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TMI Blog2023 (8) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... owing grounds:- "1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred to delete the addition made on disallowance of Rs 3,45,17,000/- being provision of warranty, when in fact provision was contingent in nature and same was not based on actual basis. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred to delete the addition made on disallowance of Rs 3,45,17,000/- being provision of warranty, when in fact provision was not estimated by assessee on scientific basis and same was excess in nature and AO disallowed only the excess provision when no satisfactory scientific report was submitted by the assessee during the assessment proceedings. 3. On the facts and in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the financials filed by the assessee that the assessee has shown long-term provisions of Rs. 3,45,17,000, as provisions for warranty and free service coupons. It was further observed that in the computation of income filed by the assessee, it has not added back that provision to its total income. Since the provision claimed by the assessee is contingent and unascertained liability which is not an allowable expense and should not be allowed as a deduction, the assessee was asked to show cause as to why the provision be not added to its total income. In response thereto, the assessee filed its submissions. However, the Assessing Officer ("AO") vide order dated 28/12/2018, passed under section 143(3) of the Act did not agree with the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble ITAT in its judgment in the case of Mahindra and Mahindra Ltd vs DCIT(2020) in 117 taxmann.com 578 (Mumbai ITAT) allowed the said claim for Provision of warranty Expenses. The relevant part of judgment is reproduced as under:- "In view of this, it could be safely concluded that there is no dispute with regard to the claim of deduction for provision for warranty based on scientific working and analysis made by the assessee and in order to avoid multiplicity of proceedings and especially in view of the fact that the issue is squarely covered by the decision of the Hon'ble Supreme Court and Hon'ble Jurisdictional High Court supra, we are inclined to allow the claim of provision for warranty in the sum of Rs. 50,11,63,331 at ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses that the provision is created and claimed as a deduction. As per the assessee, the warranty expenses are determined on the basis of actual sales and warranty expenses of the last 5 years. Basis such working the average rate per vehicle sold is computed and extrapolated for the next 2 years. Accordingly, the provision is made at different rates for different vehicles (models) worked out on past historical data. The scientific working done by the assessee, as noted in the impugned order on pages 8-9, is as under:- "The said scientific working done is explained below: a) Whenever any customer using our vehicle encounter any defect in vehicle which is covered under warranty clause and entitled to enforce same, he may bring vehicle to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d allowance for provision for the warranty on a regular basis in the past, and the same was accepted by the Revenue as an allowable expenditure till the assessment year 2013-14. For the assessment years 2014-15 and 2015-16, the assessee submitted that the provision for warranty was allowed by the learned CIT(A), and no further appeal was filed due to low tax effect. 8. From the above, it is evident that the provision made by the assessee was ascertained based on the actual expenses incurred on settlement of warranty schemes in earlier years and was based on the scientific exercise of making provision for warranty clause for each and every vehicle sold on a regular basis year on year. We find that the issue is squarely covered in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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