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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 ..... s directed to decide the issue afresh in light of the directions by the coordinate bench given in earlier A.Ys. - ITA Nos. 2723/DEL/2017, ITA Nos. 749/DEL/2018 - - - Dated:- 7-11-2019 - Shri N.K. Billaiya, Accountant Member, And Ms. Suchitra Kamble, Judicial Member For the Assessee : Shri S. Srinivasan, CA For the Department : Shri Surendra Pal, Sr. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, The above two separate appeals by the assessee are preferred against two separate orders of the Commissioner of Income Tax [Appeals] - 7, New Delhi dated 17.02.2017 and 28.12.2107 pertaining to assessment years 2011-12 and 2012-13. Since both these appeals were heard together, these are being 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) read as under: 5.3. I have carefully considered the assessment order and the submissions filed by the AR. This issue was adjudicated by me in appeal for A.Y. 2011-12 in 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 ₹ 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 simple chart disclosing invoices against which provisions of warranty is tabulated was furnished. No basis as to how the warranty provision was worked out was available. The Hon 'ble Supreme Court in the case of M/s Rotork Controls India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company received commission to the tune of ₹ 17,46,97,141/- qua for Assessment Year 2007-08 and ₹ 60,46,937/- qua for Assessment Year 2008-09. The AO noticed from the details filed by the assessee that out of aforesaid commission the assessee has taken ₹ 1,30,76,118/- as income accrued but not due for Assessment Year 2007- 08 and ₹ 1,27,85,642/- for Assessment Year 2008-09. 17. On the query raised by the AO that as to why the aforesaid amount received but deferred for warranty services be not taken as income in the relevant assessment year, the assessee filed the response as under: As regards the commission is concerned your Honour may note the following: a) The commission is received on the sale of equipments manufactured by the parent company. b) For other services including warranty which is provided by the assessee company for the next 2 years Though for the purpose of transfer pricing certificate the entire amount has been reported, your Honour would rightly appreciate that for the services not rendered i.e. the warranty services which are to be rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. We have gone through the judgment CIT Vs. Paramjeet Luthra (supra) 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 liability is not normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and 1 the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. A provision is a liability whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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