TaxTMI 
TaxTMI 
2012 (6) TMI 58
X X X X Extracts X X X X
X X X X Extracts X X X X
....ranty based on scientific study and calculated on the basis of actuarial and past history of case is allowable. In all cases relied upon by learned AR, it has been held that provision for warranty is allowable only when it is based on scientific study basis and past history of case. Provision of warranty is a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of obligation. As stated above, assessee has been granted part relief by CIT (A) on the estimate for provision based on past history. The method of accounting for such liability must be scientific. The trend for increase in claims must be based on reality. The trend must be based on actual incidences. S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2) Extended warranty on Engine and Transmission component in light commercial vehicle (LCV) for one year (@ 0.39% on percentage sales of LCV to total sales of commercial vehicles during the year (81%) and percentage of warranty claim settled in past on engine and transmission components (70%)) Rs. 285.69 3) Extended warranty for one year on HCV (@ 0.39%) of percentage of sales of HCV to total sales of commercial vehicle (19%)) Rs. 95.73 4) Additional provision for warranty on domestic sales, considering the increase in trend of settlement of actual warranty claims in the past Rs. 91.70 lacs Total Rs. 1424.12 lacs 3. Learned counsel for the appellant has produced before us a chart whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cles Division Two Wheelers & Tractors Division Total Opening balance as on 01.04.2004 462.98 350.95 813.93 Additions during the year 1,034.76 389.36 1,424.12 Claims paid during the year (714.10) (341.35) (1,055.45) Closing balance as on 31.03.2005 783.64 398.96 1,182.60 5. At the outset we may note that the dispute/ subject matter of the present appeal is in respect to the disallowance of the 4th claim/head i.e. claim of additional warranty on domestic sales of Rs.91.70 lakhs. There is no dispute and the Revenue has accepted the claim of appellant-assessee with regard to the normal warranty at the rate of 0.39% on domestic sales and 0.89% on export sales. There is also no dispute with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his claim, which has been rejected by the Tribunal holding that the assessee has been regularly following and computing the provision of warranty claim on average of last three years. In this year, because of extended warranty claim further benefit as additional warranty has been given to the assessee. 8. The appellant submits the additional warranty claim is justified as the claims have shown an upward trend. The appellant‟s right has been abbrograted and denied 9. We notice from the Table No.B above that the opening balance as on 01.04.2004 in respect of commercial vehicle division was Rs. 462.98 lakhs and addition towards provision towards warranty of Rs. 1034.76 was made during the year in question. The total warranty....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ttention has been drawn to the following paragraphs: - "...........Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. 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..............." XXX XXX XXX ".........This aspect, therefore, indicates that the present value of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e formula regularly followed and adopted. The assessee wants to make an additional provision of Rs. 91.70 lakhs over and above Rs. 885.28 lakhs already made. This is an increase of more than 12% in the provision for warranty as per the formula regularly adopted. On year and year basis, surplus has been increasing. We also record that initially before the Assessing Officer claim of Rs.9170 lacs was made for a different reason i.e. Additional warranty (Engineering & Transmission on LCV) for earlier years (See Broad Submissions of the assesse and para 3.2 of the assessment order). 13. Reference may be made to the Delhi High Court judgment in CIT v. Whirlpool of India Ltd., ITA No.1154/2009 decided on 24.01.2011. In the said case it was held....