COMMISSIONER OF INCOME TAX Vs. IBM INDIA LTD

JUDGEMENT

(1.) The Revenue has preferred this appeal against the order passed by the Tribunal which has granted the relief to the assessee on four grounds. The assessee is a limited company engaged in the business of sale of computer hardware and software. The products sold by them carry warranty for a specified period. The assessee, on the basis of the past experience and certain fair and best estimated basis, has provided for such warranty liability in respect of sales made during the year. The assessee claimed amounts spent towards amount as revenue expenditure. It also sought relief in respect of provision made for doubtful debts under section 115JA(ii) of the Income-tax Act, 1961 (for short, "the Act"). Further, the assessee contended, in the absence of any liability under section 115JA, there is no liability to pay advance tax and, consequently, no interest is payable under section 234B of the Act. The assessing authority overruling all those contentions framed an assessment order. Aggrieved by the same, the assessee preferred an appeal. The appellate authority/Commissioner of Income-tax (Appeals), dismissed the appeal. Aggrieved by the same, the assessee preferred an appeal before the Tribunal which granted relief on all those grounds. Aggrieved by the same, the Revenue has preferred this appeal.

(2.) This appeal is admitted to consider the following substantial questions of law:

(3.) The assessee claimed a sum of Rs. 4,92,69,808 being a provision made for warranty liability in respect of products sold and contended that it is not a contingent liability but should be allowed as revenue expenditure. The Tribunal held the liability to pay for warranty claims arises no sooner 'the sale are effected. The assessee has provided for liability on the basis of sales made during the year. Though the exact amount cannot be quantified, however, the sum is based on the scientific approach and based on the past experience and, therefore, reliance is placed on the judgment of various High Courts, which directed of the deletion of Rs. 4,92,69,808.