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Income Tax Appellate Tribunal, I Bench, Mumbai
Before: Shri Saktijit Dey & ShriN.K. Pradhan
Per Bench
The aforesaid appeals of Revenue are directed against three separate orders of Commissioner of Income Tax (Appeals)-3, Thane dated 01.07.2016 pertaining to Assessment Years 2008-09, 2009-10 and 2010-11.
The common issue arising for consideration in the present appeals relates to deletion of addition made by the Assessing Officer (AO) on account of provision of warrantee expenses.
The facts relating to the issue in dispute in the impugned assessment years are more or less identical, except, the quantum of disallowance. Briefly stated, assessee a company, is engaged in the business of repairing, refurbishing, sale and installation of medical equipments. During the assessment proceedings the AO noticing that the assessee has reduced certain amount from the sales turnover claiming them to be provision for warrantee and guarantee called upon the assessee to furnish necessary details relating to such claim. After verifying the 2 to 6220/Mum/2016 M/s. Medirays Corporation details furnished by the assessee he found that the provisions made for warrantee and guarantee works out to 10% of the turnover. He also was of the view that the deductions claimed by the assessee are purely in the nature of provision. Therefore, he called upon the assessee to justify the allowability of deduction claimed on account of provisions for warranty and guarantee. In response, it was submitted by the assessee that the provision for warrantee is created on accrual basis on the last day of each year and is arrived at on the basis of the earlier experience with the customers. Actual warranty related expenses incurred are adjusted against the provisions. The provision is generally kept for two years and thereafter the balance, if any, is written back. Therefore, it was submitted that the provision for warrantee is an accrued expenditure. The AO however, was not convinced with the explanation of the assessee and being of the view that the deduction claimed on account of warrantee and guarantee is in the nature of a provision is not allowable and added back to the income of the assessee. Similar additions were made in the other assessment years also. Being aggrieved of such additions made by the AO assessee preferred appeals before the CIT(A).
The learned CIT(A), after considering the submissions of the assessee in the context of the facts and material on record as well as taking note of the fact that identical claim made by the assessee towards provision for warrantee expenses was allowed by him in assessee’s own case for A.Y. 2011-12, followed the same and allowed assessee’s claim of deduction in all these years. Aggrieved, Revenue is in appeal before us.
We have heard the parties. At the very outset learned counsels appearing for both the parties have submitted before us that while deciding identical issue arising in Revenue’s appeal in assessee’s own case for A.Y. 2011-12, the Tribunal has upheld the order of the CIT(A) in allowing assessee’s claim of deduction towards provision for warrantee and guarantee. A copy of the order passed by the Tribunal in dated 22.03.2017 was also placed before the Bench. On a perusal of the aforesaid order of the Tribunal it is noted that while deciding
9. On a careful perusal of the order passed by Ld CIT(A), we notice that the first appellate authority has examined the claim of the assessee by following the principles laid down by Hon’ble Supreme Court in the case of Rotork Controls (India) Ltd (supra) and has further noticed that the assessee has spent a sum of Rs.85,28,300/- in the succeeding years out of the warranty amount provided for during the instant year. The Ld CIT(A) has also taken into account the fact that the machinery sold by the assessee are imported second hand machines and hence they may require frequent attendance/repairs. Since the assessee has been declaring profits at a higher level year after year, the Ld CIT(A) has also observed that the creation of provision and reversal of the same are revenue neutral. In any case, a business man would provide for such warranty claims on estimated basis for possible claims only and it is not necessary that the provision so made should be fully spent. The actual expenditure would depend upon the warranty claims actually lodged by the customers, which may vary year after year. In the instant case, it is not the case of the AO that the assessee has provided for amount at an excessive figure in order to suppress the profits. Hence, in our considered view, the Ld CIT(A) has taken judicious view of the matter and the same does not call for any interference. Accordingly we uphold the order passed by Ld CIT(A) on this issue.
It has also been submitted before us by the learned counsels appearing for the parties that there is no factual difference between A.Y. 2011-12 and the impugned assessment years. That being the case, respectfully following the aforesaid decision of the Coordinate Bench in assessee’s own case, we uphold the order of the learned CIT(A) by dismissing the grounds raised in all these appeals.
In the result, the appeals filed by Revenue are dismissed.