CIT Vs. EIMCO ELECON (INDIA) LTD.

JUDGEMENT

(1.) REVENUE is in appeal against the common judgment of the Income Tax Appellate Tribunal, Ahmedabad ('Tribunal' for short) dated 31 -5 -2012. 1. We may notice the questions framed in Tax Appeal No. 828 of 2012, which read as under: - - "(A) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the decision of Commissioner (Appeals) in deleting the addition made on account of disallowance of Rs. 48,61,158 being the warranty provision debited to spares account, contrary to auditors finding in the audit report that it was in the nature of contingent liability ?' (B) 'Whether the ITAT was justified in relying on the Hon'ble Apex Courts decision in the case of Rotork Controls (India) Ltd. : 314 ITR 52, without appreciating the fact that in the present case, the assessee deals in manufacturing of machines and spares/components and the warranty requires replacement of spares, which is replaced by the assessee and debited to spare account, therefore, the assessee would not be required to bear warranty expenses separately and therefore the facts of the case relied upon by the ITAT which gets support from the decision of the Hon'ble Karnataka High Court in the case of Micro Land Ltd. : 347 ITR 613 (Kar) 2012 -

(2.) BRIEF issue is that the respondent -assessee is engaged in the business of manufacturing mining machines and spares/components for re -sale and for own consumption. For the Assessment Year 2005 -06, the assessee had claimed a Warranty liability of Rs. 48.61 lakhs (rounded off) on the sale of different machineries manufactured and sold by the assessee. Assessing Officer questioned such claim on the ground that the said liability was not expended in present year but was contingent liability. Before Commissioner (Appeals) and the Tribunal, while relying on the decision of the Apex Court in case of Rotork Controls (India) Ltd. v. CIT : (2009) 314 ITR 62 (SC) assessee further pointed out that its total sale during the year under consideration was Rs. 9722.32 lakhs. The provision made for warranty thus came to a bare 0.5% of the total sales. The actual warranty expenses incurred during the year under consideration were Rs. 177.17 lakhs. In the earlier years also, the actual warranty expenses far exceeded the provision made. It was therefore contended that provision for warranty was neither excessive nor unreasonable.

(3.) THE Tribunal, by impugned order, relying on the decision in case of Rotork Control (India) Ltd. (supra) upheld the assessees stand. Revenue has therefore, filed these appeals before us.