2021 (4) TMI 959 - HC - Income Tax

Allowability of provisions for warranty by ITAT - whether the provision made by the assessee has been done in a scientific manner and whether it has followed the conditions stipulated by the Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd. 2009 (5) TMI 16 - SUPREME COURT - Standing Counsel for the appellant would contend that the decision of this Court in the case of Renowned Auto Products 2013 (7) TMI 392 - MADRAS HIGH COURT would bind this Court and the decision of the High Court of Karnataka will not be a binding precedent of this Court - HELD THAT - The thin but marked difference is that the decision of the High Court of Karnataka is in the assessee's own case 2020 (8) TMI 768 - KARNATAKA HIGH COURT in respect of the correctness of the provision made by the assessee for warranty. These transactions are identical and the assessee has been consistently following the said method for several assessment years, which has been noted by the High Court of Karnataka as well as by the Tribunal in the impugned order. Therefore, we are of the considered view that the Tribunal and the CIT(A) rightly held that the assessee had followed the scientific method and complied with the directions issued by the Hon'ble Supreme Court in Rotork Controls India Pvt. Ltd. The above reasons, we find no good grounds to interfere with the order passed by the Tribunal. - Decided against revenue.

Summary

Issues:
- Appeal filed by Revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal for assessment year 2010-11.
- Substantial questions of law raised by Revenue regarding provisions for warranty made by the assessee.
- Whether provision made by the assessee followed a scientific method as per the Rotork Controls India Pvt. Ltd. case.

Analysis:
1. The Revenue challenged the Tribunal's decision on the provision for warranty made by the assessee for assessment year 2010-11. The Revenue contended that the provision was not made on a scientific basis and was exorbitantly high compared to historical trends. They argued that the assessee failed to provide cogent evidence to justify the steep increase in the provision. The Revenue also cited previous court decisions to support their position that the provision lacked a scientific basis.

2. In response, the counsel for the assessee argued that the Tribunal had considered a similar case from the High Court of Karnataka and found the provision to be scientific and in line with the Rotork Controls India Pvt. Ltd. case. The assessee maintained that they had consistently followed the same method for several assessment years, which was deemed scientific by both the Tribunal and the High Court of Karnataka.

3. The Court acknowledged the Revenue's argument that previous court decisions should be binding, but noted that the High Court of Karnataka's decision in the assessee's own case regarding the provision for warranty was significant. The Court found that the assessee had consistently followed a scientific method for provisions, as validated by the High Court of Karnataka and the Tribunal. Consequently, the Court upheld the Tribunal's decision, stating that the assessee had complied with the directions issued by the Supreme Court in the Rotork Controls India Pvt. Ltd. case.

4. Ultimately, the Court dismissed the tax case appeal, emphasizing that the assessee's provision for warranty was made using a scientific method and in accordance with legal precedents. The Court found no grounds to interfere with the Tribunal's order, leading to the dismissal of the appeal without costs.