COMMISSIONER OF INCOME TAX Vs. NOKIA SIEMENS NETWORKS INDIA

JUDGEMENT

(1.) The Revenue has preferred this appeal challenging the finding of the Tribunal, which has approved the provision for warranty.

(2.) The Assessing Officer has allowed the provision for warranty amounting to Rs. 2.83 crores. The Commissioner in his revisional jurisdiction held, it was not allowable as expenditure. Therefore, he issued a show-cause notice to the assessee to file objection to the proposed action of allowing the provision for warranty. The assessee submitted his reply. He contended that the provision for warranty is created on accrual basis on last day of each quarter. Withdrawal is arrived at on the basis of earlier experience with the customer, sale of similar equipments and analysis on a scientific basis. Actual warranty related expenses incurred are adjusted against the provision. The provision is generally kept for one year and balance if any, is written back. The provision for warranty is an accrued expenditure. The Commissioner was not satisfied with the said explanation. He held that warranty provision is a contingent provision and it would not constitute expenditure. The provision created by the assessee would be deductible if the incurring of the liability on account of warranty is certain and is capable of being estimated with reasonable certainty. Finally he held that the provision for warranty amounting to Rs. 2.83 crores allowed by the Assessing Officer is withdrawn. Aggrieved by the same, assessee preferred an appeal. In the appeal, the Tribunal, relying on the judgment of the High Court in the case of CIT v. Wipro GE Medical Systems IT Appeal Nos. 342,343 and 345 of 2003, held the provision for warranty is an allowable expenditure and such provision is not a contingent expenditure and thus, the order of the Assessing authority was restored. Aggrieved by the same, the present appeal is filed.

(3.) Heard the learned counsel for the parties.