9911796707
TMI Blog2014 (3) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... vision is a liability which can be measured only by using a substantial degree of estimation – the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it - On this basis a sensible estimate should be made - The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Provision for warranty is rightly made by the assessee because it has incurred a present obligation as a result of past events - There is also an outflow of resources - A reliable estimate of the obligation was also possible - the appellant has incurred a liability during the relevant assessment year which was entitled to deduction under Section 37 of the 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANOTHER v/s M/s. IBM INDIA LIMITED in (2013) 357 ITR 88 (Kar) to contend that the substantial question of law formulated by the Revenue in the present appeal is squarely covered by these two judgments. In M/s. IBM India Limited, the substantial question of law that fell for consideration of the Division Bench of this Court read thus: Whether the Tribunal was correct in holding that a sum of Rs.4,92,69,808/- being a provision made for warranty liability in respect of products sold is not a contingent liability but should be allowed as a revenue expense? This question was ultimately answered by the Division Bench, based on the judgment of the Hon ble Supreme Court in ROTORK CONTROLS INDIA (P) LIMITED, in favour of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance of Rs.4,96,60,442/- was added back to the assessee s income. Mr.Aravind, learned counsel appearing for the Revenue submitted that this amount which was added back to the assessee s income was ultimately wrongly allowed by the Tribunal. There does not appear to be any dispute that the amount of Rs.4,96,60,442/-, which was added back to the income by the Assessing Officer was allowed by the Tribunal. According to the learned Senior Counsel for the respondent-assessee, the said amount was either added back to the income or adjusted while making the claim provision in the subsequent assessment year i.e. 2004-05 so much so there was no double deduction. This submission of the learned Senior Counsel for the assessee has not been disputed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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