TaxTMI 
TaxTMI 
2019 (6) TMI 1687
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....tted on behalf of the Revenue that warranty expenses are not allowable being provisional in nature in the absence of any scientific basis for debiting an amount of Rs.68,61,000/- in the books of account on this score. It was submitted that mere provision of such expenses without showing crystallization of liability cannot be reckoned as an eligible expenditure under s.37(1) of the Act. 4. The Learned AR, on the other hand, submitted that the company has provided warranty to its customers in accordance with warranty clause mentioned in the sales order and thus warranty is integral part of sale price. It was next submitted that provision for warranty has been made on a scientific basis for which the calculations were provided as reproduced by the CIT(A) in para 4.4 of its order. Similar warranty has been consistently provided year after year based on past experiences. In elaboration, it was submitted that the provision for warranty is not towards possible claim made by the customers alone but also include maintenance services to be provided during warranty period. In order to provide warranty services, the company is required to incur material, salary, travelling and other expenses ....
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.... properly ascertained and discounted on accrual basis. A proper calculation of this issue will he submitted to the AO who will examine the same and allow the claim as per decision of Hon. Supreme Court in Rotork Controls India (P) Ltd. (supra) ax above, This ground of Revenue is allowed but for statistical purposes. " 15.2. Since the facts are identical in this case also and the Revenue has not pointed out any change in the facts and circumstances of the case, therefore taking a consistent view, we accordingly set aside the order of the ld. CIT(A) and restore this issue back to the file AO for fresh adjudication. Thus, this ground of Revenue's appeal is allowed but for statistical purposes." 4.4. On going through the facts of the case, it is seen that, these expenses were pertaining to the estimated liability on account of cost that may be incurred on product sold under warranty. The cost to be incurred providing free service under warranty was determined based on past experience and are provided for in the year of sale. The company was following this system consistently. Every year, at the end of the year, how much provision was required was calculated and it was compare....
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....onsidering the facts of the case, it Is found that the provision has been made by the appellant on scientific basis and it is an ascertained liability. Similar disallowance has not been made by the AO in earlier years up to A. Y. 2003-04, therefore, relying on the decision of ITAT. Bangalore in the case of Wipro Ge Medical Systems Limited vs. DCIT cited supra and other decisions relied upon by the A. R., the disallowance made by the AO of Rs.21.74 lakhs is deleted. As regards the reversal of provision of Rs.46.87,000/- the same is taxable u/s. 41(1) as the same has been allowed as expenditure in earlier year. However as the appellant has already offered the same as income no further addition or disallowance is required. Hence the addition of Rs.46.87.000/- is no more required and so the same is deleted. Thus the total addition on account of provision for warranty of Rs.68.61 lakhs is deleted." 4.6. Thereafter, against the order of CIT(A) on the appeal of revenue, the Hon'ble ITAT, Ahmedabad has directed the AO la examine the calculation of warranty expenses in view of the judgment of Hon'ble Supreme Court in Rotork Controls India Pvt. Ltd. However, the disallowance was o....
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....ore, taken the lowest percentage of expenditure of all the three years and provided for the warranty expenditure of Rs. 25.72 lakh. Regarding the full year warranty provision, it has been submitted that the warranty period is 18 months from the date of dispatch or 12 month from the date of commissioning of the working of glass lined vessels and since, the entire sale price is credited to sales account, the expenditure to be incurred during the entire warranty should be allowed as deduction on the principle of prudence and the matching concept as per Accounting Standard 29 of the ICAI. On a careful consideration of entire facts of the case, it is noted that the appellant has made the provisions on the scientific basis. It has provided for the expenditure by adopting percentage of .76% which was the lowest in last three years. It has only made the incremental provision during the year and the balance lying in the provision to warranty account has been adjusted against the provision of current year's warranty. Regarding, the addition of the AO that the warranty for last three months of the year would be applicable in the next year, it is noted that the sale for last three month....