2018 (9) TMI 1990 - AT - Income Tax

Disallowance of Provision of warranty and After Sales Cost - allowable deduction u/s 37 - HELD THAT - Claim of the assessee in principle is allowed by the Hon ble Jurisdictional High Court in assessee s own case in many assessment years i.e. 1998-99 to 2009-10. It is also evident from the above table that the Assessing Officer himself allowed claimed of the assessee in assessment year 2002-03 and 2009-10. In same assessment year, the Department accepted the said decision of the Tribunal and never filed appeal before the Hon'ble Bombay High Court. As such, decision of CIT (A) is, in principle, as per judgment laid down by the Hon'ble Apex Court in the case of Rotork Controls India Ltd. 2009 (5) TMI 16 - SUPREME COURT . It is a settled legal principle that in any case where estimation is done based on scientific method and calculated properly, the provision made for warranty in respect of goods should be allowed u/s. 37 (1) - Decided in favour of assessee.

Summary

Issues:
Allowability of Provision of Warranty and After Sales Cost as deductions.

Analysis:
The appeal before the Appellate Tribunal concerned the Revenue's challenge against the CIT(Appeals)'s decision regarding the disallowance made by the Assessing Officer on account of Provision of warranty and After Sales Cost for the Assessment year 2010-11. The primary issue was whether these provisions constituted allowable deductions. The assessee, engaged in the business of manufacturing petroleum refining equipment, had claimed deductions for provision of After Sales Cost and Warranty expenses in its income tax return. The Assessing Officer disallowed these deductions, arguing that no accrued liability existed at the time of sale and hence, the provision could not be considered as an actual expenditure incurred. The Assessing Officer also initiated penalty proceedings.

The assessee appealed to the CIT(A), providing a scientific valuation of the expenditure and citing relevant case laws, including the Supreme Court's judgment in Rotork Controls India Ltd. The CIT(A) considered the factual matrix, legal position, and previous tribunal decisions in the assessee's favor. Relying on the Rotork Controls India Ltd. case and tribunal decisions, the CIT(A) deleted the disallowance made by the AO on account of provision for warranty and After Sales Cost. The Revenue, dissatisfied with the relief granted, appealed to the Appellate Tribunal.

During the Appellate Tribunal proceedings, the Revenue's representative reiterated the Assessing Officer's stance, emphasizing the lack of proper calculation and expenditure details provided by the assessee. Conversely, the assessee's counsel highlighted the previous relief granted in similar cases, the scientific basis for estimating provisions, and the utilization pattern of the provisions. The Tribunal noted that the Revenue had persistently raised this issue since 1998-99, with several instances of relief granted to the assessee by the jurisdictional High Court and the Assessing Officer.

Ultimately, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision. The Tribunal emphasized the settled legal principle that provisions made based on scientific methods should be allowed as deductions under Section 37(1) of the Income Tax Act. The order of the CIT(A) was deemed fair and reasonable, aligning with the principles established in relevant judgments. Therefore, the Tribunal found no grounds for interference and upheld the allowance of deductions for Provision of Warranty and After Sales Cost. The appeal of the Revenue was consequently dismissed.