Rotomag Motors And Controls Private Limited Vs ACIT (ITAT Ahmedabad)
In a recent judgment, the Income Tax Appellate Tribunal (ITAT) Ahmedabad bench allowed a warranty provision claim by Rotomag Motors and Controls Private Limited, overturning the disallowance upheld by the Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre, Delhi. The case centers around a disallowance of ₹1,14,19,990 on warranty provision expenses made by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961.
Case Background
Rotomag Motors, a manufacturer of engineering products, filed its income tax return for the assessment year (AY) 2017-18, reporting a total income of ₹41,41,54,010. The return was selected for scrutiny, with specific focus on the ₹1,14,19,990 warranty provision related to a contract with the Chhattisgarh government for the supply, installation, and maintenance of solar photovoltaic (SPV) irrigation pumps. This contract included a five-year on-site warranty.
During the assessment, Rotomag Motors justified its warranty provision, amounting to 0.74% of its turnover, as a valid business expense under section 37 of the Income Tax Act. The company cited the Supreme Court ruling in Rotork Controls India Pvt. Ltd. v. CIT, which allows provisions for warranty costs if calculated based on a reliable estimation. However, the AO dismissed the provision as a contingent liability, arguing that the claim was based on ad-hoc estimates lacking historical data, particularly as this was the first year of the SPV pump project.
