TMI Blog2023 (9) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... similarly in the Assessment Year 2005-06 as well, though the sales remained almost static, but the warranty expenses increased more than 200% - HELD THAT:- The provision of warranty has been made in very arbitrary manner as the assessee is not following consistent method of making provision for warranty. We are aware of the judgment of Rotork Controls [ 2009 (5) TMI 16 - SUPREME COURT] wherein it is held that if the warranty is based on the past experience i.e. historic trends, the estimate can be said to be reliable. When the assessee makes provision for warranty following scientific method and the same is not arbitrarily made, the reliable estimation made by the assessee to be allowed as deduction. In the present case, the assessee made provisions for warranty in arbitrary manner which is not supported by any scientific method which cannot be allowed as deduction, accordingly, we find no error in the order of the Lower Authorities. Thus, we confirm the addition made by the authorities and dismissing the Ground of the assessee. - Shri N. K. Billaiya, Accountant Member And Shri Yogesh Kumar U.S., Judicial Member For the Appellant : Mr. Vishal Kalra And Ms. Samisha Murg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee preferred an appeal and the Ld. CIT(A) decided the matter partially in favour of the assessee and relief was provided only on the issue of warranty expenses and it was held that warranty expenses are allowable on the basis of actual incurrence. A relief of Rs. 66,61,066/- was provided by Ld. CIT(A) on account of actually incurred warranty expenses during the year and additional amount of Rs. 35,98,902/- on account of provision of warranty was sustained. The assessee again preferred appeal before the Tribunal and the Tribunal vide order dated 15.04.2014, referred all the three issues to the file of the AO for fresh examination of books of account. In pursuance to the directions of the Tribunal, the AO initiated the reassessment proceedings and examined the books of account and thereafter made additions of Rs. 10,00,000/- on account of excess claim of expenses on power fuel, and Rs. 35,98,902/- for provisions of warranty expenses, but accepted the claim of Rs. 52,11,793/- as sales commission as claimed by assessee. Aggrieved by the assessment order dated 31/03/2016, the assessee preferred Appeal before the CIT(A), the CIT(A) vide order dated 01/02/2018 dismissed the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, these expenses cannot be correlated directly in proportion to production. -The diesel used to run these generators is purchased from external vendors. All the payments to diesel vendors are made through account payee cheques. Ali the expenses have been duly vouched for and recorded in the books of accounts and the same have undisputedly been accepted by the AO. 6. Per contra, the Ld. Departmental Representative relying on the findings of the Lower Authorities sought for dismissal of the Ground No. 2. 7. We have heard both the parties and perused the material available on record. It is found that the assessee accepted the proposed addition made by the A.O. during the assessment proceedings and consequent to which addition made by the A.O. Thus, the assessee one hand agreed for proposed disallowance of expenses on power and fuel made to Rs. 10,00,000/- during the assessment proceedings, on the other hand, disregarding the said agreement, the Appeal has been filed. It is observed that since the assessee has agreed for the disallowance through his Assessee's Representative, the A.O. did not made any enquiry to examine the genuineness of the expenditure or verify the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed. Appellant has taken stand that it has treated the provision on contingent basis, considering the trend of past five years. It is further submitted that the provisions for warranty has been created on the basis of reliable estimate to meet the obligation as a result of the past event, which was recognized on the probability of resources which would be required to settle the obligation. It has further relied on the decision of Hon'ble Supreme Court in the case Rotork Controls India (P) Ltd 180 Taxman 422 wherein it is held that the warranty expenses should be computed on the basis of historical trend and scientific methodology. Incidentally, on the identical issue in A.Y. 2010-11 2011-12, Hon'ble ITAT vide their order dated 02.01.2018, have also rejected the claim of the appellant after analyzing the warranty expenses claimed by the appellant in these years and concluded that the assessee is entitled to the deduction of warranty expenses provided for, if it is made based on history and scientific methodology but not on ad-hoc basis. 6.3 In view of the above, now the case of appellant has to be examined. As per the charts given by the appellant, it can be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered on the assessee. For A.Y. 2010-11, the assessee has made provision for Rs. 1924953/- and during the year the claim received on the assessee is only Rs. 118777/-. Similarly, in the earlier year the provision for warranty made of Rs. 28.25 lacs and the actual warranty expenditure incurred by the assessee were only Rs. 5.48 lacs. Further, for assessment year 2008- 09 the actual warranty expenses incurred by the assessee were Rs. 68.41 lacs against the provisions of Rs. 35.90 lacs. As per annexure A of the order of the Ld. CIT(A), wherein, it is apparent that for Assessment Year 2012-13 and 2013-14 assessee has not made any provision commensurating with the above percentage. Further, actual warranty expenses were also not incurred from Assessment Year 2011-12 to 2013- 14. For the Assessment Year 2010-11 there is a meager expenses of Rs. 1.18 lacs. The Hon'ble Supreme Court in case of Rotorok Control India Pvt. Ltd (supra) has held that any provision made by the assessee because of warranty expenditure to meet the future requirement of setting goods right on account of warranty clause In agreement crystallizes as definite liability and is an allowable expenditure. It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, I hold that the AO has rightly disallowed the expenses of Rs. 35,98,902/- being provision of warranty expenses. I, therefore, confirm the addition made by him and dismiss the ground taken by the appellant. 11. The Ld. Assessee's Representative vehemently submitted that the CIT(A) has committed error in disallowing Rs. 35,98,902/- in respect of provision for warranty made by the assessee, by completely disregarding the method of computing provision for warranty based on past history of claims and committed error in finding that the assessee has claimed warranty expense on its own will without following in a scientific method to calculate the expenses . The Ld. Counsel has also filed detailed written submission. 12. Per contra, the Ld. Departmental Representative relying on the order of the CIT(A), submitted that the sales has decreased in comparison to the preceding years but the total warranty expenses have increased more than 250% and the provision for warranty expenses around 300% similarly in the Assessment Year 2005-06 as well, though the sales remained almost static, but the warranty expenses increased more than 200%. Further in earlier two Assessment Years no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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