2021 (3) TMI 78 - AT - Income Tax

Revision u/s 263 - TP adjustment - HELD THAT - Since the order giving effect to ITAT order for AY 2008-09 was not passed at the time of passing the order giving effect to 263 order on 28.9.2015, the AO had not considered it. However, this was noticed by the CIT(Appeals) and he has given a direction to reduce the original TP adjustment from ₹ 97,82,11,238 to ₹ 14,18,47,658. AO is directed by the CIT(A) to start the computation of total income as mentioned in Order Giving Effect to the ITAT order dated 20.1.2016. Disallowance of warranty provision - contention of the ld. DR is that the assessee had not furnished requisite details before the lower authorities for claiming such deduction in AY 2010-11 - Admittedly, this deduction cannot be allowed in the assessment year under consideration as warranty provision was allowed on actual basis. However, the actual claim of assessee that it should be allowed as a deduction in AY 2010-11 on the ground that it was offered to tax in AY 2011-12, requires examination of the records by the AO on production of the same by the assessee in the relevant AY 2010-11. This claim of assessee cannot be considered in the present AY 2008-09, as the AY 2010-11 or 2011-12 is not before us for adjudication. The assessee may take appropriate remedial action in the relevant assessment year, if so advised. With these observations, we dismiss the ground relation to allowability of warranty provisions in this assessment year.

Summary

Issues:
1. Disallowance of warranty provision of ?1,67,32,832
2. Reversal of provision in subsequent years

Analysis:
1. Disallowance of warranty provision of ?1,67,32,832:
The appeal was against the order of the CIT(Appeals) confirming the disallowance of the claim of provision for warranty amounting to ?1,67,32,832 for the assessment year 2008-09. The issue revolved around the shift in the basis of warranty claim from payment basis to provision basis, resulting in a difference between cumulative provision and cumulative payment from earlier years. The CIT(A) concluded that the claim did not relate to the year under consideration and could only be claimed by filing revised returns for respective years. The AO disallowed the excess warranty provision, leading to an addition of ?1,67,32,832. The Tribunal observed that the excess provision claimed was for earlier years and directed its disallowance. The contention that it should be allowed in a subsequent year where it was offered to tax was dismissed, emphasizing the need for examination in the relevant assessment year.

2. Reversal of provision in subsequent years:
The AO disallowed the provision for warranty, which was subsequently reversed in the financial year 2009-10 to the extent of ?1,63,40,806. The CIT(A) observed that the reversal was not related to the provision claimed during the year under consideration. The Tribunal highlighted that while the deduction could not be allowed in the current assessment year due to the actual basis of allowance, the claim for allowance in a subsequent year needed examination in that specific assessment year. The Tribunal dismissed the appeal, emphasizing that the assessee could take appropriate remedial action in the relevant assessment year. The judgment was pronounced on March 2, 2021.

This detailed analysis of the judgment addresses the issues of disallowance of warranty provision and reversal of provision in subsequent years, providing insights into the legal reasoning and conclusions drawn by the Tribunal.