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.
Conclusion- Held that we see that the Assessee company has not committed any error in making provisions inasmuch as large number of sophisticated goods were being manufactured in the past and if the facts established show that defects existing in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipt under Section 37 of 1961 Act. Consequently, the issue of provision of warranty in the facts and circumstances of the case goes in favour of the Assessee and against the Revenue.
FULL TEXT OF THE JUDGMENT/ORDER OF JHARKHAND HIGH COURT
T.A. 25 of 2019 has been preferred by the appellant Revenue praying therein for quashing of the order dated 15.03.2019 passed by the learned Income Tax Appellate Tribunal (ITAT); whereby the learned ITAT has dismissed the appeal of the Revenue being ITA No. 125/RAN/2017 for the Assessment Year 2012-13.
Likewise, Tax Appeal No. 37 of 2019 has been preferred by the appellant Revenue praying therein for quashing of the order dated 05.04.2019 passed by the learned I.T.A.T. in I.T.A. No. 95/RAN/2017 for the Assessment Year 2007-08.
Similarly, T.A. 38 of 2019 has been preferred by the revenue praying therein for quashing of the order dated 05.04.2019 passed by the learned I.T.A.T. in I.T.A. No. 223/Ran/2016 for the assessment year 2011-12. Since the respondent-assessee is common in all these appeals as such all are being heard together and being disposed of by this common judgment.
2. The respondent Assessee 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, Defense etc. and is registered under the provisions of Companies Act, 1956.
5. Facts of T.A. No. 25 of 2019
On 28.09.2012 Assessee filed its return declaring total income to be “NIL”. Return was processed under Section 143 (1). On 26.08.2013, case of the Assessee was selected for scrutiny. Notice under Section 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) being Appeal No. 159/Ran/Co/14-15. On 20.03.2017, appeal filed by the Respondent was allowed. All additions made by the Assessing Officer was deleted. The revenue preferred an Appeal before Learned ITAT being I.T.A. No. 125/Ran/2017. On 15.03.2019, appeal filed by the revenue was dismissed.
4. Facts of T.A. No. 37 of 2019
On 27.03.2008, Assessee filed its Return declaring total income to be “NIL”. Return was processed under section 143(1). Case of the respondent was selected for scrutiny. Notice under Section 143(3) was issued. On 26.12.2009, Assessment order was passed. Following additions were made by the Assessing officer to the total income of the Assessee:-
