Provision for Warranty Expenses allowed as business expense u/s 37

PCIT Vs Heavy Engineering Corporation Limited (Jharkhand High Court)

Jharkhand High Court held that ‘Provision for Warranty Expenses’ is allowable as business expense as large number of sophisticated goods were manufactured in past and if facts established show that defects existing in some of items manufactured and sold then provision for warranty is entitled to deduction.

Facts- The respondent Assessee is a government of India undertaking. On 28.09.2012 Assessee filed its return declaring total income to be “NIL”.

Return was processed u/s. 143(1). On 26.08.2013, case of the Assessee was selected for scrutiny. Notice u/s. 143(3) was issued. On 29.01.2015, 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/-.

Respondent-Assessee preferred an Appeal before CIT(A). On 20.03.2017, appeal filed by the Respondent was allowed. All additions made by AO was deleted. The revenue preferred an Appeal before Learned ITAT. On 15.03.2019, appeal filed by the revenue was dismissed.

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