TaxTMI 
TaxTMI 
2015 (5) TMI 1241
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....anged the accounting of warranty expenditure on accrual basis, for which the company had made a scientific ascertainment of the possible liability that would arise on account of the warranty clause in respect of sales for the year. A provision was made for such technical ascertainment. The assessee stated that the warranty provision had to be recognized because the assessee had a present obligation as a result of the past events resulting in an outflow of resources and a reliable estimate could be made on the amount of the obligation. The retail sale and actual warranty paid for 9 months was taken, to arrive at the percentage of warranty to sales. This warranty percentage was further split into truck and non-truck segment. Such percentage of warranty to sales was adopted for the year under consideration and the warranty requirement for first year was arrived at Rs. 19.06 crores and for the second year of sales was arrived at Rs. 4.80 crores, totaling to Rs. 23.86 crores. The assessee clarified that the amount of Rs. 27.06 crores debited to the profit and loss account includes Rs. 3.20 crores relating to earlier assessment year viz., 2009-10, which has been disallowed in the income ....
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....t reversed as on date and the assessment proceedings for the year in which warranty provision was created is pending, there is no need to accept the statement of the assessee that the unutilized warranty provision would be netted off against warranty provision of a future assessment year viz., 2013-14. Accordingly, the Assessing Officer disallowed the unutilized warranty provision of Rs. 5.22 crores. 4. On appeal, the Commissioner of Income-tax(Appeals) observed that the assessee has been following the practice of providing warranties, which are ascertained based on its earlier trend of such claims and for the year under consideration, the provision has been made on the basis of actual expenditure incurred up to the date of finalization of accounts. The assessee has produced before him during the course of appellate proceedings the excel sheets with the exercise of actual working of warranty. The warranty provided and the warranty claimed are bound to vary since it is an estimate based on earlier experiences and historical trends. The claim from the customers may vary year to year. It could be more than or less than the expected claim. Thus when the provision created is more than ....
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....ed for taxation. He relied on the order of the Commissioner of Income-tax(Appeals). 7. We have heard both the sides and perused the materials on record. According to the ld. AR, the assessee has adopted the financial year 2008-09 as base year. The retail sale and actual warranty paid for 9 months was taken to arrive at the percentage of warranty to sales. This warranty percentage was further split into truck and non-truck segment. Such percentage of warranty to sales was adopted for the year under consideration and the warranty requirement was debited in the profit and loss accounts of the assessee. Further, when the provision created is more than the claim, it is reversed in the next year and this provision was consistently followed by the assessee. In the light of the circumstances, a legal obligation to make payment in future said to have been accrued. According to the AR, it is not required to wait for the contingency to offer and it can be inferred that a better liability has definitely arisen in the assessment year under consideration though the quantification is discharged on this warranty liability at a future date. The assumption of the assessee's liability is in praesent....
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....f Rs. 3,18,54,282/-. 9. The facts of the case are that the Assessing Officer observed that an amount of Rs. 23,31,05,399/- is shown as provision made during the year towards litigation and related disputes in addition to the amount of Rs. 4,50,92,000/- outstanding as at the beginning of the year. Out of the total provision of Rs. 27,81,97,399/- only an amount of Rs. 3 crores has been paid during the year, leaving the balance provision as on 31.3.2010 at Rs. 24,81,97,399/-. The AO asked the assessee to furnish the complete break-up details of the claim and the same was furnished by the assessee. The details furnished by the assessee are not accepted by the Assessing Officer regarding the provisions 'electricity - additional energy and demand charges - Thiruvottiyur and Arakonam Units, Rs. 10,54,60,961/-, which was disallowed. Against this, the assessee went in appeal before the Commissioner of Income-tax(Appeals). 10. On appeal, the Commissioner of Income-tax(Appeals) observed that the assessee has created the provisions in both the cases based on certain demands raised by the concerned departments. Since, the issues have not reached finality and pending with courts and other appe....