THE DCIT, CIRCLE-2(1)(2), BARODA vs. M/S. NIK-SAN ENGINEERING CO. PVT. LTD., MUMBAI

PER RAJPAL YADAV, JUDICIAL MEMBER:

The Revenue is in appeal before the Tribunal against the order of the learned Commissioner of Income-tax (Appeals)-III, Baroda dated 08.09.2014 passed for Assessment Year 2011-12.

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Officer that the assessee has made a provision qua warranty. In the opinion of Assessing Officer, it is a contingent liability. Learned Assessing Officer accordingly made a disallowance of Rs.82,98,967/-. The relevant findings recorded by the Assessing Officer in paragraph nos. 3.8 & 3.9 read as under:-

“3.8 In fact, taking the principle, the contingent liability, which is not arising in praesenti and depends on several circumstances which crystallize only on a future date, cannot be allowed as business expenditure in the assessment year in question. Without prejudice to this, the assessee has not provided the basis of quantification of expenditure but had made provision on an ad-hoc base considering 1%o to 5% percent of sales. It is also pertinent to mention here that the statue has made specific provisions for allowing liability defuture under section 36 (viia). It envisages deduction in respect of any provision for bad & doubtful debts for banking sector. The statute therefore has made it clear that allowing of liability defuture is available only to specific entities of banking sector and not to others that too with riders.

3.9 It is therefore clear that the provision made by the assessee for contingent liability is only a liability which is to accrue in future years. Hence the provision made by the assessee of Rs.1,08,96,884/- being contingent, is disallowed and is added back to the total income of the assessee. However, as in the present case, the Ld. CIT(A) has confirmed the addition of contingencies provision for the A.Y. 2009-10, the expenses incurred during the year for that year amounting to Rs.25,97,917/- has been allowed as expenses for the year under consideration towards the warranty expenses. The net disallowance comes to Rs.82,98,967/- and the same is added to the total income of the assessee. The assessee has furnished inaccurate particulars of income and hence, it is liable for penal proceedings u/s 271(1)(c) of the Act and the same are initiated separately.”

“5.3 I have considered the facts of the case, the AO’s observations and submission made by the AR of the appellant. The AO in para 3.4 of his order reproduced above has given a clear finding that the appellant

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company had not maintained separate records for identifying the expenses on the consumption of materials for repairing, replacement etc. during the period of warranty. According to the assessee, the expenses on purchase and consumption of the material/spares utilized/refurbishing the equipment supplied during the warranty period is accounted and charged to P & L Account in the year in which such expenses are provided. After this, the AO has reached the conclusion that the assessee had admitted that quantification of expenses incurred on warranty based equipment has not been separately done by the assessee. Accordingly, the liability for expenditure is not quantified. It may be stated here that in the appellate order for AY 2009-10 in appellant's own case, similar facts were involved and hence, the disallowance made by the AO in that year had been upheld in the appellate order by relying upon the decision of the Hon'ble Supreme Court in the case of CIT vs Rotork Controls India Pvt. Ltd. 314 ITR 62 (SC). In further appeal, the ITAT has deleted this addition as sustained by the CIT(A) by stating as follows:

"5. We have heard the rival contentions and perused the material on record. As per contract made between the parties, the assessee has to repair and maintain the transformers and other equipments. Accordingly, he had made provisions for liability and debited the expenditure in P & L account Assessee even did not have separate repair and maintenance accounts but had proved that it incurred the expenditure of repair and maintenance on account of past supply made to the different parties. When the contract is complete, an excess provision is reversed which has been demonstrated by the appellant. The provision for warranty is on scientific basis and as per contract. The assessee relied upon various decisions are also squarely applicable as argued above. We have considered view that the assessee's method of accounting for debiting the expenses on account of warranty is required to be accepted. Thus, we reverse . the order of the CIT(A) and allow the assessee's appeal on all grounds."

5.3.1. Since, the facts of the present assessment order are similar to the facts of the assessment order for 2009-10, hence, following the same, the decision of the ITAT in appellant’s own case, the disallowance made by the AO is directed to be deleted.”

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that the issue is squarely covered by this order of the ITAT in assessee’s own case. There is no disparity on facts. Learned First Appellate Authority has also passed his order based on these findings. We, therefore, uphold the order of the ld. CIT(A) and the Revenue’s appeal is accordingly dismissed.

Order pronounced in the Court on 10th April, 2018 at Ahmedabad.

Sd/- Sd/-

(AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 10/04/2018 *Biju T., Sr. PS आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT आयकर आयु�(अपील) / The CIT(A) 4. 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. देशानुसार/ BY ORDER, आदेशानुसार देशानुसार देशानुसार