TaxTMI 
TaxTMI 
2018 (10) TMI 416
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....mmissioner of Income Tax (Appeals) ["learned CIT(A)"] is arbitrary, contrary to law and opposed to facts causing undue hardship on the Appellant and is liable to be quashed. 2. The learned CIT(A) and the learned AO has erred in law and facts in concluding that the conditions laid down by the Hon'ble Supreme Court in the case of M/s Rotork Control India Private Limited (314 ITR 62) with regard to provision for warranty are not satisfied in the present case. 3. The learned CIT(A) and the learned AO has erred in concluding that the methodology for creating provision for warranty followed by the Appellant is not scientific based on actual utilization in contrary to principle laid down by the Hon'ble Supreme Court in the case of Rotork Control India Private Limited (supra). 4. The learned CIT(A) has grossly misinterpreted the order of the Hon'ble Supreme Court in the case of Rotork Control India Private Limited (supra), and erred in not giving cognizance to the nature of industry or the nature of products sold by the Appellant. 5. The learned CIT(A) and the learned AO has grossly erred in disallowing provision for warranty for want of hist....
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....ned AO 12. The learned CIT(A) has failed to appreciate that the Appellant is only a distributor of Apple products in India and the details with respect to warranty like failure rates, cost of repair etc., are maintained at a global level by a specialized warranty team of the Appellant group. 13. The learned CIT(A) and the learned AO failed to consider the submission made by the Appellant that high percentage of provision was created due to sale of new variant of iPhone, which is launched only in quarter 3 of the financial year and hence the closing balance carried forward to next year was high compared to preceding years. 14. The learned CIT(A) and learned AO has erred in denying provision for warranty on incorrect analysis that the provision created during each year and closing balance of such provision is increasing year on year without appreciating the substantial increase in sales due to new products (iPhone), increase in cost of inflation, increase in exchange rate etc., 15. The learned CIT(A) and learned AO has grossly erred in adopting percentage comparison as a tool in concluding that the method followed by the Appellant is not scientific....
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....are products of M/s. Apple Co. The return of income for the assessment year 2013-14 was filed on 28/11/2013 declaring income of Rs. 162,73,33,230/-. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income-tax, [AO], Circle 1(1), Bengaluru, vide order dated 29/12/2016 at total income of Rs. 245,29,33,230/-. The disparity between the returned income and the assessed income is on account of disallowance of provisions for warranty expenses to the extent of Rs. 82,56,00,000/- alleging to be excessive not based on historical data/reliable. The AO noticed that the assessee-company claimed deduction of provision for warranty expenses of Rs. 147,40,08,630/-. This provision is in addition to opening provision for warranty expenses of Rs. 21,41,30,976/-. The AO agreed in principle on the allowability of the provision for warranty expenditure. The AO, in order to examine whether the provision created for the year is in line with guidelines laid down by the Hon'ble Apex Court in the case of Rotork Controls India (P.) Ltd. vs. CIT (314 ITR 62)(SC), called upon the assessee-company to furnish certain details vide his questionnaire dated 21/10/2016. AO cal....
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....estricted to 2.14% of the sales and accordingly, the AO had allowed Rs. 64.84 crores as against the claim of Rs. 147.74 crores thereby disallowing the sum of Rs. 82.56 crores. 7. Being aggrieved by the above assessment order, an appeal was preferred before the ld.CIT(A) who, vide impugned order, had confirmed the action of the AO after due analysis of provision created during the year and utilization in the earlier year as well as in the subsequent periods. 8. Being aggrieved, the assessee is in appeal before us in the present appeal. Learned senior counsel for assessee vehemently submitted that provision for warranty was based on global policy of the group companies for warranty provision. Global policy conforms to the principles of accrual and prudence. He further submitted that the provision for warranty is required to be made even in terms of para.14 of Accounting Standard 29. He further submitted that the provision for warranty is only tax neutral as it is only a timing difference. He also placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Ericssion Communications (P.) Ltd. (185 taxman.160) wherein the Hon'ble High Court held that the ....
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....6 1.80 97.21 12-13 106,811,429 423,393,372 316,073,825 214,130,976 19,640,764,088 2.16 1.09 74.65 13-14 214,130,976 1,474,008,630 853,118,651 835,020,955 30,090,106,354 4.90 2.78 57.88 14-15 835,020,955 4,394,876,926 2,410,743,055 2,819,154,826 44,418,265,721 9.89 6.35 54.85 15-16 2,819,154,826 2,832,312,596 2,156,204,681 3,495,262,741 63,658,326,177 4.45 5.49 76.00 16-17 3,495,262,741 5,133,588,995 3,631,642,487 4,997,209,249 98,493,090,748 5.21 5.07 70.74 17-18 4,997,209,249 3,803,480,000 4,375,210,000 4,425,479,249 114,032,380,000 3.34 3.88 115.03 This policy is being consistently followed and which is in conformity with the para-meters laid down by the Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd. (supra). It is submitted that the order of the AO as well as the ld.CIT(A) is based on the finding that the appellant company did not reverse any excess provision before closure of the financial year so as to reduce excess provision created. However, it is submitted that this finding is contrary....
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....ion. If these conditions are not met, no provision can be recognized. 11. In the present case, there is no dispute as to the satisfaction of condition (a) and (b) above. The dispute is only with regard to whether provision made for warranty expenditure is reliable estimate of obligation to be settled. The Hon'ble Supreme Court, in the case of Rotork Controls India (P) Ltd. (supra) laid down that if the warranty is based on past experience i.e. historical trend, the estimate can be said to be reliable. It is further held as follows: "13. . . . . . . . . . . . . . . . .A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty. Therefore, the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end ....