INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Erroneous and prejudicial order - Claim for deduction towards provisions for warranties was made on the basis of past experience based on statistical data by adopting scientific method and allowed after due enquiry made by AO -

CIT held assessment order as erroneous and prejudicial to the interest of revenue on the ground that without without proper and diligent application of mind allowed assessee's claim as regards provision for warranty. Held: It was clearly brought on record that AO did made enquiries as to claim made by assessee towards provisions for warranties and assessee did reply as to how it made provisions for warranties, which reply stood accepted by AO as assessee was following a method for computing provision for warranties based on claims received upto year end as well management estimate of further liability to be incurred in this regard during warranty period, computed on the basis of technical evaluation and past trends of such claim. It could not be said that such method for making provision for warranties was in the realm of perversity and rather in our considered view the method adopted was fair and reasonable to compute provision for warranties, as it considered actual claims received upto year end as also management estimate based on technical evaluation and past trends. Accordingly, allowance of assessee's claim as regards provision for warranties could not be held as erroneous and prejudicial.

Relied:CIT v. Vikas Polymers reported in (2010) 194 Taxman 57 (Del-HC) : 2010 TaxPub(DT) 2189 (Del-HC), Meerut Roller Flour Mills Private Limited v. CIT (2019) 110 Taxmann.com 170 (All. -HC) : 2019 TaxPub(DT) 5268 (All-HC) and Narayan Tatu Rane v. ITO reported in (2016) 70 Taxmann.com 227 (Mum-Trib) : 2016 TaxPub(DT) 2516 (Mum-Trib). (d) Hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Limited reported in (2010) 189 Taxman 436 (Del-HC) : 2011 TaxPub(DT) 0088 (Del-HC)

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