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TMI Blog2018 (10) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/PUN/2015 - - - Dated:- 17-10-2018 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM For the Assessee : Shri Pramod Shingte For the Revenue : Dr Vivek Aggarwal and Shri M.K. Verma ORDER PER SUSHMA CHOWLA, JM: The appeal filed by the assessee is against the order of CIT(A)-I, Nashik, dated 10.12.2014 relating to assessment year 2006-07 against order passed under section 143(3) r.w.s. 254 of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following ground of appeal:- 1. On the facts and in the circumstances of the case and in law the lower authorities have erred in making the disallowance of warranty claim amounting to ₹ 2,76,87,623/- by rejecting appellants contention and all the documentary evidences produced before them. Your appellant prays for total relief. 3. The assessee is in appeal against the order of CIT(A) in making disallowance of warranty claim of ₹ 2,76,87,623/-. 4. Briefly, in the facts of the case, the assessee was engaged in the business of trading in Aircraft parts and engines. For the year under consideration, the assessee had furnished return of income declaring total income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of engine R-29-300 at ₹ 2.76 crores and other claims of ₹ 48,12,377/-, totaling ₹ 3.25 crores. The claims worth ₹ 48,12,377/- were the warranty claims by the customers against supplies made by assessee during the financial year 2005-06. The assessee gave details in this regard. It also gave the details in respect of claims raised by Indian Air Force (IAF) on assessee towards the overhauling of engine No.R-29B-300. The assessee explained that the sale of engine to IAF was under Tripartite Agreement among IAF, assessee and M/s. UMPO UFA through M/s. Rosoboronexport was channel partner/Indian representative for Russian counterpart. The sale/overhaulding of specific engine was effected by assessee vide Invoice dated 27.09.2001. The said engine was fitted in a MIG aircraft No.SM-257 which suffered an accident on 21.02.2002. The assessee also pointed out that the primary responsibility of the warranty claim fulfillment was of M/s. UMPO UFA through M/s. Rosoboronexport and assessee was supposed to act as intermediary. The assessee then pointed out the sequence of events and refusal of the said concern to accept warranty claim. The assessee thus, recognized warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of ₹ 2.76 crores. Our attention was drawn to the order of Tribunal, wherein the Assessing Officer was directed to look into the basis of provision for warranty. However, both the Assessing Officer and CIT(A) denied the claim of assessee. The learned Authorized Representative for the assessee pointed out that it was the responsibility of assessee which is further strengthened by the fact that amount due to the assessee against supplies to IAF have not been released to the assessee by Air Headquarters. He further pointed out that total cost of engine as per the claim was ₹ 4.61 crores and the overhaul part of engine was ₹ 2.27 crores. The documents in this regard are placed at pages 98 to 100 of Paper Book. Further documents were separately filed showing methodology of calculation of warranty claim. He placed reliance on the order of Hon'ble Supreme Court in Bharat Earth Movers Vs. CIT (2000) 245 ITR 428 (SC). 8. The learned Departmental Representative for the Revenue on the other hand, referred to the agreement between the parties and questioned whether it was the liability of assessee especially where the assessee while writing letters to the Count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . UFA premises for investigation. It is further understood as under:- 6.4 The customer will provide immediately full details of defects discovered within the warranty period to M/s IRAL to enable them to inform M/s. UFA for elimination of defects within 90 days from the date of communication of the defect. 6.5 Whenever the defect is discovered within warranty period the defect may be localized by the customer s personnel at the level of an aggregate, equipment or system, the same will be dispatched to UFA plant for repairs by agreement with UFA. 6.6 In case M/s. UFA does not examine the claim in terms indicated in the present Contract or does not respond within 120 days of the date of the claim, the CUSTOMER can unilaterally eliminate defects by himself or recover the cost of the item from any outstanding invoice. In case the customer repairs the item unilaterally, he shall submit to M/s. IRAL and account of expenses borne for the defect elimination with calculation of expenses and act report of the work done. M/s. IRAL is to refund the expenses borne without demur within 60 days of the receipt of the act report. Alternatively the CUSTOMER has a right to deduct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .76 crores with the assessee. The question which arises in the present appeal is against allowability of said provision in the hands of assessee. 13. The Hon'ble Supreme Court in Bharat Earth Movers Vs. CIT (supra) have laid down the law in respect of provision to be made i.e. recognition of liability which may be quantified and discharged at a future date. The Apex Court held as under:- 4. The law is settled; if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 14. The Hon'ble Supreme Court relied on the ratio laid down in Metal Box Co. of India Ltd. Vs. Their Workmen (1969) 73 ITR 53 (SC), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006, it was established that accident was due to the engine failure and hence, the claim was raised by IAF upon the assessee to reimburse cost of engines. The assessee forwarded the said claim to the Russian company, which refused to acknowledge it on the ground that it was not made within timeframe stipulated in the agreement. The assessee was no doubt raising the issue with the Russian company till date and there are series of correspondence but in none of the said correspondence, the Russian company had acknowledged its liability of paying damages on account of failure of engine. The assessee on the other hand, was also corresponding with IAF to which it was making regular supplies and IAF had not released the payments due to the assessee because the issue of warranty claim had not been settled by the assessee. In other words, the payments which were due to assessee, were being withheld by IAF against warranty claims. Undoubtedly, it is the liability of assessee as per contract to provide warranty within stipulated period to the customer i.e. IAF. In this case under the circumstances, where there was engine failure within warranty period, then as per terms of agreement and sin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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