9911796707
TMI Blog2016 (1) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... so common we will take the issue from AY 2006-07 in ITA No.1537/K/2011 and decide the appeal. The relevant ground no. 1 raised by revenue reads as under: "1. That under the facts and circumstances of the case the Ld. CIT(A) has erred in law as well as in facts in holding that the entire provision of warranty expenses amounting to Rs. 1,50,43,597/- as an allowable expenses and deleting the entire addition. Whereas, only the part of such provision which got crystallized during the relevant previous year i.e. the amount of actual payment made during the year under the said head only should be allowed and the closing provision as on 31.03.2005 should be added back to the total income for the FY 2005-06 (AY 2006-07), as any sort of provision is not allowable as expenses, if it is not crystallized." 3. Briefly stated facts are that the assessee company is engaged in the business of manufacturing and marketing of control gears, motor control censors, control panels and enclosures etc. The AO while framing assessment required the assessee to explain the warranty expenses claimed by the assessee at Rs. 1,56,85,757/-. The assessee explained before the AO that these expenses consist of two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same was incurred only when the customers insist on the same otherwise payout is being made by the appellant which is the warranty expenses incurred during the year. It is submitted that the contention of the A.O. that only 5% of the amount has been paid which is grossly incorrect and indeed the method is being followed since earlier years and on the basis of the past experiences such provisions is being made in the Books of Accounts which is evident from the details of working furnished by the appellant. For the current year i.e. the relevant year 2006-2007, provisions of such warranty expenses is being made on the basis of past experience and had been computed in a systematic and scientific manner and hence the same is allowable expenses. In support of its contention that such expenses are clearly allowable expenditure; the appellant relied upon a numbers of decisions of the various High Courts and Supreme Court. My attention was drawn to the decision of the Hon'ble Supreme Court in the case of Rotork Control India Pvt. Ltd Vs. CIT 314 ITR 62 (SC) where in it has been held that such estimated provisions for warranty as an allowable expenses. In this case the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar on year basis. Ld. Counsel for the assessee drew our attention to the chart reproduced by AO and even by us in para 3 above. He narrated that by applying the percentage on the sale for AY 2005-06 relevant to FY 2004-05 the warranty expenses works out and he filed the details as under: Year Sales Actual year of pay out Amount of pay out 2003-04 Rs.81,84,78,271/- 2004-05 Rs. 80,28,072/- 2002-03 Rs.68,87,60,046/- 2003-04 Rs.66,90,068/- Aggregate Rs.150,72,38,317/- Rs.1,47,18,140/- Average - 1,47,18,140/150,72,38,317 = 0.9765% By applying the above percentage on the sale of AY 2005-06 relevant to FY 2004-05 the warranty expenses is worked out which is as follows: Sale Rs.101,33,42,025/- Warranty pay out Rs. 98,95,257- Actual pay out Rs. 80,28,072/- Provision made Rs. 18,67,185/- In view of the above, Ld. Counsel for the assessee stated that the warranty pay out works out at Rs. 98,35,257/- out of which Rs. 80,28,072/- has already been paid during the year and provision for warranty expenses is only for Rs. 18,67,185/-. Ld. Counsel for the assessee stated that the contention of the AO that only 5% of the amount has been paid is totally incorr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a reliable estimate is possible of the amount of obligation. As stated above, the case of Indian Molasses Co. [1959] 37 ITR 66 (SC) is different from the present case. As stated above, in the present case we are concerned with an army of items of sophisticated (specialised) goods manufactured and sold by the assessee whereas the case of Indian Molasses Co. [1959] 37 ITR 66 (SC) was restricted to an individual retiree. On the other hand, the case of Metal Box Company of India [1969] 73 ITR 53 (SC) pertained to an army of employees who were due to retire in future. In that case, the company had estimated its liability under two gratuity schemes and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out its estimated liability on actuarial valuation. It had made provision for such liability spread over to a number of years. In such a case it was held by this court that the provision made by the assessee-company for meeting the liability incurred by it under the gratuity scheme would be entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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