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TMI Blog2018 (1) TMI 1719X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT (A) which shows that the amount claimed by the assessee in the profit and loss account is a net result of opening balances of the provision for warranty added thereto amount credited in provision for warranty account during the year and reduced by the provision utilized during the year for meeting the expenditure out of the opening balances and actual warranty expenses incurred during the year over and above provision utilization. Assessee is entitled to the deduction of warranty expenses provided for, if it is made based on history and some scientific methodology but not on ad hoc basis. Therefore, we set aside the whole issue back to the file of the Ld. assessing officer with a direction to the assessee to provide the methodolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. That the ld CIT (A) has erred on facts and in law in confirming a disallowance of Rs. 2325950/- out of the total of Rs. 2675450/- being warranty expenses claimed by the appellant in its return of income. 1.1 The ld CIT(A) failed to consider the fact that out of Rs. 2675450/- disallowed by AO by treating the same as provisions of warranty, Rs. 207178/- was on account of actual warranty expenses materialized during the year and the provisions made for warranty expenses is restricted to Rs. 2468272/-. 1.2 That while upholding the disallowance of Rs. 2325950/- for provisions of warranty ld CIT (A) has failed to appreciate that the appellant had created the provision on the basis of past history and the same was based on a sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons which is ascertained and not contingent. He stated that as sales is inclusive of the cost of warranty the above amount is charged to the profit and loss account and when actual expenditure are incurred same are debited to the provision and balance account is carried forward. He therefore, submitted that there is no infirmity in the provisions made by the assessee. With respect to 0.5%, she submitted that it is based on the history and claimed arising on the assessee. It was further contested that disallowance confirmed by the ld CIT (A) is on adhoc basis. 6. The ld Departmental Representative vehemently supported the orders of the lower authorities. 7. We have carefully considered the rival contentions and perused the orders of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision is made which is based on historical trends and is supported by warranty condition at the time of sale then, the assessee is entitled to deduction of the above claim u/s 37 of the Act. In the present case as per annexure- A it seems that assessee has made ad hoc provision on the sales as a fixed percentage. The ld CIT (A) has also allowed the claim of Rs 3.5 lakhs without giving any cogent reason. Further looking at the chart titled as Annexure A by the Ld. CIT (A) which shows that the amount claimed by the assessee in the profit and loss account is a net result of opening balances of the provision for warranty added thereto amount credited in provision for warranty account during the year and reduced by the provision utilized during ..... X X X X Extracts X X X X X X X X Extracts X X X X
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