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TMI Blog2023 (6) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... y violation of the provisions of the I. T. Act and its Rules. As a matter of fact, learned I.T.A.T. has discussed each and every ground raised by the Revenue in detail and rejected the contentions of the Revenue and dismissed their appeal filed before it. We hold that no error has been committed by the learned tribunal in rejecting the claim of the respondent revenue and dismissing the respective appeals. - HON BLE MR. JUSTICE RONGON MUKHOPADHYAY AND HON BLE MR. JUSTICE DEEPAK ROSHAN For the Appellant : Mr. R.N. Sahay, Sr.S.C. For the Respondents : Mr. Anupam Anand, Advocate PER DEEPAK ROSHAN, J. T.A. 25 of 2019 has been preferred by the appellant Revenue praying therein for quashing of the order dated 15.03.2019 passed by the learned Income Tax Appellate Tribunal (ITAT); whereby the learned ITAT has dismissed the appeal of the Revenue being ITA No. 125/RAN/2017 for the Assessment Year 2012-13. Likewise, Tax Appeal No. 37 of 2019 has been preferred by the appellant Revenue praying therein for quashing of the order dated 05.04.2019 passed by the learned I.T.A.T. in I.T.A. No. 95/RAN/2017 for the Assessment Year 2007-08. Similarly, T.A. 38 of 2019 has been preferred by the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017. On 05.04.2019, appeal filed by the revenue was dismissed. 3. Facts of T.A. No. 38 of 2019 On 26.09.2011, Assessee filed its Return declaring total income to be NIL . Return was processed under Section 143(1). On 01.08.2012, case of Respondent was selected for scrutiny. Notice under section 143(3) was issued. On 24.03.2014, assessment order was passed wherein amount claimed as business expenses under the head of Provision for Warranty Expenses amounting to Rs. 3,65,51,000/- was disallowed. Respondent-Assessee preferred an Appeal before Commissioner of Income Tax (Appeal) [hereinafter referred to as CIT(A) ] being Appeal No. 61/Ran/Oth/14-15. On 08.04.2016, appeal filed by the Respondent was allowed. All additions made by the Assessing Officer was deleted. The Revenue preferred an Appeal before learned ITAT being I.T.A. No. 125/Ran/2017. On 15.03.2019 appeal filed by the revenue was dismissed. 6. All these appeals were heard and admitted on 11.5.2022 and the following substantial question of law were formulated. Tax Appeal No. 25 of 2019: 1. Whether in the facts and circumstances of the case, the amount under the head of Provision of Warranty Expenses can be allowed as expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the Income Tax Act, 1961? 2. Whether in the facts and circumstances of the case, the Respondent Assessee has complied with all the conditions laid down in the judgment of the Hon ble Supreme Court, passed in the case of Rotork Controls India Private Limited v. CIT reported in (2009) 13 SCC 283 , to be entitled the amount of Provision of Warranty Expenses as an expenditure to the business income of the respondent Assessee under the Income Tax Act, 1961 ? 3. Whether in the facts and circumstances of the case, the findings of the Ld. ITAT in the Impugned Judgment that Based on its past experience and technical estimate for warranty, expenses are provided in account and also the finding that the liability so accrued was estimated scientifically are perverse and not based on any material evidence? 4. Whether in the facts and circumstances of the case, the Impugned Judgment passed by Ld. ITAT is perverse? 7. Learned counsel for the appellant has submitted as follows: (a) The amount under the head of Provision of Warranty Expenses cannot be allowed as expenditure to the business income of the Respondent Assessee as the Respondent has not complied with all the conditions laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Accounting Policies of the Assessee company. The Assessee has been following this policy uniformly and consistently every year in the preparation of its balance sheet and profit and loss account. This provision of after sales service is then revert back by the company on expenditure of guarantee/warranty period and the amount of such expiration is then offered for taxation of income. It further transpires from the impugned order that the learned tribunal has categorically held at Paragraph 13 of the order dated 15.03.2019 passed in I.T.A. No. 176/Ran/15 that company on the expiration of warranty period, the balance amount is offered for tax as income. This clearly goes to show that there is no tax evasion. The issue with regard to provision of warranty has been settled down in the case of Rotork Controls India (P) Limited Vs. Commissioner of Income Tax, Chennai, reported in (2009) 13 SCC 283 wherein at Para-47-51 it has been held as under 47. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2009 (Arising out of S.L.P.(C) Nos. 14178-14182 of 2007- Rotork Controls India (P) Ltd. v. Commissioner of Income Tax, Chennai, in which the Madras High Court has overrules the decision of the Tribunal allowing deduction u/s 37 of the 1961 Act. However, the High Court has failed to notice the reversal which constituted part of the data systematically maintained by the assessee over the last decade. Thus, we see that the Assessee company has not committed any error in making provisions inasmuch as large number of sophisticated goods were being manufactured in the past and if the facts established show that defects existing in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipt under Section 37 of 1961 Act. Consequently, the issue of provision of warranty in the facts and circumstances of the case goes in favour of the Assessee and against the Revenue. 10. So far as the issue involved in T.A. No. 37 of 2019 is concerned, the same is discussed hereinbelow. (i) Provision of Liquidated Damages:- Liquidated damages refer to an amount actually deducted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mandated u/s 43 B (f) of the Act. Accordingly, the provision would not be governed by the provisions of section 43 B(f) of the Act. (iv) Sales Promotion:- The Assessee is a capital goods manufacturer and it is a trade practice prevalent in the line of business to provide after sales service on sale of such high-technology, high value capital goods. After sales service varies from 1 year to 3 years. The Assessee therefore incurs expenditure on account of after sales service which are booked under the head sales promotion. Furthermore, the Assessee also has to incur expenditure on account of sales and marketing of the product. Expenditures on sale promotions like this playing its product at exhibition etc. have to be incurred. Assessee deduct TDS whenever the provision of TDS calls applicable on payments made by it. In fact, the Assessee has added back the entire expenses in cases where the non-deduction of TDS has been reported by the Tax Auditor in their Tax Audit Report. In fact, the sales promotion expense of Rs. 2.29 lakhs include expenditure on account of after sales service. The provision for after sales service (warranty period) expenses of Rs. 152.36 lakhs are booked under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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