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TMI Blog2016 (1) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... ingh, JM Both these appeals by revenue are arising out of separate orders of CIT(A)-VIII, Kolkata vide Appeal Nos. 527/CIT(A)-VIII/Kol/08-09 and 462/CIT(A)-VIII/Kol/09-10 dated 04.08.2011 and 05.08.2011 respectively. Assessments was framed by ACIT, Circle-7, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Year 2006-07 and 2007-08 vide his separate orders dated 23.12.2008 and 31.12.2009 respectively. 2. The only issue in these two appeals of revenue is against the order of CIT(A) in allowing the entire provision of warranty expenses of ₹ 1,50,43,597/- in AY 2006-07 and ₹ 1,60,88,554/- in AY 2007-08. For this, revenue has raised identically worded grounds. Since facts and circumstances are exactly identical and grounds are also 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 ₹ 1,50,43,597/- as an allowable expenses and deleting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is seen that the A. O. has disallowed such expenses on the ground that the actual expenses incurred are hardly 5% of what has been debited in the Books of Accounts. It was submitted by the appellant before the assessing officer that it had actually debited ₹ 15685757/- as warranty expenses in its accounts and the said expenses consisted of two portions, firstly the expenses actually incurred for meeting warranty liability i.e. warranty replacement expenses and the second portion being in the nature of provisions. The A/R of the appellant contended that even though the expenses had not crystallized they were in the normal course of business and likely to be incurred over the period of warranty. In support of its contention the appellant produced the quantum of expenses actually incurred in last three years with detailed working of warranty, replacement expenditure then warranty expenses and total pertaining to F.Y. 2002-03, 2003-04 2004-05. At the appellate stage the appellant submitted that it is true that in F.Y.2002-03 2003-04 there was no warranty replacement expenses but the same was incurred only when the customers insist on the same otherwise payout is being made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. 5. At the time of hearing, Ld. Counsel for the assessee drew our attention to assessee's paper book consists of pages 1 to 198 wherein complete details of working of warranty provision is given at pages 196 and 197 for the relevant AY 2006-07 and 2007-08 respectively. The relevant details from page 196 for AY 2006-07 reads as under: Warranty expenses: Warranty Expenses Booked as per warranty claimed processed during the year 10,956,851 Provision made for the year ended 31.03.2006 4,086,746 Add: Warranty Replacement Exp. 642,160 Total Expenses debited in the P/L A/c 15,685,757 Calculation of warranty provision: Year Sales Actual payout % Year Amount 2004-05 1,013,342,025 2005-06 12,824,037 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... past experience such provision is being made in the books of account and similar provision is made in the current assessment year i.e. 2006-07 as well as the provision has been made as under: Year Sales Actual payout (Year) Amount 2004-05 Rs.1,013,342,025.00 2005-06 Rs.12,824,037.31 2003-04 ₹ 818,478,271.00 2004-05 ₹ 8,028,072.00 Aggregate ₹ 915,910,148.00 Rs.10,426,054.66 Ld. Counsel for the assessee stated that applying the percentage to current sales the warranty replacement provision is as under: By applying above % to current year sale. Sale 2005-06 A 1,485,581,912.17 Warranty pay out B 16,910,783.49 B x Average Actual pay out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 principle is laid down in the judgment of this court in the case of Bharat Earth Movers [2000] 245 ITR 428 . In that case, the assessee-company had formulated leave encashment scheme. It was held, following the judgment in Metal Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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