later. However, the Supreme Court in the case of Bharat Earth Movers V. CIT (24 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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