Per Bench. - These six appeals, three filed by the taxpayer and three filed by the revenue are cross-appeals which are directed against three separate orders passed by the learned CIT(A) dated 31-12-2004, 21-12-2006 and 31-1-2007 for assessment years 2001-02, 2002-03 and 2003-04 respectively. As some common issues are involved therein, the same have been heard together and are being disposed of by this single consolidated order.

ITA No. 1181/Delhi/2005 - Revenue’s appeal for assessment year 2001-02

2. In ground No. 1, the revenue has challenged the action of the learned CIT(A) in deleting the addition of Rs. 2,25,38,920 made by the Assessing Officer on account of provision for warranty while computing the total income of the taxpayer under the normal provisions and also in directing the Assessing Officer to exclude the said provision while computing the book profit under section 115JB.

3. In its profit and loss account, warranty charges amounting to Rs. 4,04,12,572 were debited by the taxpayer company. The said amount was inclusive of the warranty expenses actually incurred by the taxpayer company to the extent of Rs. 1,78,73,650 and the remaining amount of Rs. 2,25,38,920 was on account of provision made for anticipated warranty expenses in respect of the remaining part of the warranty period. According to the Assessing Officer, the amount that may be payable by the taxpayer company on account of possible claims of warranty arising in the future constituted its contingent liability and the provision made for such contingent liability was not deductible while computing its total income. He, therefore, disallowed the same while computing the total income of the taxpayer under the normal provisions of the Act and also added the same while computing its book profit under section 115JB. The matter was carried before the ld. CIT(A) and it was submitted on behalf of the taxpayer company before him that the provision for anticipated liability on account of warranty claim for unexpired period was made on scientific basis taking into consideration the past history and this method as prescribed in Accounting Standard 4 issued by the Institute of Chartered Accountants of India was being regularly followed consistently from the inception. Relying inter alia on the decision of Hon’ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428¹, it was contended that the said provision thus was made for an ascertained liability and the same was deductible as claimed by the taxpayer company. This stand of the taxpayer was found acceptable by the ld. CIT(A) and relying inter alia on the decision of Hon’ble Supreme Court in the case of Bharat Earth Movers (supra) as well as that of Mumbai Bench of ITAT in the case of Voltas Ltd. v. CIT [1998] 64 ITD 232, he held that the liability on account of warranty claim for the unexpired period was in praesenti and although it was liable to be discharged at a future date, the taxpayer was entitled for deduction on account of provision made for the said liability. He also held that the said provision for warranty being not for an ascertained liability, the addition thereof made by Assessing Officer while computing the book profit under section 115JB was not permissible.

4. We have heard the arguments of both the sides and also perused the relevant material on record. As pointed out by the learned counsel for the taxpayer, a similar issue has been decided by the Hon’ble Punjab & Haryana High Court in the case of CIT v. Majestic Auto Ltd. [2006] 156 Taxman 460 wherein it was held relying inter alia on the decision of Hon’ble Supreme Court in the case of Bharat Earth Movers (supra) that the provision for warranty claims made on scientific basis keeping in view the past history is an admissible business expenditure. To the similar effect is the decision of Hon’ble Delhi High Court in the case of CIT v. Vinitec Corpn. (P.) Ltd. [2005] 278 ITR 337¹ wherein it was held that warranty clause