M/S.VA TECH WABAG LTD.,CHENNAI vs. ACIT, CC-3(2), CHENNAI

ITA 2248/CHNY/2024Status: DisposedITAT Chennai24 February 2025AY 2020-2121 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal allowed the assessee's appeals. The Tribunal noted that a coordinate bench in the assessee's own case for assessment years 2010-2011 and 2011-2012 had allowed the balance provision claimed as provision for warranty. The Tribunal reiterated its view that warranty is an integral part of a sale transaction, representing a quality assurance. It acknowledged the difficulty in precisely estimating warranty commitments and the need for a scientific method as postulated by the Hon'ble Apex Court in 314 ITR 62. The Tribunal found that the commercial expediency of allowing warranty, including scientifically calculated provisions, is well-recognized. It specifically referred to a coordinate bench decision in ITA No.953/Chny/2015, which held that provisions for warranty are allowable business expenditure because the assessee has a present obligation as a result of past events, leading to an outflow of resources with a reliable estimate of the obligation. Therefore, the disallowances made by the AO and confirmed by the CIT(A) were deleted.

What were the facts?

The assessee, M/s. VA Tech Wabag Ltd, and the Revenue are in cross-appeals before the Income Tax Appellate Tribunal (ITAT), Chennai Bench, for assessment years 2017-18, 2018-19, and 2020-21. The appeals challenge orders of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 29.06.2024. The primary dispute concerns the disallowance of provisions made for warranty expenses. For AY 2017-18, the assessee claimed a provision of Rs.6,15,07,670/-. For AY 2018-19, the assessee claimed a net warranty provision of Rs.1,33,26,884/-, of which the Assessing Officer (AO) disallowed Rs.66,63,440/-. The CIT(A) confirmed the AO's disallowances in both instances.

What were the issues?

1. Whether the provision for warranty expenses, claimed by the assessee, is a deductible business expenditure, and if so, whether the disallowance made by the Assessing Officer and confirmed by the CIT(A) is justified (Question of law and mixed fact and law, concerning Section 37 of the Income Tax Act, 1961). Assessee's Contention: The assessee argued that the provision for warranty is a necessary business expense, integral to sales, and that the same procedure was followed in earlier years which were allowed by the Tribunal in previous decisions, citing ITA Nos 953/2015 and 807/2016 for AY 2010-11 and 2011-12, and IT(TP)A Nos.7,8,9/Chny/2021 and ITA No.326/2021 for AY 2013-14 to 2016-17. The assessee also relied on the principle of judicial consistency. Revenue's Contention: The Revenue's counsel relied on the orders of the lower authorities.

Which sections of the Income-tax Act were involved?

Section 37

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Cases cited in this judgment(6)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

आयकर अपीलीय अधिकरण 'ए” न्यायपीठ चेन्नई में। IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, CHENNAI माननीय श्री मनु कुमार गिरि, न्यायिक सदस्य एवं माननीय श्री जगदीश, लेखा सदस्य के समक्ष। BEFORE HON'BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON'BLE SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ ITA Nos.2246, 2247 & 2248/Chny/2024 (निर्धारणवर्ष / Assessment Years: 2017-18, 2018-19 & 2020-2021) M/s. VA Tech Wabag Ltd, 'Wabag House”

No.17, 200 feet Redial Road, S. Kolathur (Near Kamakshi Hospital)

Chennai 600 117 [PAN: AABCV 0225G] Vs. The Assistant Commissioner of Income Tax, Central Circle 3(2)

Chennai. आयकर अपील सं./ ITA Nos.2256, 2257 & 2258/Chny/2024 (निर्धारणवर्ष / Assessment Years: 2017-18, 2018-19 & 2020-2021)

The Assistant Commissioner of VS M/s. VA Tech Wabag Ltd, Income Tax, 'Wabag House”

Central Circle 3(2)

No.17, 200 feet Redial Road, Chennai. S. Kolathur (Near Kamakshi Hospital)

Chennai 600 117 (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent)

Assessee by Department by : Shri R. Vijayaraghavan, Advocate : Shri. P. Vijaideepan, IRS, JCIT. सुनवाई की तारीख/Date of Hearing : 13.02.2025 घोषणा की तारीख / Date of Pronouncement : 24.02.2025 2 ITA No.2246,47,48,56,57,58/Chny/2024

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