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2023 (6) TMI 213 - AT - Income TaxDisallowance of provision for warranty created in excess of 2.14% of the sales - HELD THAT - As relying on assessee own case 2023 (4) TMI 1053 - KARNATAKA HIGH COURT we direct the AO to grant deduction of provision for warranty as claimed in the return of income. It is ordered accordingly.
Issues: The judgment involves the confirmation of disallowance of provision for warranty created in excess of 2.14% of sales by the CIT(A) for the Assessment Year 2016-17.
Summary: The judgment pertains to an appeal by the assessee against the order of the CIT(A) confirming the disallowance of provision for warranty created in excess of 2.14% of sales. The assessee, a private limited company engaged in distributing Apple products in India, had filed its return of income for the Assessment Year 2016-17. The Assessing Officer (AO) disallowed the provision for warranty exceeding 2.14% of sales, based on the Tribunal's order for previous assessment years. The CIT(A) upheld the AO's decision, prompting the assessee to appeal before the Tribunal. The Tribunal considered the past judgments of the Hon'ble High Court of Karnataka in the assessee's own case for Assessment Years 2013-14 and 2014-15, where the issue was decided in favor of the assessee. The High Court had emphasized the criteria for recognizing a provision as a liability, including the need for a reliable estimate of the obligation. The Tribunal also reviewed a statement showing the provisions made and utilized by the assessee for various assessment years, demonstrating a high utilization rate of the provisions. The Tribunal concluded that the AO and CIT(A)'s orders were unsustainable in law, and the appeals by the assessee were allowed. The Tribunal directed the AO to grant the deduction of provision for warranty as claimed in the return of income, in line with the High Court's judgment in the assessee's case. Consequently, the appeal filed by the assessee was allowed, and the previous orders were set aside. The judgment was pronounced in the open court as per the caption page. In summary, the Tribunal's decision favored the assessee based on the reliability of the provision estimate and the precedent set by the High Court's judgment in the assessee's own case for previous assessment years.
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