TMI Blog2019 (6) TMI 1687X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) in short), dated 03.05.2016 arising in the assessment order dated 28.01.2015 passed by the Assessing Officer (AO) under s. 143(3) r.w.s. 254 of the Income Tax Act, 1961 (the Act) concerning AY 2005-06. 2. The solitary grievance of the Revenue is towards deletion of disallowance of Rs.68,61,000/- towards provision for warranty expenses claimed as revenue expenditure by the assessee. 3. When the matter was called for hearing, the learned DR for the Revenue submitted that the grievance of the Revenue concerns disallowance of provision for warranty expenses. It was submitted on behalf of the Revenue that warranty expenses are not allowable being provisional in nature in the absence of any scientific basis for debiting an amount of Rs.68,61,000/- in the books of account on this score. It was submitted that mere provision of such expenses without showing crystallization of liability cannot be reckoned as an eligible expenditure under s.37(1) of the Act. 4. The Learned AR, on the other hand, submitted that the company has provided warranty to its customers in accordance with warranty clause mentioned in the sales order and thus warranty is integral part of sale price. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter back to the file of AO by observing as under:- 76. Ground No. 2 relates to deletion of a sun of Rs.6,43,000/- is provisions for warranty expenses. The assessee debited a sum of Rs.25,70,000/- in the P L Account. The AO disallowed warranty expenses for three months on proportionate basis an pertaining to the subsequent year. The ld. CTT(A) allowed the entire claim following the decision of ITAT, Bangalore in the case of Wipro Ge Medical System Lid. vs. DCIT 81 TTJ 455. 79. We have heard the parties. The assessee has to submit present value of warranty expenses. It has to be properly ascertained and discounted on accrual basis. A proper calculation of this issue will he submitted to the AO who will examine the same and allow the claim as per decision of Hon. Supreme Court in Rotork Controls India (P) Ltd. (supra) ax above, This ground of Revenue is allowed but for statistical purposes. 15.2. Since the facts are identical in this case also and the Revenue has not pointed out any change in the facts and circumstances of the case, therefore taking a consistent view, we accordingly set aside the order of the ld. CIT(A) and restore this issue back t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provision for Warranty Exp. 2004-05 Rs. 000 Net sale for the current year 1 2 months 806,533 Constant Factor 0.50 Historical Relation of Warranty exp. Net sales 1.70 Warranty Exp provision required for the year 2004-05 Historical Relation Rs. 000 Total Warranty exp. 04-05 as above 6,506 Net Sales of 03-04 590,521 1.10% Total Warranty exp. 03-04 as above 16,650 Net sales of 02-03 521,797 3.19% Total Warranty exp 02-03 as above 3,333 Net Sales of 01-02 410,590 0.81% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has worked out the average of the expenditure during warranty period in last three years which have been reproduced in the preceding paras. Similar disallowances have not been made by the AO in earlier years except A. Y. 2004-05 in which part provision of Rs.6,43,000/- out of Rs.25,72,000/- was disallowed. However, subsequently, the ld.CIT(A) - 2, Ahmedabad has deleted the entire disallowance on this issue vide appellate order No.CIT(A)-2/ACIT/Cir.4/252/11-12 dated 14/05/2015. The relevant portion of the decision is reproduced hereunder:- 3.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has disallowed warranty expenses of Rs. 6,43,000/- corresponding to the provisions made for last three month of the financial year as the period of warranty would foil in subsequent financial year. The issue was set aside by the honourable ITAT to the AO. The AO has again disallowed the same on the ground that the warranty period is not falling during the current financial year. The appellant has submitted that it had made warranty provisions of Rs.25.72 lakh which has been work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the accounting standards prescribed by the ICAI. The claim of the appellant that on the basis of matching principle of providing the expenditure corresponding to the income the provisions are to be allowed in the current year itself is acceptable. In view of the above discussion, the disallowance made by the AO is directed to be deleted as the provisions made by the appellant are in order and have been made by following a scientific and systematic method as held by the honourable Supreme Court in the case of Rotork Controls India Private Limited. The ground of appeal is accordingly allowed. 4.7. It has also been noticed that in appellant's own case in A. Y. 2006-07 to 2008-09, the ld.CIT(A) has allowed the appeal of the appellant or this issue. On the contrary in A. Y. 2009-10, the excess provision for warranty was credited in the P L Account by the appellant which has been accepted by the AO. Further, in A. Y. 2010-11, the ld.CIT(A) has allowed the appeal on this issue and the disallowance made was deleted. As per appellant the said decision has been accepted by the department and no second appeal before the Hon'ble ITAT, Ahmedabad ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
