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2015 (8) TMI 552 - AT - Income Tax


Issues involved:
- Deletion of 50% disallowance out of provision of warranty by the Commissioner of Income-tax (Appeals).

Analysis:
1. The appeals by the Revenue were directed against the order of the Commissioner of Income-tax (Appeals) for the assessment years 2007-08, 2005-06, 2009-10, and 2010-11, focusing on the deletion of 50% disallowance out of provision of warranty.

2. The assessee, engaged in manufacturing and sale of engineering goods, had made provisions for warranty for after-sales service annually. The Assessing Officer disallowed 50% of such provision, which was subsequently deleted by the Commissioner of Income-tax (Appeals) citing relevant legal precedents.

3. The legal basis for recognizing provisions was established by the Supreme Court in the case of Rotork Controls India P. Ltd., emphasizing the need for a reliable estimate of obligations. Further, the jurisdictional High Court rulings in cases like Vinitec Corporation Pvt. Ltd. and Ericssion Communications P. Ltd. supported the deduction of warranty provisions based on commercial practices and consistent application of accounting principles.

4. The Tribunal found that the provision made by the assessee for post-sales expenses was reasonable and aligned with actual expenditure over the years. Detailed analysis of historical post-sales expenses against provisions demonstrated a fair and accurate estimation by the assessee, with provisions mostly falling below actual expenses, indicating a conservative approach.

5. Considering the consistent application of legal principles and the factual assessment of provision adequacy, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals) and dismissed the Revenue's appeals, emphasizing the reasonable nature of the provision made by the assessee.

6. The judgment was pronounced on 28th January 2015, affirming the decision to dismiss all appeals by the Revenue, thereby concluding the matter related to the deletion of 50% disallowance out of the provision of warranty.

 

 

 

 

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