Provision for Warranty Expenses is ascertained liability, allowable as Business Expenditure: ITAT [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the provision for Warranty Expenses is ascertained liability and is allow able as business expenditure.

M/s.Trivitron Healthcare Pvt. Ltd., the assessee filed appeal against the order of the Principal Commissioner of Income Tax-3, Chennai, dated 22.03.2019 passed u/s.263 of the Income Tax Act, 1961, and pertains to the assessment year 2014-15.

The PCIT observed that there was a five times increase in provision for warranty expenses for the AY 2014-15 when compared to AY 2013-14.  Although the assessee has not explained rationally behind the substantial increase in expenses, the AO has allowed the claim without carrying out the required enquiries, he ought to have carried out. 

The assessee is in the business of manufacturing diagnostic equipmentand is required to provide a warranty on goods manufactured and sold to customers.  The assessee is making provision for warranty expenses based on history and such provision has been made on a scientific basis considering the facts including history and experience and warranty provided to customers.

The ITAT bench of Shri Mahavir Singh, vice president and Shri G Manjunatha, accountant member viewed that the provision for warranty expenses provided by the assessee in the books of accounts is based on history and further, such provision has been made on a scientific basis. 

Further observed that during the course of assessment proceedings, the AO has issued a specific show cause notice on the issue and the assessee vide letter dated 30.11.2016 filed a detailed reply and explained how warranty provision is allowable expenses. 

The AO after considering the relevant facts has rightly allowed the claim of the assessee. Based on details furnished by the assessee, the bench noted that the issue has been thoroughly examined by the AO and has allowed the claim of the assessee. While allowing the appeal filed by the assessee is allowedquashed the order of the PCIT u/s.263 of the Act.

To Read the full text of the Order CLICK HERE

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