TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 92
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....ppellant objects to the order dated March 31, 2016 passed by the learned Commissioner of Income-tax (Appeals)-5, Pune ("CIT (Appeals)") for the aforesaid assessment year on the following amongst other grounds : 1. The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of provision for warranty of Rs. 3,96,03,899 on the basis that the provision for warranty has not been created by following a scientific method. 2. The learned Commissioner of Income-tax (Appeals) erred in making the following observations which are contrary to the facts of the case and in law : ". . . . Though, in the submission the appellant has claimed to have submitted a copy of the agreement with Tata Motors Ltd. (TML) and minutes of t....
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.... was selected for scrutiny under CASS and the Assessing Officer made the assessment computing the total income of the assessee at Rs. 73,36,06,457. The Assessing Officer made disallowance of Rs. 3,96,03,899 on account of "provision for warranty" in the assessment. In appeal, the Commissioner of Income-tax (Appeals) confirmed the said addition. The authorities held that there is no need for the assessee to incur such an expenditure in the absence of any policy or the method to quantify the expenditure. The relevant findings of the Commissioner of Income-tax (Appeals) against the assessee as given in paras. 5.3, 5.4 and 5.5 of his order are extracted hereunder : "5.3 . . . However, in the appellant's case, the expenditure provided for i....
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....und No. 1 is hence, dismissed." 4. In the process, the Commissioner of Income-tax (Appeals) adjusted the assessee's method on the basis of creating the provisions. Otherwise, the assessee makes the provision based on the past experience, i. e., equal to average of last four quarters. Actual claims multiply by five quarters in case of paralift and seven quarters in case of 6 rod products. These five quarters and seven quarters represent the half of warranty period plus one quarter based on the warranty polity entered into with the customers. The details are provided in table given in para. 5 of the Commissioner of Income-tax (Appeals)'s order. 5. Aggrieved with the same, the assessee is in further appeal before us with the above st....
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.... these pages, learned counsel demonstrated that, unlike the finding of the Commissioner of Income-tax (Appeals) in the matter, the warranty is applicable to the products manufactured and sold by the assessee. Methodology of warranty is also explained in page 49 of the paper book. Warranty provisions are applicable to lift axle suspension (paralift suspension system for 8x2 trucks) system and rod tandem bogie suspensions systems. Ignoring all these above, the details submitted by the assessee both on the claimability of the warranty by the consumers and quantum of expenditure incurred by the assessee, the Commissioner of Income-tax (Appeals) and the Assessing Officer made addition on this account. 7. On the other hand, the learned Departmen....
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.... in the market. The above warranty has been mentioned in the service circulars issued by TATA Motors. 1.3.16 The warranty cost is provided on the basis of actual warranty claims debited by Tata Motors Ltd. for the last one year. The provision amount would be equal to average of the last four quarters actual claims multiplied by five quarters in case of 'paralift' and seven quarters in case of 6-rod products. Five quarters and seven quarters represent the half of warranty period plus one quarter (assuming that vehicle to be sold after one month after build up). The same is based on above warranty policy. The amount so arrived would be carried forward and fresh claims would be adjusted against the opening provision. The provision am....
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....bsp; Less : Utilization/actual warranty claims (6,32,000) (35,17,310) (1,73,29,938) (3,11,08,622) Closing balance 16,09,000 22,44,196 2,45,18,157 4,49,99,898 Net movement in provision account during the year 16,09,000 6,35,196 2,22,73,961 2,04,81,741 BASIS FOR COMPUTING Rs. 3,96,03,899 Actual YTD Mar 11 Avg of last 4 quarters Warranty prov. period Prov. for future claims Total debit to P&L Lift Axle 1,16,21,727 29,05,432 5 1,45,27,159 2,61,48,885 26 T 6-Rod 57,08,328 14,27,082 7 99,89,574 1,56,97,902 Total 1,73,30,055 43,32,514 2,45,16,733 4,18,46,788 Opening balance of warranty provision 22,42,889 P&L impact for March 11  ....