Case Law Details
Lenovo India Pvt. Ltd. Vs ITO (ITAT Bangalore)
Conclusion: Provision for warrant expenses was not contingent and had to be allowed as deduction while computing income under the head Income from Business & Profession. Thus, the addition made to the book profits under section 115JB was to be deleted because the liability could not be said to be contingent.
Held: Assessee was a renowned company Lenovo engaged in the business of manufacturing and distribution of desktop, laptop, servers and smartphones. It sold products and as per the terms of sale, assessee provided warranty for performance, replacement etc. Based on the past experience i.e., historical data, liability on account of probable warranty claims was provided in the books of accounts of the assessee. During the relevant previous year, assessee debited an expenditure under the head ‘Warranty Expenses. AO made addition made to the book profits u/s.115JB on account of provision for warranty liability treating the same to be a liability of a contingent nature and hence liable to be added to the profit as per profit and loss account prepared in accordance with companies act to arrive at the book profit of the assessee for the purpose of levy of tax on book profit under Sec.115JB. It was held that the provision for warrant expenses was not contingent and had to be allowed as deduction while computing income under the head “Income from Business & Profession”. Thus, the addition made to the book profits was to be deleted because the liability could not be said to be contingent.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal by the Assessee against the final order of assessment dated 30.10.2019 of Income Tax Officer, Ward-4(1)(1), Bangalore, passed u/s.143(3) read with Sec.144C of the Income Tax Act, 1961 (the Act) relating to assessment year 2015-16.
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