Jharkhand HC confirms Deletion of Income Tax Addition on Business Expenses under “Provision for Warranty Expenses” [Read Order]

A Division Bench of the Jharkhand High Court confirmed the deletion of income tax addition on Business expenses under “Provision for Warranty Expenses”.

The Respondent-assessee,Heavy Engineering Corporation Limited, is a government of India undertaking and has engaged in the business of manufacturing, project works, reconditioning, Execution and Commissioning of machineries, Equipment for Steel plants, Mining sector, Railways, Defence etc. and is registered under the provisions of Companies Act, 1956.

The assessee filed its return declaring total income to be “NIL”. Return was processed under Section 143 (1) of the Income Tax Act. The case of the assessee was selected for scrutiny. Notice under Section 143(3) of the Income Tax Act was issued. An assessment order was passed wherein amount claimed as business expenses under the head of “Provision for Warranty Expenses” amounting to Rs.3,93,07,000/-.

The Respondent-Assessee preferred an Appeal before the CIT(A) which was allowed. All additions made by the Assessing Officer was deleted. The revenue preferred an Appeal before the Income Tax Appellate Tribunal (ITAT), wherein all the additions made by the Assessing Officer was deleted. The order the Revenue is in appeal before the High Court.

The Counsel for the appellant contended that the amount under the head of “Provision of Warranty Expenses” cannot be allowed as expenditure to the business income of the Respondent Assessee as the Respondent has not complied with all the conditions laid down in the judgment rendered in the case of Rotork Controls India to be entitled to the amount of “Provision of Warranty Expenses” as an expenditure to the business income of the respondent assessee.

A Division Bench comprising Justices Rongon Mukhopadhyay and Deepak Roshan observed that “The Assessee has not committed any violation of the provisions of the Income Tax Act and its Rules. As a matter of fact, the ITAT has discussed each and every ground raised by the Revenue in detail and rejected the contentions of the Revenue and dismissed their appeal filed before it. We hold that no error has been committed by the tribunal in rejecting the claim of the respondent revenue and dismissing the respective appeal.”

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