SONY INDIA P LIMITED Vs. DEPUTY COMMISSIONER OF INCOME TAX
INCOME TAX APPELLATE TRIBUNAL
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(1.) THESE six appeals, three filed by the taxpayer and three filed by the Revenue are cross-appeals which are directed against three separate orders passed by the learned CIT(A) dated 31.12.2004, 21.12.2006 and 31.1.2007 for AY 2001-02, 2002-03 & 2003-04 respectively. As some common issues are involved therein, the same have been heard together and are being disposed of by this single consolidated order.
ITA No. 1181/Del/2005 - Revenue's appeal for AY 2001-02
(2.) In ground No. 1, the Revenue has challenged the action of the learned CIT(A) in deleting the addition of Rs. 2,25,38,920/- made by the Assessing Officer on account of provision for warranty while computing the total income of the taxpayer under the normal provisions and also in directing the AO to exclude the said provision while computing the book profit Under Section 115JB.
In its profit and loss account, warranty charges amounting to Rs. 4,04,12,572/-were debited by the taxpayer company. The said amount was inclusive of the warranty expenses actually incurred by the taxpayer company to the extent of Rs. 1,78,73,650/- and the remaining amount of Rs. 2,25,38,920/- was on account of provision made for anticipated warranty expenses in respect of the remaining part of the warranty period. According to the AO, the amount that may be payable by the taxpayer company on account of possible claims of warranty arising in the future constituted its contingent liability and the provision made for such contingent liability was not deductible while computing its total income. He, therefore, disallowed the same while computing the total income of the taxpayer under the normal provisions of the Act and also added the same while computing its book profit Under Section 115JB. The matter was carried before the ld. CIT(A) and it was submitted on behalf of the taxpayer company before him that the provision for anticipated liability on account of warranty claim for unexpired period was made on scientific basis taking into consideration the past history and this method as prescribed in Accounting Standard 4 issued by the Institute of Chartered Accountants of India was being regularly followed consistently from the inception. Relying inter alia on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT 245 ITR 428, it was contended that the said provision thus was made for an ascertained liability and the same was deductible as claimed by the taxpayer company. This stand of the taxpayer was found acceptable by the ld. CIT(A) and relying inter alia on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers (supra) as well as that of Mumbai Bench of ITAT in the case of Voltas Ltd. v. CIT 64 ITD 232, he held that the liability on account of warranty claim for the unexpired period was in praesenti and although it was liable to be discharged at a future date, the taxpayer was entitled for deduction on account of provision made for the said liability. He also held that the said provision for warranty being not for an ascertained liability, the addition thereof made by AO while computing the book profit Under Section 115JB was not permissible.
(3.) WE have heard the arguments of both the sides and also perused the relevant material on record. As pointed out by the learned Counsel for the taxpayer, a similar issue has been decided by the Hon'ble Punjab & Haryana High Court in the case of CIT v. Majestic Auto Ltd. 150 Taxman 460 wherein it was held relying inter alia on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers (supra) that the provision for warranty claims made on scientific basis keeping in view the past history is an admissible business expenditure. To the similar effect is the decision of Hon'ble Delhi High Court in the case of CIT v. Vinitec Corporation Pvt. Ltd. 278 ITR 337 wherein it was held that warranty clause is a part of sale transaction and liability for warranty expenses is a committed liability in the relevant accounting year though its actual quantification and discharge is deferred to a future date. It was further held that the provision made for such warranty expenses on the basis of figures of past years thus is deductible in the relevant year itself. The learned DR has not disputed this position. She, however, has made an attempt to point out from page 4 of the impugned order of the learned CIT(A) that the provision for warranty made by the taxpayer company @ 2% of the total turnover was highly excessive taking into consideration its own past history wherein such provision was required to be made at only 0.72%. However, as clarified by the learned Counsel for the taxpayer, the provision of 2% as referred to by the learned CIT(A) in his impugned order was in the context of a case of M/s Voltas Limited (supra) decided by Mumbai Bench of ITAT whereas the provision made for warranty by the taxpayer in the present case was only to the extent of 0.75%. WE, therefore, hold that the decision of Hon'ble Punjab & Haryana High Court in the case of Majestic Auto Ltd. on a similar issue is squarely applicable in the present case and respectfully following the same, we uphold the impugned order of the learned CIT(A) allowing the deduction claimed by the taxpayer on account for provision for warranty holding the same to be an ascertained liability. Similarly, we also uphold his impugned order deleting the addition made by the AO of the said amount while computing the book profit of the taxpayer company Under Section 115JB. Ground No. 1 of the Revenue's appeal is accordingly dismissed.;
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