Date Of Judgment 25-06-2018, Ita v. M/S. Acer India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 25 DAY OF JUNE 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.243/2012 BETWEEN : 1.|THE COMMISSIONBR OF INCOMB TAXC.R.BUILDING, QUEENS ROADBANGALORE oD THER DEPUTY COMMISSIONEROF INCOME TAX, CIRCLE-11 (1),C.R.BUILDING, QUEENS ROAD,BANGALORE_ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s ACER INDIA PVT. LTD., ' FLOOR, EMBASSY HEIGHTS NEXT TO HOSMAT HOSPITAL MAGRATH ROAD BANGALORE-560025. .. RESPONDENT (BY SRI T.SURYANARAYANA, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T.ACT,|1961 ARISING OUT OF ORDER DATED 16.03.2012 PASSED IN.ITA NO.22/BANG/2011, FOR THE ASSESSMENT YEAR 2006-2007,PRAYINGTO:|L.|KHORMULAIETHE;SUBSTANTIALQUESTIONS OF LAW STATED THEREIN. II. ALLOW THE APPEAL| Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. AND SET ASIDE THE ORDER DATED 16.03.2012 PASSED BY.THEITAT,BANGALOREIN|ITA|NO.22/BANG/2011—ANT)CONFIRM THR ORDER OF THERE APPELLAIEKE COMMISSIOCONFIRMING|TH EORDERPASSEDBY|TH EDEBPUTYCOMMISSIONER OF INCOME TAX, CIRCLE-11(1), BANGALORE. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,|Dr. VINEET KOTHARI, J©, DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue. Mr. T.Suryanarayan,Adv. for Respondent — Assessee. _ The Revenue has filed this appeal u/s 260-A of theIncome Tax Act, 1961 |'Act' for short] raising purportedsubstantial questions of law arising from the order ofthe Income Tax Appellate Tribunal |'Tribunal’ for short]dated|16.03.20121nN ITA No.22(Bang)/2011—for A.Y..A2QQ6-O7 inThe Asst. Commissioner of Income Tax,Circle 11(1), Bangalore -—v- M/s Acer India Pvt. Ltd.,Bangalore ? Learned Tribunal following its own order fortheprecedingassessment|YCal|1nNthe.CASEOT Respondent-Assessee itself, allowed the|provision of Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 3/26 warrantymade by the Assessee tor meeting theprobable costs of repairs and maintenance of computersand other hardware supplied by the Respondent-Company to its customers. The Learned Tribunal alsoreferred to and relied upon the decision of the Hon'blesupreme Court in the case ofRotork Controls India (P)Ltd., -v- Commissioner of Income-tax, Chennai(2009) 180 Taxman 422(SC). The relevant portion ofthe order of the Tribunal is quoted below for readyreference: “AWe|have|heardthelearnedDepartmental Representative and considered|the facts and materials on record including the|decisions cited before us. 9.1 While dealing with the issue in theorderdated30.1.2009inITANo.774/ Bang/ 2010 it has been observed aunder:| 6DWe|haveheardtherivalcontentionsand perusedthematerialavailable.Onrecord.We|areof|the|considered view that the assessee’s case| clearly falls in line with the legal ratio set|out by the various appellate decisions cited|at Bar in so far as the provision for|warranty stood crystallized as soon as the|sale was made which q customer would|like to be fulfilled within the warranty|period and is at the cost of an assessee’s|goodwill. Therefore, the residual amountpurported to have been held by _ thAssessing Officer as an excess provisioncannot be considered as a_ contingentprovision and not an ascertained liability.The warranty period continues beyond an|year which fact was rightly considered bythe learned CIT(A) confining to the various|decisions such as IBM India Ltd., [supra]|reported in 290 ITR (AT) 183. Similar view|has been taken by _ other’ co-ordinaBenches of the Tribunal therefore requiresno further deliberation. In the light of the|above, we hold the view that the decision of|the learned CIT(A) requires no _ furtheinterference on the issue. The revenue’s|appeal stands dismissed.” Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 5/26 1O.Againin|theorderdated25.02.2011 in ITA No.784/Bang/ 2010, it hasbeen observed as under:| “11.2 The assessee creates provisionfor warranty based on the estimation ofexpenditure likely to be incurred on the|past sales made on yearly basis at thenprevailing market prices for spares andlabour. For the relevant previous year, the|assessee estimated the warranty liability|atRs. 12,76,77,530/-and|created(Oprovision only for Rs.12,16,75,204/- in thebooks of account by charging a provision of|Rs.8,24,29,136/- to the debit in the P&Laccountandclaimedit|asITA22(Bang)/2011 Page 5 of 7 deduction. TheaSsSSCSSCCOMmpar?hadcreatedtheprovision based on the _ estimation owarranty liability, which is based on failure|rates of the past year data/ experience andindustry trends and not on adhoc basis.|The assessee has not changed the method|of computing the warranty provision and it|has been followed consistently. Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 6/26 11.3 The decision of the HonbleSupreme Court in the case of Rotork|Controls India Pvt. Ltd., 314 ITR 62 wouldbe squarely applicable to the facts of the|case. The Hon'ble Supreme Court has heldthat provision made on pase experience 1s a|scientificmethod|and1S theMOST|appropriate method. The relevant extract of|the decision is provided below: ‘In this case, we are concerned withProduct Warranties. To give an example ofProduct Warranties, a company dealing incomputers gives warranty for a period of 36|months from the date of supply. The said|company considers following options: (a)|accountfor warranty expense in the year in|which it is incurred; (b) tt makes a provision|for warranty only when the customermakes a provision for warranty only when|the customer makes a claim; and(ce) ttprovidesforwarrantyat2%ofturnover of the company based on pastexperience (historical trend).... 7/26 Under the circumstances, the thirdoption is most appropriate because ttfulfills accrual concept as well as thematching concept.For determining anappropriate historical trend, it is importantthat the company has a proper accounting|system for capturing relationship betweenthe nature of the sales, the warranty|provisions made and the actual expenses.incurred against it subsequently”... If warranty provisions are based on|experience and historical trends(s) and if|the working is robust then the question of|reversal in the subsequent two years, in the|above example, may not arise in @asignificant way”. 11.4. In the assessee’s own case in identical|facts for the immediately preceding year, the|Tribunal in ITA No.774 & 877/ Bang/ 2008 vidorder dated 30.1.2009 has decided the issue in|favour of the assessee. The relevant finding of|the Tribunal at para 5 of its order reads as|follows:-| Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 8/26 If warranty provisions are based on|experience and historical trends(s) and if|the working is robust then the question of|reversal in the subsequent two years, in the|above example, may not arise in @asignificant way”. 11.4. In the assessee’s own case in identical|facts for the immediately preceding year, the|Tribunal in ITA No.774 & 877/ Bang/ 2008 vidorder dated 30.1.2009 has decided the issue in|favour of the assessee. The relevant finding of|the Tribunal at para 5 of its order reads as|follows:-| Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 8/26 “We have heard the rival contentions and|perused the material available on record. We are ofthe considered view that the assessee’s case clearlyfalls in line with the legal ratio set out by the various|appellate decisions cited at Bar in so far as the|provision for warranty stood crystallized as soon as|the sale was made which aq customer would like tobe fulfilled within the warranty period and is at the|cost of an assessee’s goodwill. Therefore, the|residual amount purported to have been held by theAO as an excess provision cannot be considered as a|contingent provision and not an ascertained liability. |The warranty period continues beyond an yearwhich fact was rightly considered by the id. CIT{(A)confining to the various decisions such as IBM India|Ltd. (Supra) reported in 290 ITR (AT) 183 = (2007-TIOL-22-ITAT-Bang). Similar view has been takenby other coordinate Benches of the Tribunal therefore|requires no further deliberation. In the light of theabove, we hold the view that the decision of the 1d,CIT(A) requires no further intereference on the issue.The revenues’s appeal stands dismissed.” 11.5 In view of the above facts and the decision|referred above, we hold that disallowance of| Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 9/26 provision of warranty is to be deleted and it 1s|ordered accordingly. Following the above decisions, we hold that the|CIT (A)1S not.justifiedin|olding uphthedisallowance of provision for warranty and|accordingly allow the ground of appeal of the|assessee on this issue.” 3.The Assessing Authority in the present casedisallowed the entire amount of such provision ofwarranty of)Rs.10,16,76,422/-|Rupees Ten Crores)sixteen Lakhs Seventy six Thousand Four Hundred andTwenty Two only) by holding in para 5 of the impugnedAssessment Order, Annexure-Adated 18.12.2009.that the system of making of the provision for warrantyby the Assessee-Company was not scientific and thereversal of the provision at the year end in view of theactual claims made by the customers was huge, varyingfrom 23% to 100% and therefore, since the Assessee hasnot followed the scientific system of making a provisionin this regard, the entire amount of provision deserves Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 10/26 to be disallowed and the same was added back to the'declared income oft the Assessee. The relevant extract otthe assessment order is also quoted below for readyreference: 6D[haveGOne|throughtheassessee’ssubmissions and the cases cited. So far as the|decision of the apex court, the decision does not|apply to the assessee’s case. The decision ofthe jurisdictional ITAT has not been accepted by the Revenue and further appeal has been filed|before the Hon'ble High Court of Karnataka. It|is further seen that warranty provision being|debited is based on past experience and there ts no scientific basis or method being followed as|claimed by it. Under the circumstances, any|provision not being an allowable expenditure|under the provisions of the Income-Tax Act, a|sum of Rs. 10,16, 76,472/- has to be disallowed.It is seen that the warranty provision made 1s in|respect of two units, viz., SOIB unit and non|SOIB unit, amounting to Rs.7,52,95,286/- and|Rs.2,63,81,186/-respectively,which|are|reworked as per Annexure-I.” Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 11/26 4The First Appellate Authority — CIT |Appeals], however, granted the desired relief to the Respondent-Assessee in view of the decision of the Hon'ble Supreme Court in |Rotork Controls India (P) Ltd.,with the. following observations: a aTheabove|showsthat|warrantyprovisions are of two types viz., warranty for|oneYea>#rknownas|‘ordinarywarrantyespecially given tor Laptops and warranty for 3|years known as comprehensive warranty given|for servers and Desktops. The average failure|rate for laptop has been estimated at 70% and_accordingly provision has also been made at)7O%. For server the provisions have been)made @ 50% of the sale price whereas the.failure rate has been calculated at O0023%,O105% & 0112% respectively for F.Y. 2003-04,|2004-05 and 2005-06 which is on very high|side and cannot be held as a reasonable.calculation. Similar is also the case of making|provision for Desktops such computation|therefore cannot be held as based on past.experience and therefore scientific. Besides in|the case of — M/s. AMCO Batteries Ltd.,. ITA No.269/Arbitration Clause-11(1)/A/0O7O08, dated 1.12.2009 Have held that one of the principle to decidewhether the provision made for warranty 1s Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 12/26 scientific or not can be inferred from thecorrelation between the actual expenditureincurred on warranty and the provision made. —In that case I have held that if the expenditureis above 66% of the provision made it shouldbe treated to have a scientific basis. In thiscase the provision made is Rs.1,01,676,472/-whereas the expenditure is Rs.4,09,123/- te.,40%. Hence on facts I hold that the AO isjustified in making the disallowance and alsojustifiedtorestricttheSaTneTo Rs.6,06,97,349/- vide order passed u/s.154dated 18-02-2010. 8.Result: Appeal is dismissed.” 5.The Second appeal filed by the Revenuebefore the Tribunal also failed. Hence, the presentappeal before us by the Revenue. 6.The Learned Counsel tor the Revenue| Mr.K.V.Aravindsubmitted that the Assessing Authorityhad followed the decision of the Hon'ble Supreme Courtand finding that the Respondent-Assessee company hadnot adopted the scientific basis for creating provision forwarranty and therefore, the provision in this regard wasrightly disallowed by the Assessing Authority. Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 13/26 T On the other hand, the Learned Counsel forthe Respondent-AssesseeMr.T.Suryanarayan,broughtto our notice that the initial provision created afterascertaining the actual amount spent out of suchprovision, taking into account the actual complaints.received and repairs and maintenance undertaken bythe Respondent-Assessee for customers, consistently areasonable amount of provision was made by theAssessee by reversing the excess provision made in eachyear and the very trend of reducing percentage of210.;&;06for warrantees over sales going down would|show that no excess provision was created by theAssessee-Company to claim unnecessary deductionfrom the taxable profits of the Respondent-Companyand since a consistent scientific method has been|adopted by the Respondent-Assessee, the learnedAssessing Authority could not have arrived at any suchfindings for alleged unscientific method adopted by the Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 14/26 Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 14/26 Assessee and therefore, disallowance of the entire claim|of provision in this regard ofRs.10,16,76,422/-|RupeesTenCrores|Sixteen|LakhsseventySixThousand, Four Hundred and Twenty two only) by theAssessing Authority is wholly unjustified. He evensubmitted before the Court that the Assessee-Companymoved for rectification of the said order claiming thealternative relief of allowing the actual expensesincurred during the year, which were in excess of theprovision to the extent ofRs.10,16,76,422/-|RuUpeEeTen Crores Sixteen Lakhs Seventy Six Thousand, FourHundred and Twenty two only) but even that was notallowed to the Assessee -Company by the AssessingAuthority and thus the assessee was put to adisadvantage in both ways, which was quite illegal. 8.Having heard the learned Counsels for theparties, we are of the clear opinion that no substantialquestion of law arises in the present appeal filed by the Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 15/26 Revenue. We are satisfied that the Respondent-Assesseecompany has consistently followed the similar practicewith regard to making provision of warranty given to theCustomers|forprovidingthem freerepairsandmaintenance for the computers and hardware suppliedto them, which in their ordinary course of business, theRespondent-Company gave such warrantees. The excessprovision created by the Company itself has beenreversed by the respondent-Company and only theprovision to the extent of making an adequate provisionfor meeting such possible expenses for repairs andmaintenance has been debited by the Assessee-Company in its books of accounts over the period of sixyears, the details of which are given by the AssessingAuthority itself in the assessment order. QOWe are absolutely at a loss to understandhow the Assessing Authority has found the saidconsistent practice of the Assessee-Company to be Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 16/26 unscientific and untenable and then proceeded todisallow the entire claim of provision made by theAssessee-Company in this regard. Neither allowing theprovision made for warrantees nor the actual expensesincurred by the company to be deducted from theprofits of the company during the year is absolutelyarbitrary and unscientific on the part of AssessingAuthority, to say the least. There was absolutely nobasis for the Assessing Authority to make both thedisallowances of provision for warranty as well as actualexpenses at the same time in the hands of theRespondent-Assessee. In view of the comparison ofactual expenses and provisions made tor warranty, thedetails of which are given in the Assessment Orderitself, we do not find any abnormal fluctuation or excess.provision made by the Assessee-Company on thisaccount. Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 17/26 10,We express our concern and dissatisfaction|at the manner in which the Assessing Authority in thepresent case has very casually disallowed the said claimin the hands of the Respondent-Assessee. Moreover,when the Higher Appellate Authorities have correctedthe said approach of the Assessing Authority by theFirst Appellate Authority allowing the appeal of theAssessee and the Tribunal dismissing the appeal of theRevenue, we are all the more pained to see that theRevenue still felt dissatisfied and has brought up thematter before this Court under Section J60-A ot the Actwithout actually any substantial question of law arisingin the matter. This reflects the irresponsible manner inwhich the Revenue Department becomes a frivolouslitigant in constitutional courts, by dragging such case,wasting public time and money. 11,As is well settled, the appeal under Section|260-A of the Act lies before this Court only on. 11,As is well settled, the appeal under Section|260-A of the Act lies before this Court only on. Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 18/26 substantial questions of law. The final fact findings ofthe Tribunal under the Act are binding on this Courtand cannot be disturbed unless they are found to beperverse on the basis of established material on record.We do not find any such case of Revenue in the presentappeal. — 12)Moreover, we are satisfied that the practice|of making a provision for warranty in the present casehas been found to be consistent, scientific and regularby the two Appellate Authorities below in consonancewith the judgment of the Hon'ble Supreme Court in thecase oftRotork Controls India (P) Ltd.(supra). TheHon'ble Supreme Court in the aforesaid case, discussedin detail how the accounting entries for productwarranty are to be made by the Assessees. We quotebelow the relevant portion of the judgment for readyreference: 19/26 “10. What is a provision? This is the question|which needs to be answered.A provision tsa liability which can be measured onlybyusing(osubstantialdegreeofestimation.A provision 1s recognized when:|(a) an enterprise has a present obligation as a.result of a past event; (b) it is probable that an|outflow of resources will be required to settle|the obligation; and (c) a reliable estimate canbe made of the amount of the obligation. If|these conditions are not met, no provision can|be recognized. 11. Liability is defined as a present obligation|arising from past events, the settlement of|which is expected to result in an outflow from|the|enterpriseof|TCSOULrCeSembodyingeconomic benefits. 12.A past event that leads to a presentobligation tis called as an obligatingevent.The obligating event is an event thatcreates an obligation which results in an|outflowof|TESOUTCEeS.It|1S onlythoseobligations arising from past events existing|independently of the future conduct of the| business of the enterprise that is recognized|as provision. For a liability to qualify for|recognition there must be not only present|obligation but also the probability of an|outflow of resources to settle that obligation.|Where there are a number of obligations (e.g.product warranties or similar contracts) the|probability that an outflow will be required insettlement, is determined by considering theSaid|obligationsas|(Owhole.In.thisconnection, it may be noted that in the case ofa manufacture and sale of one single item the|provision for warranty could constitute acontingent liability not entitled to deduction|under Section 37 of the said Act. However,|when there is manufacture and sale of|anarmy of items running into thousands of|units of sophisticated goods, the past event ofdefects being detected in some of such items|leads to a present obligation which results in|an enterprise having no alternative to settling|that obligation. In the present case, the|appellant has been manufacturing and selling|Valve Actuators. They are in the business.from assessment years 1983-84 onwards. Valve Actuators are sophisticated goods. Overthe years appellant has been manufacturing|Valve Actuators in large numbers. TheStatistical data indicates that every yearsome of these manufactured Actuators arefound to be defective. The statistical data overtheYears,alsoindicatesthat|beingsophisticated item no customer is preparedto |buy Valve Actuator without a_ warrantu.Therefore, warranty became integral part of|the sale price of the Valve Actuator(s). In other|words, warranty stood attached to the sale|price of the product. These aspects areimportant.ASstatedabove,obligationsarisingfrom)pasteventshavetoberecognized as provisions. These past events|are known as_ obligating events. In_ thpresent case, therefore, warranty provisionneeds to be recognized because the appellant|is an enterprise having a present obligation|as a result of past events resulting in an|outflow of resources. Lastly,|a reliableestimate can be made of the amount of the|obligation. In short, all three conditions for| 22/26 recognition of a provision are satisfied in this|CAaASC 13.In this case we are concerned with§ Product Warranties.To give an example of|Product Warranties, a company dealing incomputers gives warranty for a period of 36|months from the date of supply. The said|company considers following options : (a)|account for warranty expense in the year in|which it ts incurred; (b) it makes a provisionfor warranty only when the customer makes.a claim; and (c) it provides for warranty at 2%|of turnover of the company based on past|experience (historical trend). The first optionts |unsustainable since it would tantamount to’accounting for warranty expenses on cash|basis,which1S|prohibitedboth.underthe CompaniesAct as.wellLS|by|the|Accounting Standards which require accrualconcept to be followed. In the present case,|the Department is insisting on the first option|which, as stated above, is erroneous as it|rules out the accrual concept. The second|option is also inappropriate since it does not 23/26 reflect the expected warranty costs in respect|of revenue already recognized (accrued). In|other words, it is not based on matching|concept. Under the matching concept, If|revenue is recognized the cost incurred to|earn that revenue including warranty costs|has to be fully provided for. When Valve|Actuators are sold and the warranty costs arean integral part of that sale price then the|appellant has to provide for such warranty|costs in its account for the relevant year,|otherwise the matching concept fails. In such| (OCAaASthe|secondoption1S|alsoinappropriate. Under the circumstances, the|third option is most appropriate because it|fulfills accrual concept as well as_ thematchingconcept. Fordetermining|anappropriate historical trend, it is importantthat the company has a proper accounting|system for capturing relationship between thenature of the sales, the warranty provisions|made and the actual expenses incurred|against it subsequently. Thus, the decision on|the warranty provision Should be based on|past experience of the company. A detailed 24/26 (OCAaASthe|secondoption1S|alsoinappropriate. Under the circumstances, the|third option is most appropriate because it|fulfills accrual concept as well as_ thematchingconcept. Fordetermining|anappropriate historical trend, it is importantthat the company has a proper accounting|system for capturing relationship between thenature of the sales, the warranty provisions|made and the actual expenses incurred|against it subsequently. Thus, the decision on|the warranty provision Should be based on|past experience of the company. A detailed 24/26 assessment of the warranty provisioning|policy is required particularly if the experienceSuggeststhatwarrantyprovisions|aregenerally reversed if they remained unutilizedat the end of the period prescribed in the|warranty. Therefore, the company should|scrutinize the historical trend of warrantyprovisions made and the actual expenses|incurred against it. On this basis a sensible|estimate should be made. The warranty|provision for the products should be based ontheestimate.at|Year|end.of|future warranty expenses. Suchestimatesneedreassessment every year. AS one reaches|close to the end of the warranty period, the|probability that the warranty expenses willbe incurred is considerably reduced and that|Should be reflected in the estimation amount. Whether this should be done through a prorata reversal or otherwise would require|assessment of historical trend. If warranty|provisions are based on experience andhistorical trend(s) and tf the working ts robust|thenthequestionof|reversal|in|the|subsequent two years, in the above example, Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 25/26 may not arise in a significant way. In our|view, on the facts and circumstances of this|case, provision for warranty is rightly made|by the appellant-enterprise because it has|incurred a present obligation as a result of|past events. There is also an outflow ofresources. A reliable estimate of the obligation|was also possible. Therefore, the appellant|has incurred a liability, on the facts and|circumstancesof|thisCase,duringthe|relevant assessment year which was entitled|to deduction under Section 37 of the 1961|Act. Therefore, all the three conditions forrecognizing a liability for the purposes of|provisioning stands satisfied in this case. It is|important to note that there are four important|aspectsof|provisioning.|They|areprovisioningwhichrelatesTo presentobligation, it arises out of obligating events, it|involves outflow of resources and lastly it|involves reliable estimation of obligation.|Keeping in mind all the four aspects, we are.of the view that the High Court should not to|have interfered with the decision of the|Tribunal in this case.” Date of Judgment 25-06-2018, ITA No.243/2012 The Commissioner of Income Tax & another Vs. M/s. Acer India Pvt. Ltd. 26/26 13.We are, therefore, satisfied that both theAppellate Authorities below were justified in returningthe proper findings of facts on the relevant materialbefore them and have rightly found that the provisions.oT|warrantymade.bytheRespondent-Assessee|Company was on the basis of the scientific andconsistent method and therefore, the present appeal ofthe Revenue does not give rise to any substantialquestion of law and the same deserves to be dismissedand is accordingly dismissed. No costs. Sd/-.JUDGE. Sd/-.JU DGE