2012 (12) TMI 714

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....robabilities, facts and circumstances of the case.   2. The learned CIT[A] is not justified in upholding the addition of Rs.15,38,000/- being the provision for warranty debited to the profit and loss account for the year under appeal under the facts and in the circumstances of the appellant's case. 2.1 The learned CIT[A] failed to appreciate that the extent of warranty provided by the appellant was based on scientific and rationale basis having regard to the past experience and therefore, the same was allowable having regard to the ratio of the decision of the Hon'ble Supreme Court in the case of ROTORK CONTROLS INDIA PVT.LTD reported in 314 ITR 62[SC]. 3. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the a....

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.....66,81,000 and had increased to Rs. 82,19,000 on 31.03.2006 i.e., by Rs. 15,38,000, certain details were also furnished which has been mentioned by the ld. CIT(Appeals) in para 4 of the impugned order, for the cost of repetition, those are not being reproduced herein. 6. The ld. CIT(Appeals) after considering the submissions of the assessee, confirmed the action of the Assessing Officer by observing that the assessee though provided for warranty expenses for earlier years, had neither been able to provide it in that year or reversed it in subseRs.uent year and had kept the same in the books under the head "Extended provision for warranty". Now the assessee is in appeal. 7. During the course of hearing, the ld. counsel for the assessee at ....

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.... "We have carefully considered the rival contentions and gone through the records. The Bombay Bench of the Tribunal in the case of Voltas Ltd. v Dy. CIT (supra) was concerned with an identical situation where the provision for trade guarantees during the warranty period in case of the assessee having scientifically worked out the anticipated the liabilities to be provided under mercantile system of accounting based on the past experience and in such a method of accounting based on the past experience and in such a method of accounting, no adhocism is involved The accounting method followed by the assessee ensures that the gaps between the provision and the actual expenditure are made good in subsequent years. In those circumstances, the dis....

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....ntingent which the assessee has estimated based on its past experience and in our opinion, the claims made by the assessee in this regard are most reasonable and are supported by some plausible material. In our view, the department is not justified in treating the liability as contingent. Following the principle laid down by several decisions of the Tribunal including that of the apex court in (1969) 73 ITR 53 (SC) (supra) we hold that the claim of the assessee is in order and should be accepted. The AO shall ensure that the assessee shall not claim the deduction again based on the expenditure in respect of warranty and after sales in the books of account maintained. With these observations, the assessee's ground on this issue is to be tr....

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....ms Ltd. in ITA No.322-328/8ang)2001 dated 8.7.2002 has held that the liability towards warranty is inbuilt in the sale price itself and so the liability is not contingent but an ascertained one and to be allowed in the year of sales. We accordingly delete the disallowance of Rs. 4,92,69,808/-". 7.2 Learned Punjab and Haryana High Court in the case of CIT v Majestic Auto Ltd. (206 CTR 358) had an occasion to consider the allowability of provision for warranty claims. The P&H High Court considered the decision of the Apex Court in the case of Bharat Earth Movers Ltd. v CIT. In that case, leave encashment allowability was considered as allowable though such allowability is to be Rs.uantified and discharged at a future date. The Apex Court hel....

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....e of the order of Rs.1.90 crore. It cannot be accepted that there will be no warranty claim in respect of sales effected during the year, as the warranty period has not expired. It was explained to us that warranty given by the assessee varies from 12 months to 24 months. In respect of eRs.uipments provided to Defence. warranty is extended for 24 months. Looking to the Rs.uantum of sales effected during the year, the net provision of Rs.24,20,522/- debited in profit and loss account is not excessive. The assessee has submitted that it is in the business of selling the eRs.uipment since 1995 and the provision is being made on the basis of the past experience. Hence, we feel that learned CIT(A) was justified in deleting the addition. 7.6 It ....