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TMI Blog2020 (12) TMI 1225X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer (in short "AO") disallowed the provision of warranty mainly for the reason that there was a vast variation in ratio between the actual expenses & the provision created. On appeal, the Ld.CIT(A) upheld the assessment. On assessee's appeal, this Tribunal remitted the issue back to the AO to examine the issue afresh. In the revision order, the AO held, inter alia, that in the absence of any new material brought to his notice, no deviation in the disallowance made in the Assessment Order is required, which was confirmed by the Ld.CIT(A) and accordingly, sustained the quantum of disallowance made in the original Assessment Order. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (A). The Ld.CIT(A) after examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T? 6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 3. The case was heard through videoconferencing. The Ld.DR presented the case on the lines of grounds of appeal, supra, and pleaded to restore the order of the AO. Per contra, the Ld.AR submitted that the provision of warranty is recognized by the assessee in compliance with the Accounting Standard-29 (AS-29) as prescribed by the ICAI at the time of sale and not at the time of settlement. The assessee's similar claim in the AYs 2005-06 & AY 2007-08 was upheld by the Ld.CIT(A). On Revenue's appeal, for the AY 2005-06, the Hon'ble ITAT in ITA No.352/Bang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee pleaded that it is complying with the AS-29 as per which warranty is recognized at the time of sale and not at the time of settlement and furnished relevant materials viz., the method of determination of provision of warranty, liability movement of warranty provisions from AY 2008-09 to 2015, statement showing the provision vs. settlement for accounting years i.e. 2007 to 2015, etc., and clearly explained that warranty is recognized at the time of Sale and not at the time of settlement. Therefore, the provision goes up if the sales goes up in any year & also if the settlement goes up, it is factored in the provision. Since the warranty period is prorated over a period of 12-36 months, accordingly the settlements will also prolong for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to allow the claim for the reason that the ratio between the actual and the provision which was 70:100 during the AYs 2005-06 & 2007-08 but it was 59:100 in AY 2008-09 and hence he held that the assessee's estimation of provision is not scientific & reasonable. Aggrieved, the assessee filed an appeal before the Hon'ble Tribunal, which allowed the appeal. Aggrieved against that order, the Revenue filed an appeal before the Hon'ble High Court of Karnataka. The relevant portion of the judgment in ITA No.400 of 2012 dated 25.08.2020 related to the AY 2008-09, is extracted as under: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The appeal was admitted by a bench of this Court vide order dated 12.01.2013 on the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the Act to allow any expenditure, which is in the nature of provision and is contingent. Accordingly, a sum of Rs. 3,98,18,294/- was disallowed and was added to the total income. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 5. We have considered the submissions made by learned counsel on both the sides and have perused the record. The only issue, which arises for consideration in this appeal is whether the principles laid down by the Supreme Court in Rotork Controls India (P) Ltd. Supra have been taken note of while deciding the issue of estimation of provision for the Assessment year 2008-09. At this stage, it is relevant to extract para 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not consider the estimation of provision in this year is scientific and reasonable. However, the allowance of actual expenditure reduced by the A.O. and disallowance of the balance is found justified. The addition is upheld. The related grounds of appeal are dismissed. 6. Thus, from close scrutiny of paragraph 9, it is evident that the principles laid down by the Supreme Court in Rotork Controls India (P) Ltd. Supra had been taken into account by the Commissioner of Income Tax (Appeals) and the estimation of provision for the Assessment year 2008-09 has been found to be unscientific and unreasonable. The Tribunal has noted that admittedly, the Commissioner of Income Tax (Appeals) has considered the same working method of provision in prev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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