TaxTMI 
TaxTMI 
2017 (3) TMI 1723
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....d sales promotion(Rs.18.79 lakhs),distribution and scheme cost Rs. 4.54 lakhs and commitment charges(98.54 lakhs).During the assessment proceedings the AO directed the assessee to file details of provisions/contingencies debited to the P&L account.Vide its letter dtd.24/11/2011,it filed the necessary details.The AO called for further details in that regard. After considering same he observed that many of the expenses were unpaid as on 31.3.2009, that the assessee had not payment of such amt even after more than one year from the date when the provisions were created.Vide order sheet noting dated 02.12.2011 he directed the assessee to justify the claim made by it.With regard to provisions for sales promotion the assessee had contended that expenses were on account of free beer bottles under various schemes to its customers.The AO observed that there was no reason for the expenses to remain outstanding after more than one year, that the promotional schemes were for very short period that the corresponding pay outs/benefits had to be given immediately, that otherwise the very purpose of sales promotion would be defeated, that the assessee had not specifically pointed out any reason fo....
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....e received along with the necessary supporting evidences, it had created provisions for such sales promotions and distribution and scheme cost expenses based on the sales affected during the year and the past expenses, that in certain cases there had been delay in approval of the debit notes, that the assessee was following the same system since past several year, that assessee had incurred huge cash losses during the year and in the earlier years, that due to insufficient funds payments were delayed in certain cases, that the AO was not justified in disallowing the provisions on the ground that payments were not made immediately,that provisions created were reversed in subsequent years and were offered to taxes.It gave details of provisions that were reversed and that were unpaid till the filing of appeal.Similar contentions were made about the other two provisions.He also referr - ed to Accounting Standard -29(AS-29) and stated that revenue authorities were not justified in disallowing the provisions.The Departmental representative (DR) supported the order of the FAA. 5.We have heard the rival submissions and perused the material before us and find that the FAA had upheld the di....
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....leads to a present obligation which results in an enterprise having no alternative to settling that obligation. In the present case, the appellant has been manufacturing and selling valve actuators. They are in the business from the assessment years 1983-84 onwards. Valve actuators are sophisticated goods. Over the years the appellant has been manufacturing valve actuators in a large numbers. The statistical data indicates that every year some of these manufactured actuators are found to be defective. The statistical data over the years also indicates that being sophisticated item no customer is prepared to buy valve actuator without a warranty. Therefore, the warranty became integral part of the sale price of the valve actuator(s). In other words, the warranty stood attached to the sale price of the product. These aspects are important. As stated above, obligations arising from past events have to be recognized as provisions. These past events are known as obligating events. In the present case, therefore, the warranty provision needs to be recognized because the appellant is an enterprise having a present obligation as a result of past events resulting in an outflow of resources.....
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.... the period prescribed in the warranty. Therefore, the company should scrutinise 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 the year end of future warranty expenses. 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. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an outflow of resources. A reliable estimate of the obligation was also po....
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.... Box Company of India [1969] 73 ITR 53 (SC), that the provision made by the assessee for meeting the liability incurred under the leave encashment scheme proportionate with the entitlement earned by the employees, was entitled to deduction out of gross receipts for the accounting year during which the provision is made for that liability. The principle which emerges from these decisions is that if the historical trend indicates that a large number of sophisticated goods were being manufactured in the past and in the past if the facts established show that defects existed in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts under section 37 of the 1961 Act. It would all depend on the data systematically maintained by the assessee." We are of the opinion that in light of the above discussion the matter should be restored back to file of AO for fresh adjudication.He would afford a reasonable opportunity of hearing to the assessee and decide the matter in the light of above judgment of Hob'ble Apex Court. Ground No.1 is decided in favour of the assessee....
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....gh Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT [374 ITR 118] and Maruti Suziki India Limited vs. CIT in ITA No. 110/ 2014 and ITA 710/2015, dated 11th December, 2015 and the coordinate Bench decision of the ITAT in the case of M/s. Johnson & Johnson Limited vs. ADIT vide I.T.A. No.829/M/2014 (AY 2009-2010), dated 07.01.2016. Summarising the above, Ld Counsel for the assessee submitted that the Ground no.2 with its sub-grounds are required to be set aside and remanded to the file of the AO / TPO for fresh adjudication following the guidelines mentioned by the Hon‟ble Delhi High Court in the above referred cases. Otherwise, it is the case of the assessee that AMP expenses constitute 40% of the sales and the assessee received from the AEs only to the extent of 7% which was not accepted by the Revenue Authorities. He further submitted that the BLT is not the approved method for benchmarking the above mentioned international transactions. 6. On the other hand, Ld DR for the Revenue relied on the orders of the Revenue Authorities. 7. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant materia....