ITAT directs to Re-Consider Warranty Claim by MRF Tyres [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) directed to reconsider the warranty claim by MRF Tyres in the appeal which challenges the order of Commissioner of Income Tax (Appeals)-12, Chennai in ITAT dated 31.07.2019 whichconfirmed the action of AO in disallowing the provision for warranty amounting to Rs.5.66 Crores in AY 2011-12, Rs.4.65 Crores in AY 2012-13 and Rs.10.14 Crores in AY 2012-13. 

The assessee engaged in the business of manufacturing tyres. The issue of the assessee was set aside the matter back to the file of the AO to follow the principle laid down by the Supreme Court in the case of Rotork Controls India Pvt. Ltd., vs. CIT,314 ITR 62(SC) by ITA Nos.641 to 645/Chny/2018 dated 09.05.2018.

Shri R. Vijayaraghavan, counsel for the assessee stated that the assessee has given the scientific basis for the warranty in respect of tyres sold to the truck segment and non-truck segment and further stated that this issue was pending with the AO because he has to verify the details in term of the decision of the Supreme court in the case of Rotork Controls India Pvt. Ltd., vs. CIT,314 ITR 62(SC). Per Contra, Shri AR.V. Sreenivasan, counsel for the department relied on the order of lower authorities.

It was stated by the assessee that once the warranty provision is calculated on a scientific basis, the warranty should have been allowed as expenses u/s.37(1) of the Act as revenue expenditure.  

It was observed that neither the AO nor CIT(A) has examined the details filed before them during the set-aside assessment proceedings or even remand proceedings by the AO and simply noted that the assessee could not establish that all the conditions prescribed in the decision above said are satisfied. 

Further noted that the assessee failed to produce details before the AO or the CIT(A) on how the provision was made based on historical trends and a reliable estimate as held by Supreme Court. 

A Coram of Shri Mahavir Singh, Vice President and Shri Manoj Kumar Aggarwal, Accountant Member observed that the details submitted by the assesseecan’t be verified by the Tribunal and therefore remitted the matter to the file of the AO. The appeals filed by the assessee are allowed for statistical purposes.

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