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TMI Blog2018 (6) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... A). 2. The brief facts of the case is that the assessee is a company who filed its return of income on 31.10.2004, showing business loss of Rs. 24050560/- which was revised on 21.03.2006. Subsequently, the assessment was completed u/s 143(3) of the Income Tax Act, 1961 on 29.12.2006. Subsequently, notice u/s 148 of the Act was issued and the case of the case was reopened by the ld AO stating that on perusal of the assessment records it was found that the assessee has debited Rs. 62561000/- to the profit and loss account on account of warranty expenses. Further, on scrutiny of the balancesheet it revealed that the assessee has increased the provision of amount of Rs. 21406000/- for the warranty expenses. The assessee was asked about the all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee during the year. She vehemently relied on para No. 4.2 of the order of the ld CIT(A). 5. The ld AR relied upon the order of the ld CIT(A) and submitted that in para 4.4 the ld CIT(A) has allowed the claim of the assessee based on the order of the coordinate bench for earlier years. 6. We have carefully considered the rival contentions and perused the orders of the lower authorities. During the year the assessee has debited Rs. 21406000/- as warranty expenses. The warranty provision has been created by the assessee following the accounting standard 29 of "provision, contingent liability and contingent assets" which is mandatory for the companies. The Hon'ble Supreme Court in Rotork Controls India Pvt. Ltd Vs. CIT (supra) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt does not arise since the is factored into while recognizing provisions for warranty for subsequent years. This treatment of „Provision for Warranty‟ is in accordance with the accepted principle of accounting which the appellant has been following consistently. The A.O., after examining the legal position regarding deduction on account of 'Provision for Warranty' in the light of this practice being followed by the appellant for so many years allowed provision for warranty while passing the assessment order u/s 143(3) of the Income Tax Act for A.Y- 2005-06, 06-07, 07-08, 08-09 and 10-11. 4.3 The creation of provision for warranty is in consonance with provisions of Section 145 of the Income Tax Act and mandatory acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on this account, considering the accepted principle of commercial practice and accountancy. Such a provision which is neither unascertained, nor of a contingent nature should be allowed as a deduction. 4.4 The Hon'ble Delhi ITAT vide order dated 12-04-13 (ITA No. 2961 and 2962/DEL/2012) has upheld the deletion of the addition on account of 'Provision for Warranty' by the Ld. CIT(A) in the appellant's case for AYs 1998-99 and 2001-02. The judgement assumes a lot of importance in view of facts in those cases being identical to the facts in the present case. The relevant extracts of the order of Hon'ble ITAT are reproduced here under:- 'We have carefully considered the submissions and perused the records. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the historical trend indicates that a large number of sophisticated goods were being manufactured in the past and the facts show that defects existed in some of the items manufactured and sold, then provision made for warranty in respect of such sophisticated goods would be entitled to deduction from the gross receipts under section 37." We further find that the Hon'ble Jurisdictional High Court in the case of C.I.T. vs. Majestic Auto Ltd. (Supra) has affirmed the Tribunal's order and held that the provision for warranty claims and free services charges were allowable as deduction on the facts that quantification of warranty claim and liability of free services has been made on scientific basis. In the background of the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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