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TMI Blog2018 (5) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... de the whole issue back to the file of the Ld. assessing officer with a direction to the assessee to prove before the AO how the warranty provisions have been made by the assessee along with the technical inputs received from the technical team of the assessee Disallowing full credit of taxes deducted at source and taxes paid by the appellant dismissing the grounds raised by the appellant - Held that:- As the amount of tax deduction at source and taxes paid by the assessee is required to be given credit from the tax liability determined by the Ld. AO if they are supported by the necessary evidences, hence we set aside this ground of appeal to the file of the AO with a direction to examine the claim made by the assessee of credit for tax deduction at source and advance tax paid. - ITA No. 1494/Del/2014 - - - Dated:- 7-5-2018 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri Ravi Sharma, Adv. For The Revenue : Shri Amit Jain, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT (A), Faridabad dated 27.12.2013 for the Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and submitted that warranty expenses provided by the assessee is not on scientific basis in compliance of the accrual basis of accounting and hence is not allowable as deduction whereas the assessee has also not submitted the said expenses calculated on any scientific basis but have been determined on the basis of the costs liable to be incurred in relation to warranty obligation contracted with respective customers. He further held that the provision of warranty expenses is not an allowable deduction in view of the note given by the auditors in the audit report in clause (f) of the report. He further held that provision made by the assessee is a contingent and is not a liability in present. Therefore, he disallowed the expenditure of ₹ 37, 87, 010/- on account of warranty expenditure. Consequently the assessment order under section 143 (3) of income tax act was passed on 30/12/2011 determining the total income of the assessee at ₹ 11, 10, 43, 794/ . 6. The assessee aggrieved with the order of the Ld. AO preferred an appeal before the Ld. CIT (A). The Ld. CIT A held that the note by given by the auditor in clause (f) of the audit report puts a big questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative and relied upon the orders of the lower authorities. He submitted that lower authority have given detailed reasons and stated that coupled with remarks of the auditor in the audit report as well as the failure on part of the assessee to show the provision of the warranty services on scientific basis the disallowance has been correctly made. 9. We have carefully considered the rival contention and perused the orders of the lower authorities. The assessee company is engaged in the business of trading of telecom equipment and provision for installation and commissioning services related to the same. In the trading and installation services of the telecom equipment, The assessee provides warranty to the buyers. As part of the contract with the customers, it is required to provide warranty services by way of repair and replacement for a predefined period. The obligation of the appellant to provide the services is inbuilt in the contract for the sale and services only. Therefore, apparently assessee is supposed to incur certain expenditure over the period of warranty claim contract. The assessee made a provision based on the inputs from technical team for each customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f warranty expenditure is reliable estimate or not the lower authorities should have looked into the basis of the estimate made by the assessee. It is further required to be seen that what kind of expenditure have been incurred by the assessee in subsequent years that will give the best picture with the original provision made by the assessee s reliable estimate or not. Further as the sale prices has been booked into the profit and loss account the corresponding expenditure on account of warranty expenses are also a liability in present and therefore it cannot be said that it is a contingent liability wherein the contract with the customers the clauses of warranty are existing. Therefore, it is an allowable expenditure. In fact, there cannot be any doubt that the assessee is eligible for deduction of warranty expenditure. The only dispute is whether the claim made by the assessee is a reliable estimate or not but in any case, it cannot be nil. Qualification in the audit report with respect to quantification is only because of non-availability of the reliable trend for the past years. The assessee has also disclosed in the notes on accounts the details of the warranty expenses. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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