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Facts
The assessee filed a NIL return for AY 2014-15, but a regular assessment determined income under normal provisions and book profit u/s 115JB. A revision order was passed directing the AO to inquire into provision for warranty expenses. The AO subsequently added Rs. 34,48,532/- for warranty expenses under both normal provisions and section 115JB. The CIT(A) partly allowed the appeal, deleting the addition under normal provisions but confirming it under section 115JB, leading to cross appeals by the assessee and Revenue to the ITAT.
Held
The ITAT held that the provision for warranty expenses, based on past data and scientific estimation, constitutes an ascertained liability and does not fall within the mischief of clause (c) of Explanation 1 to section 115JB. Therefore, the addition made by the AO while computing book profit u/s 115JB was unsustainable and directed to be deleted. The tribunal also dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition under normal provisions as it was not controverted.
Key Issues
Whether provision for warranty expenses, being an ascertained liability, should be added back for computing book profit under section 115JB. Whether the addition of warranty expenses under normal provisions was justified.
Sections Cited
143(3), 263, 115JB
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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
Sahajanand Laser Assistant Technology Limited Vs Commissioner of 30, GIDC Electronics Income Tax, Estate, Sector-26, Circle-4(1)(1), Gandhinagar, Ahmedabad Gujarat-382028 PAN: AAGCS1983B The ACIT, Vs Sahajanand Laser Gandhinagar Circle, Technology Ltd Gandhi Nagar E-30,GIDC, Sector- 26, Gandhi Nagar, Gujarat-382028 PAN: AAGCS1983B (Appellant) (Respondent) Assessee Represented: Ms. Arti N Shah, A.R. Revenue Represented: Shri Prathvi Raj Meena, CIT-DR Date of hearing : 11-02-2026 Date of pronouncement : 09-03-2026 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
These cross appeals are filed by the Assessee and Revenue as against appellate order dated 21-08-2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) rws 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2014-15.
Sahajanand Laser Technology Limited – A.Y. 2014-15 2. Brief facts of the case is that the assessee filed its Return of Income for the Asst. year 2014-15 on 28-11-2014 declaring Nil income. Regular assessment u/s.143[3] was made on 29-12-2016 determining the income under normal provisions at Rs.7,38,27,158/= and under book profit u/s.115JB at Rs.15,76,68,533/=. This assessment order was found to be erroneous and prejudicial to the interest of Revenue, therefore Ld.PCIT passed revision order dated 13-02-2019 with direction to the AO to make proper inquiry in respect of the provisions of warranty expenses of Rs.34,48,532/= claimed by the assessee. The AO in the giving effect order made addition of Rs.34,48,532/= since the assessee created only a provision for warranty expenses and disallowed the same. The AO also made addition of Rs.34,48,532/= under the book profit u/s.115JB of the Act and demanded tax thereon.
Aggrieved against the assessment order, assessee filed an appeal before CIT[A] who partly allowed the appeal by deleting the addition on account of warranty expenses under the normal provisions of the Act but confirmed the addition of Rs.34,48,532/= under the book profit u/s.115JB of the Act by observing as follows:
“6.3 On perusal of computation of income, it is evident that the appellant added the provision for warranty expenses amounting to Rs.34,48,532/- and further reduced the warranty expenses of Rs. 16,10,280/- which were incurred during the year under consideration. The argument of the appellant is also verified from the ITR for AY 2014-15. Thus, the provision for warranty expenses of Rs 34,48,532/- debited to the profit and loss account don't disturb at ariving to the total income of the applicant under normal provision of the Income Tax Act, 1961. So far as the addition of provision for warranty expenses in the book profit computed u/s 115JB of the Act is concerned, the appellant had not added the same while calculating book profit. In view of the above discussion, the AO is unjustified in adding the provision for warranty expenses of Rs.34.48,532/- to the total income of the appellant calculated under normal provision of the Act. Therefore, the AO is directed to delete the addition of provision for warranty expenses of Sahajanand Laser Technology Limited – A.Y. 2014-15 Rs.34,48,532/- under normal provision of the Act and sustain this addition while calculating the book profit under section 115JB of the Act. This ground of appeal is partly allowed.”
Aggrieved against the appellate order, Grounds of Appeal raised by the assessee in read as under:
“1. The Learned C.LT.(A) has erred in law and on facts of the case by adding warranty expenses of Rs.34,48,532/- to book profit u/s. 115JB of the I.T. Act, 1961 though the same was an ascertained liability and not liable to be added back in calculating profit u/s.115JB of the I.T. Act, 1961. 2. Your Appellant reserves the right to add, alter, amend and/or withdraw any of the above Grounds of Appeal
.”
5. We have heard the rival submissions and perused the material available on record. The Assessing Officer, while computing the book profit under section 115JB of the Act, added back the provision for warranty by invoking clause (c) of Explanation 1 to section 115JB on the ground that the same represents a provision for liability. The case of the assessee, on the other hand, is that the provision has been created towards warranty obligations arising from the sale of products and is based on past experience and a reasonable scientific method of estimation and therefore constitutes an ascertained liability. Clause (c) of Explanation 1 to section 115JB provides for addition of the amount set aside as provision, other than for unascertained liabilities. It is now well settled that if a liability has crystallized during the year and the amount thereof can be reasonably estimated, the same cannot be regarded as an unascertained liability merely because the exact outflow of funds may occur in a subsequent year. The Hon’ble Supreme Court in Rotork Controls India (P) Ltd. v. CIT (314 ITR 62) has held that a provision for warranty made on the basis of a scientific method and past experience represents a present obligation arising from past events and therefore Sahajanand Laser Technology Limited – A.Y. 2014-15 constitutes an ascertained liability. Similar principle has also been laid down by the Hon’ble Supreme Court in Bharat Earth Movers v. CIT (245 ITR 428) wherein it was held that a liability which has arisen in the accounting year and can be reasonably estimated is allowable notwithstanding the fact that it may have to be discharged in future.
5.1 In the present case, the provision for warranty has been created in respect of products sold during the year and is based on past data relating to warranty claims. Therefore, the liability cannot be said to be contingent or unascertained. In our considered view, such provision does not fall within the mischief of clause (c) of Explanation 1 to section 115JB. Accordingly, the addition made by the Assessing Officer while computing the book profit is unsustainable and the same is directed to be deleted.
In the result, the appeal filed by the assessee is hereby allowed.
“(a) The Ld.CIT (A) has erred in law and on facts in deleting the addition of Rs. 34,48,352/-on account of provision for warranty expenses under normal provision of the Act. (b) The appellant craves leave to add, alter and/or to amend all or any of the ground before the final hearing of the appeal.”
We have heard rival submissions and perused the materials available on record. The Ld. CIT(A) considered the computation of income wherein the assessee added the provisions for warranty expenses amounting to Rs.34,48,532/- and further reduced the warranty expenses of Rs.16,10,280/-, which was incurred during F.Y. 2013-14, which is reflecting in the Income Tax Return filed for the A.Y. 2014-15, whereby Ld. CIT(A) deleted the addition made under the Sahajanand Laser Technology Limited – A.Y. 2014-15 normal provisions of the Income Tax Act. This finding arrived by the Ld. CIT(A) is not controverted by the Revenue with any materials on record. Therefore, the ground raised by the Revenue is devoid of merits and is liable to be dismissed.
Order pronounced in the open court on 09-03-2026 Sd/- Sd/- (DR. BRR KUMAR) (T.R. SENTHIL KUMAR) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 09/03/2026 True Copy आदेश क� �ितिल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद