TaxTMI 
TaxTMI 
2024 (7) TMI 639
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.... "1. That on facts and in circumstances of the case and in law, the Assessing Officer ('AO') erred in completing the assessment of the Appellant at a loss of INR 9,38,50,740, as against returned loss of INR 10,49,61,711. 2. That on facts and in circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [CIT(A)'] erred in upholding the disallowance made by the AO in respect of provision for warranty expenses amounting to INR 23,51,396 without appreciating that the same was calculated on the basis of a reliable estimate. 2.1 That on facts and in circumstances of the case and law, the Ld. CIT(A) erred in disregarding the details provided by the appellant substantiating that the provision....
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....ic mode, on 17.07,2017, declaring loss of Rs. 10,49,61,711/-. The case was selected for scrutiny assessment. In response to statutory notices issued by the Assessing Authority u/s 143(2) of the Act, the learned authorized representative of the assessee attended the proceedings. The AO after considering the submissions made addition amounting to Rs. 23,51,396/- by disallowing provision for warranty expenses and a sum of Rs. 87,59,575/- in respect of disallowance of lease equalization reserve amounting to Rs. 70,59,309; provision made for contractual labour amounting to Rs. 14,85,384/-; and provision for security services expenses amounting to Rs. 2,14,882/-. Thus, the AO assessed total loss at Rs. 9,38,50,740/- as against the declared loss o....
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....ual expenditure incurred on warranty claim in the succeeding assessment year should be allowed. 5.1 Learned counsel submitted that the authorities below have sustained the addition on the basis that provision is created for the unexpired period of warranty which does not fall within the subject financial year and pertains to immediate next financial year. Expenses of next financial year cannot be considered as expenses of current financial year. The formula applied by the assessee cannot be considered to be on scientific basis for computing the provision for warranty charges. The assessee is in second year operation and as per sample period for which analysis could be done is not available. The judgment of the Hon'ble Supreme Court rende....
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....lated to expenses on warranty provision by observing as under: "5.2 By way of facts during the year under consideration, which is the second year of the operation of the company, the company has debited an amount of Rs. 68,64,400/- in the profit and loss account towards the warranty expenses. This amount included an amount of Rs. 45,13,004/- actually incurred on account of warranty and the balance amount of Rs. 23,51,396/- is provision created for the unexpired period of warranty. 5.3 The AO disallowed the provision amounting to Rs. 23,51,396/- created for unexpired period of warranty. Before AO as well as before me, the appellant contended that the provision created for unexpired period of warranty is an allowable expense....
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....nd thus relates to immediate next financial year. 5.7 Thus, the expense which pertains to the next financial year, cannot be considered to be an expense of this financial year, even if a provision is created. Provision could have been an allowable expense only if such provision pertains to the captioned financial year, though the outflow may happen in next year. As per the explanation and methodology adopted by the appellant, the provision created for warranty expense pertains to that period of warranty which falls outside the ambit of the year under consideration. 5.8 Thus, the formulae used by the assessee itself is devoid of merits and cannot be considered to be a scientific basis of computing the provision for warranty....
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.... was no data available with the assessee to arrive at the provision based upon scientific study of past data. The law is well settled that the provision for warranty expenses would be allowable in the event of assessee proves that same has been computed on the basis of past experience and on scientific basis. In the present case, no past history is available, but the claim is based purely on estimation basis. The assessee has applied a formula and claimed this formula has been applied in subsequent years as well. The claim of the assessee based upon such formula has been allowed in subsequent years. Further, alternate prayer of the assessee is that the expenses may be allowed in the year of payment without prejudice to the other contentions....