DCIT, CIRCLE-1(1), KOLKATA, KOLKATA vs. M/S. BETTERMAN ENGGINEERS PVT. LTD., KOLKATA

This Revenue’s appeal for assessment year 2010-11 arises against the CIT(A)-I, Kolkata’s order dated 23.07.2014 passed in case no. 90/CIT(A)-I/W-1(1)/2013-14, involving proceeding u/s 143(3) of the Income Tax Act, 1961 (in short the ‘Act’). Heard both the parties. Case file perused.

The Revenue’s sole substantive ground pleaded in the instant appeal reads that the Ld. CIT(A) has erred in law and on facts in reversing the Assessing Officer’s action disallowing assessee’s warranty expenditure provision of Rs. 78,26,928/- in 8 M/s Betterman Engineers Pvt. Ltd. A.Yr.2010-11 3. We have given our thoughtful consideration to rival contention. Case file perused. Learned departmental representative vehemently contends during the course of hearing that the assessee’s impugned warranty provision claim of Rs. 78,26,928/- relates to job rectification work chose on the basis of estimation without any reasonable basis or supportive evidence or appropriate quantification of liability. The same is stated to be a provision of loss in the nature of a contingent liability only not allowable. We find no merit in Revenue’s instant grievance. This assessee is a company engaged in fabrication of sheet material business. We notice first of all that the impugned assessment year is not the first year of this taxpayer adopting the method in issue of provision for warranty loss brought forward from earlier assessment years. The Revenue fails to rebut the fact of the assessee having adopted AS-9 in recognizing revenue arising from gains in case of current years warranty loss for rectification (ascertained at the end of year). If turning out to be less than the corresponding provision and books. Excess of the former than the latter resulted is a reversed entry to this effect. This followed assessee’s quantification of the impugned provision amounting to Rs. 78,26,928/- comprising of actual cost paid on account of repairs / rectification till the date of finalization as well as estimated cost of repairs/ rectification involving respective sums of Rs. 26,26,928/- and Rs. 52,00,000/-. The said latter head is passed on M/s Limestone Commercial Pvt. Ltd. (engineering house). We wish to reiterate here that former head reads actual cost only. Hon’ble apex court’s land mark decision in “Rotark” case law (supra) admittedly accepts such kind of a warranty provision based on scientific estimation for liabilities in view of past events. The assessee’s relevant warranty figures right from assessment year 2009-10 to assessment year 2012-13 (supra) adopt the very method of estimation of warranty expenses. The same has been accepted throughout except in the impugned assessment year. The Revenue fails to dispute all this clinching backdrop of facts. We thus affirm the Ld. CIT(A)’s findings under 8

This Revenue’s appeal is dismissed accordingly.