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2023 (6) TMI 624 - HC - Income TaxBusiness expenses claimed under the head of Provision for Warranty Expenses - addition u/s 37 - HELD THAT - We see that the Assessee company has not committed any error in making provisions inasmuch as large number of sophisticated goods were being manufactured in the past and if the facts established show that defects existing in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipt u/s 37 of 1961 Act. Consequently, the issue of provision of warranty in the facts and circumstances of the case goes in favour of the Assessee and against the Revenue. Provision of Liquidated Damage, Miscellaneous Provisions and Provision for Leave Travel Assistance, Sales Promotion - ITAT allowed deduction - HELD THAT - We see that the Assessee has not committed any violation of the provisions of the I. T. Act and its Rules. As a matter of fact, learned I.T.A.T. has discussed each and every ground raised by the Revenue in detail and rejected the contentions of the Revenue and dismissed their appeal filed before it. We hold that no error has been committed by the learned tribunal in rejecting the claim of the respondent revenue and dismissing the respective appeals.
Issues Involved:
1. Provision for Warranty Expenses 2. Provision for Liquidated Damages 3. Miscellaneous Provisions 4. Provision for Leave Travel Assistance 5. Sales Promotion Expenses Provision for Warranty Expenses: In Tax Appeal No. 25 of 2019 and Tax Appeal No. 38 of 2019, the issue revolves around the provision for warranty. The Assessee company, engaged in manufacturing and selling capital goods, provides warranties for replacement of parts and maintenance. The Assessee has consistently followed a policy of providing 0.5% of sales for warranty expenses based on past experience and technical estimates. The learned tribunal held that the company offers the balance amount for tax as income upon the expiration of the warranty period, indicating no tax evasion. Citing the Supreme Court judgment in Rotork Controls India (P) Limited v. CIT, the court found that the Assessee's provision for warranty expenses is justified and deductible under Section 37 of the Income Tax Act, 1961. Provision for Liquidated Damages: In Tax Appeal No. 37 of 2019, the court examined the provision for liquidated damages, which refers to amounts deducted by customers for delayed supply of equipment. The Assessee charges these amounts to the profit and loss account based on actual deductions made by customers. The court found that this practice is consistent and reflects ascertained expenditure, thus the Assessee has not erred in making these provisions. Miscellaneous Provisions: The court also addressed miscellaneous provisions related to inventory procured or manufactured as per customer specifications but subsequently not required due to order cancellations or changes in technology. These items are provided for in the profit and loss account. Given the specific nature of the Assessee's capital goods, the court found no error in making these provisions. Provision for Leave Travel Assistance: The court discussed the provision for Leave Travel Assistance (LTA) which is a benefit based on the Assessee's rules and consistently followed. LTA is allowable under section 10(5) of the Act and is not governed by section 43 B(f) of the Act. Thus, the court found no error in the Assessee's provision for LTA. Sales Promotion Expenses: The Assessee incurs expenses on after-sales service and marketing of its products, which are booked under sales promotion. The Assessee deducts TDS where applicable and adds back expenses where non-deduction of TDS is reported. The court found that the Assessee has not violated any provisions of the Income Tax Act and its rules, and the learned ITAT correctly dismissed the Revenue's appeal. Conclusion: The court concluded that no error was committed by the learned tribunal in rejecting the Revenue's claims and dismissing their appeals. Consequently, all appeals were dismissed with no order as to cost.
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