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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI MAHAVIR SINGH & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
Aforesaid appeal by assessee for Assessment Year (AY) 2011-12 arises out of the order of learned Commissioner of Income Tax (Appeals)-15, Chennai [CIT(A)] dated 29-03-2019 in the matter of 2 - assessment framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s. 254 of the Act on 25.12.2018.
The solitary issue involved in the appeal is assessee’s claim of provisions for warranties. This is second round of appeal before us since the matter in the first round was remitted back by Tribunal to the file of Ld. AO vide &ors., order dated 26.04.2017. The bench opined that if the provision was made on scientific basis, the same was to be allowed provided the assessee has reversed the excess provisions in the subsequent years. The Ld. AO was directed to examine whether the assessee was following the same consistent method of making provisions and decide the issue afresh in the light of decision of Hon’ble Supreme Court in Rotork Controls India Pvt. Ltd. (314 ITR 62).
Pursuant to these directions, the issue has been re-adjudicated by Ld. AO. The assessee is stated to be engaged in supplying UPS systems.During assessment proceedings, the assessee submitted computation of provision for warranties for AYs 2011-12 to 2016-17. The Ld. AO noted that as on 31.03.2011, the assessee worked out warranty expenses by taking average turnover of the years 2010 and 2011 and warrant cost for the year 2010 and 2011. As on 31.03.2012, the assessee has taken the total turnover of three years i.e., 2010, 2011 and 2012 and worked out average warranty cost of 1.20%. As on 31.03.2014, 31.03.2015 & 31.03.2016, the assessee has taken total turnover for 6 months from October to March of the year 2014, 2015 & 2016 to make the provision stating that a technical intervention under guarantee occurs in average 6 months after the date of sale of the product.
However, rejecting the same, Ld. AO opined that for this year also, past 3 years’ trend was to be considered to compute the provisions. The average warranty cost of the past 3 years worked out to be 1.12% of average turnover. Applying the same to the turnover of this year, Ld. AO worked out allowable provision at Rs.82.04 Lacs and disallowed the excess provision of Rs.85.28 Lacs. The Ld. CIT(A) confirmed the stand of Ld. AO, inter-alia, on the ground that the assessee was not following consistent method to compute the provisions and the assessee did not submit invoice-wise details with regard to the provision for warranty and actual expenditure incurred in connection with warranty obligation. Aggrieved, the assessee is in further appeal before us.
We are of the opinion that considering the nature of assessee’s business, the exact estimation of provisions could not be made. The provisions would always be subject matter of estimation as well as the ability of management to foresee the warranty claims that may arise in future considering the past trends. It could be seen that the assessee has considered the trend of past two year. However, Ld. AO has considered the trend of past three years. The Ld. AR has placed on record a chart for the submissions that excess provision has been offered to tax in subsequent years. The same is as follows: - Particulars AY 2011-12 AY 2012-13 AY 2013-14 Opening Balance - 1,33,34,000 44,08,685 Add: Fresh provisions made 1,67,33,028 - 5,62,788 Less: Utilization 33,99,208 25,86,376 5,62,788 Less: Provisions reversed - 63,38,939 1,50,473 Closing Balance 1,33,34,000 44,08,685 42,58,212 From the perusal of chart, it could be seen that excess provision has subsequently been reversed by the assessee and already offered to tax. The same is also evident from the financial statements and computation of income as placed on record. Therefore, confirming the stand of lower authorities would amount to double addition. Hence, by deleting the impugned addition, we allow the appeal. 6. The appeal stands allowed in terms of our above order.
Order pronounced on 04th March, 2022 in Chennai.