Warrant Expenses deductible from Book Profit: ITAT grants relief to Lenovo [Read Order]

While granting relief to Lenovo, the Bangalore bench of the Income Tax Appellate Tribunal (ITAT) held that the warrant expenses should be deducted from the book profit under Section 115JB of the Income Tax Act, 1961.

The assessee is a renowned company Lenovo engaged in the business of manufacturing and distribution of desktop, laptop, servers and smartphones. For the relevant assessment year, the assessing officer held that addition should be made on account of provision for warranty liability treating the same to be a liability of a contingent nature and hence liable to be added to the book profit.

The Tribunal, while granting relief to the assessee, held that the method followed by the Assessee should be accepted as proper and the deduction in respect of warranty obligation should be allowed as per the provision created by the Assessee.

“The addition made to the book profits u/s.115JB of the Act on account of provision for warranty liability treating the same to be a liability of a contingent nature and hence liable to be added to the profit as per profit and loss account prepared in accordance with companies act to arrive at the book profit of the Assessee for the purpose of levy of tax on book profit under Sec.115JB of the Act. We have already held that the provision for warrant expenses is not contingent and has to be allowed as deduction while computing income under the head “Income from Business & Profession”. As a consequence of such a finding, the addition made to the book profits is to be deleted because the liability cannot be said to be contingent. We hold and direct accordingly,” the Tribunal said.