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TMI Blog2019 (11) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... ng disposed of by this common order for the sake of convenience and brevity. 2. The common grievance in both these appeals relates to the disallowance made for the provision for warranty, though the quantum may differ. 3. Briefly stated, the facts of the case are that the assessee received commission income and as per the Sales Representation Agreement, the assessee's activity involves the sale of equipments and at the same time, attends to the warranty services for free warranty for the warranty period. The assessee gets income from its Associated Enterprise Rhode & Schwarz GmBH, Germany and other for services rendered. The services include all activities culminating in the sale of their equipments and free warranty services for 2-5 year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Appeal No: 625/CIT(A)- 7/Del/14-15 dated 22.04.2016 and the addition made by the AO was confirmed. Operative part of the order is reproduced as under: "3.4. I have carefully considered the assessment order and the submissions filed by the Aft. The appellant company during the year has created a provisions of warranty at Rs. 36,06,987/- which is reduced from the commission income instead of separately debiting into the P & L A/c. The Ld. AR has relied on the judgement of the Hon 'ble Apex Court in the case of M/s Rotork Controls India (P) Ltd. vs. CIT (2009) 314 ITR 62. The AO has recorded that the appellant failed to submit details of warranty expenses and how it was linked to the commission. Further, during appellate proceedings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t based on any realistic estimation or scientific basis. In view of the facts of the case, the addition of Rs. 36,06,987/- for Assessment Year 2011-12 and 2,55,27,748/- in A.Y 2012-13 made by the AO on account of provision of warranty is held to be in order and is sustained. This ground of appeal is ruled against the appellant." 8. Before us, the ld. counsel for the assessee out rightly stated that the issue has been decided by the Tribunal in A.Ys 2007-08, 2008-09, 2009-10 and 200-11. 9. Per contra, the ld. DR could not bring any distinguishing decision in favour of the Revenue. 10. We have given thoughtful consideration to the orders of the authorities below and have also considered the orders of the coordinate bench in ITA No. 894/D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his has been considered as income in the next years and offered to tax (i.e. the year in which warranty services are rendered.} It is worthwhile to note that the assessee has not made any provision for warranty separately and has not debited any expenses pertaining to warranty to the P & L The assessee instead of debiting P & L A/c has reduced from the income the provision for warranty and has been following the same accounting principle. Your Honour would appreciate that if this amount is added, this amounts to double taxation as these have been offered to income tax by the assessee in the next 2 assessment years. " Thereafter, the assessee was asked to file details of expenses incurred for the last four years prior to the relevant ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) relied by the Id counsel for the assessee the ratio of which is that in case of provision for warranty services the entire income could not be offered for taxation for the year under assessment when the assessee had few obligations for providing after sales maintenance services and the necessary' expenses is required to be kept for the same. 20. Hon'ble Apex Court in judgment cited as Rotork Controls India P. Ltd. Vs. CIT (2009) 314 ITR 62 settled the identical issue once for all by holding as under:- "The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can he an item of deduction under section 37. The principle oj estimation of the contingent liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff to settled its warranty obligation which can only be measured by using substantial degree of estimation. More particularly the reliable estimation of the amount of obligation has to be made on the basis of scientific method and not on the basis of arithmetic calculation as has been done by AO and affirmed by learned Commissioner of Income-tax (Appeals). Undisputedly the assessee company is to provide services including warranty for next two years after sales. The income accrued at the time of receiving commission has to be accounted for in the year of accrual and not in the year of receipt. So we are of the considered view that the matter is required to be restored to the AO to recompute the income received by the assessee on account c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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