2011 (6) TMI 965

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....sessing Officer to the tune of Rs. 3,25,00,000/- ignoring the fact that the expenses of this kind bear the nature of contingent liability which may or may not happen in future? 2. Whether on the facts and in the circumstances of the case, the ld. CIT(A)-I Nasik is justified in deleting the disallowance of Rs. 17,19,519/- ignoring the fact that disallowance was made since the assessee has breached the written contract and the obligation with its customers and therefore it is in the ambit of penalty as is enshrined in sec. 37(1) of the Act? 2. The assessee is a joint venture company of Hindustan Aeronautics Ltd (HAL), ICICI representing the Government of India and RAC "MIG", Avizapchast Plc and GRPZ, which represent the Government....

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....ssessing Officer while computing the total income. As per the Revenue, the said claim was a mere Provision and a contingent liability and, therefore, was not an allowable expenditure under section 37(1) of the Act. The said issue is no longer res integra, inasmuch as the same has been dealt with by the Hon'ble Supreme Court in the case of Rotor Controls India (P) Ltd v CIT 314 ITR 62 (SC). As per the Hon'ble Supreme Court, a warranty cost is an integral part of the sale price, the assessee must provide for such warranty costs in its account for the relevant year otherwise the matching concept will fall. The Hon'ble Supreme Court approved the action of the assessee before it to provide for warranty based on the past experience and held that ....

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.... of Provision made for the warranty having regard to the principles laid down by the Hon'ble Supreme Court in the case of Rotor Controls India (P) Ltd v CIT (supra) and, as per law. The Assessing Officer shall consider the submissions and material put-forth by the assessee and thereafter pass an order on this aspect in accordance with law. 4. Facts being similar, so following the aforesaid decision of the Tribunal in assessee's own case (supra), we remand the issue back to the file of the Assessing Officer, who shall allow the assessee reasonable opportunity to adduce material and evidence to point out the basis of provision made for the warranty having regard to the principles laid down by the Hon'ble Supreme Court in the case of Rotor ....