AI Drafter 
TaxTMI 
TaxTMI 
2022 (10) TMI 273
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....4 Crores in AY 2012-13. For this, assessee has raised identically worded grounds in all the three years except the quantum. Hence, we will take the facts and grounds from assessment year 2011-12 and decide the issue. The relevant grounds read as under:- 2. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of provision for warranty amounting to Rs. 5.66 crore. 2.1 The Commissioner of Income tax (Appeals) erred in holding that the appellant had adopted a flat rate on the turnover of truck and non truck segment eventhough the assessee company is adopting the rate which changes from year to year based on previous year experience. 2.2 The Commissioner of Income tax (Appeals) ought to have appreciated that warranty is an estimate based on previous experience and that actual expenditure may not match the provision and any excess or shortage in the provision is made is adjusted in the subsequent year. Rotork Controls India P.Ltd Vs. CIT, 314 ITR 62(SC). 3. Briefly stated facts are that the assessee is engaged in the business of manufacturing of tyres. We noted that this matter travelled up to ITAT and ITAT in ITA Nos.641 to 645/Chny....
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....ich is a single item and not an army of items running into thousands of units of sophisticated goods. Therefore, the provision for warranty in the case under consideration can constitute a contingent liability not entitled to deduction u/s 37 as per the decision of the Hon'ble Supreme Court. (d) The appellant could not establish satisfactorily that all the conditions prescribed by the Hon'ble Supreme Court are satisfied. (v) In view of the above and also for the reasons stated by the AO in the appeal effect order as well as findings of the Hon'ble DRP for the AY 2014-15, it is concluded that the facts and circumstances of the case under consideration are different and distincuishable from the facts and circumstances of the case of Rotork Controls India Pvt. Ltd., vs. CIT, 180 Taxman 422(SC) Aggrieved assessee came in appeal before us. 5. Now before us, the ld.counsel for the assessee filed completed details of provision for warranty working for three assessment years as under:- Provision for warranty workings for the Assessment Year 2011-12 Particulars Reference Truck Non truck Total April Total 2010 to September 2010 October 20....
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....ssment Year 2013-14 Particulars Reference Truck Non truck Total April 2011 to September 2011 October 2011 to March 2012 April 2011 to September 2011 October 2011 to March 2012 Sales for the relevant preceding 12 month period A 3530.9 4397.65 3798.4 4544.23 Actual warranty claims for the above period B 31.41 48.25 17.62 22.98 % of actual warranty expenditure C=B/A 0.0089 0.0110 0.0046 0.0051 Current year (AY 2013-14) Sales for the year ended 31.3.2012 D 2231.96 2370.18 2361.78 2416.47 Average % of outstanding warranty E 15.08% 72.61% 24.09% 80.95% Provision for outstanding warranty as on March 2013 F=D*E*C 2.98 18.89 2.62 9.85 34.35 Add: Additional claims G 13.80 Less: Disputed claims H -0.65 Total provision for the year ended 31.3.2013 I=F+G-H 47.50 Opening provision as on 1.4.2012 J 37.36 Net amount debited to P&L as warranty expenses K=I-J 10.14 Actual warranty expenses debited to P&L ....
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.... in Metal Box Company of India (supra), that the provision made by the assessee for meeting the liability incurred under 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 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. It may be noted that in all the impugned judgments before us the assessee(s) has succeeded except in the case of Civil Appeal Nos. of 2009 - Arising out of S.L.P.(C) Nos.14178-14182 of 2007 - M/s. Rotork Controls India (P) Ltd. v. Commissioner of Income Tax, Chennai, in which the Madras High Court has overruled the decision of the Tribu....
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....nty liability at a future date. The assumption of the assessee's liability is in praesenti. Though the liability discharged at a future date, it is not a contingent one. The contention of the ld. DR is that the assessee has not provided details of actual working of warranty before the Assessing Officer. According to him, expenditure which is deductible under income-tax is one which is towards a liability actually existing at the time, but putting aside of money which may become expenditure on happening of an event which IS not expenditure. The former is deductible but not the later. However, the Supreme Court in the case of Bharat Earth Movers V. CIT (245 ITR 428) held that if a business liability has definitely arisen in a financial year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though actual quantification with accuracy may not be possible, if these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a....