DCIT, Circle - 7, Kolkata, Kolkata V. M/s. BCH Electric Ltd., Kolkata

ITA 1537/KOL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100294 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 11-11-2011
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA PRASAD
• Assessee Lawyers: R N BAJORIA
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KO LKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I.T.A NOS.1537 & 1538/KOL/2011 ASSESSMENT YEARS: 2006-07 & 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. B. C. H. ELECTRIC LTD. CIRCLE-7, KOLKATA. (PAN: AABCB2076M) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 19.11.2015 DATE OF PRONOUNCEMENT: 18.12.2015 FOR THE APPELLANT: SHRI RAJENDRA PRASAD, JCIT, SR. DR FOR THE RESPONDENT: SHRI R. N. BAJORIA, SR. ADVO CATE ORDER PER SHRI MAHAVIR SINGH, JM: BOTH THESE APPEALS BY REVENUE ARE ARISING OUT OF SE PARATE ORDERS OF CIT(A)-VIII, KOLKATA VIDE APPEAL NOS. 527/CIT(A)-VIII/KOL/08-09 AND 462/CIT(A)-VIII/KOL/09-10 DATED 04.08.2011 AND 05.08.2011 RESPECTIVELY. ASSES SMENTS WAS FRAMED BY ACIT, CIRCLE-7, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2006-07 AND 2007-08 VIDE HIS SEPARATE ORDERS DATED 23.12.2008 AND 31.12.2009 RESPECTIVELY. 2. THE ONLY ISSUE IN THESE TWO APPEALS OF REVENUE I S AGAINST THE ORDER OF CIT(A) IN ALLOWING THE ENTIRE PROVISION OF WARRANTY EXPENSES OF RS.1,50,43,597/- IN AY 2006-07 AND RS.1,60,88,554/- IN AY 2007-08. FOR THIS, REVE NUE HAS RAISED IDENTICALLY WORDED GROUNDS. SINCE FACTS AND CIRCUMSTANCES ARE EXACTLY IDENTICAL AND GROUNDS ARE ALSO COMMON WE WILL TAKE THE ISSUE FROM AY 2006-07 IN IT A NO.1537/K/2011 AND DECIDE THE APPEAL. THE RELEVANT GROUND NO. 1 RAISED BY RE VENUE READS AS UNDER: 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS IN FACTS IN HOLDING THAT THE ENTIRE PROVISI ON OF WARRANTY EXPENSES AMOUNTING TO RS.1,50,43,597/- AS AN ALLOWABLE EXPENSES AND DELET ING THE ENTIRE ADDITION. WHEREAS, ONLY THE PART OF SUCH PROVISION WHICH GOT CRYSTALLI ZED DURING THE RELEVANT PREVIOUS YEAR I.E. THE AMOUNT OF ACTUAL PAYMENT MADE DURING THE Y EAR UNDER THE SAID HEAD ONLY SHOULD BE ALLOWED AND THE CLOSING PROVISION AS ON 31.03.20 05 SHOULD BE ADDED BACK TO THE TOTAL INCOME FOR THE FY 2005-06 (AY 2006-07), AS ANY SORT OF PROVISION IS NOT ALLOWABLE AS EXPENSES, IF IT IS NOT CRYSTALLIZED. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMPA NY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF CONTROL GEARS, MOTOR CONTROL CENSORS, CONTROL PANELS AND ENCLOSURES ETC. THE AO WHILE FRAMING ASSESSMENT RE QUIRED THE ASSESSEE TO EXPLAIN THE 2 ITA NO.1537 & 1538/K/2011 BCH ELECTRIC LTD. AY 2006-07 & 2007-08 WARRANTY EXPENSES CLAIMED BY THE ASSESSEE AT RS.1,5 6,85,757/-. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THESE EXPENSES CONSIST OF TWO PO RTIONS, FIRSTLY, THE EXPENSES ACTUALLY INCURRED FOR MEETING THE WARRANTY LIABILITY KNOWN A S WARRANTY REPLACEMENT EXPENSES AND THE SECOND PORTION BEING IN THE NATURE OF PROVISION . THE ASSESSEE CONTENDED THAT THESE EXPENSES ARE IN THE NORMAL COURSE OF BUSINESS AND L IKELY TO BE INCURRED OVER A PERIOD OF WARRANTY. THE ASSESSEE FILED THE WORKING OF THREE YEARS OF EXPENSES, WHICH READS AS UNDER: FINANCIAL YEAR 2002-03 FINANCIAL YEAR 2003-04 FINANCIAL YEAR 2004-05 WARRANTY REPLACEMENT EXPENSES WARRANTY EXPENSES TOTAL RS. 0 RS.25,61,085/- RS.25,61,085/- RS.0 RS.45,89,826/- RS.45,89,826/- RS.4,52,695/- RS.81,28,558/- RS.85,81,254/- 4. THE AO NOTED THAT THERE IS NO ACTUAL EXPENSES IN CURRED FOR REPLACEMENT OF GOODS UNDER WARRANTY AND EVEN FOR FY 2004-05 RELEVANT TO AY 2005-06 THE ACTUAL EXPENSES INCURRED ARE HARDLY 5% OF WHAT HAS BEEN DEBITED IN THE BOOKS OF ACCOUNT. ACCORDINGLY, HE DISALLOWED THE WARRANTY REPLACEMENT EXPENSES AT RS.1,50,43,597/- OUT OF TOTAL EXPENSES DEBITED BY THE ASSESSEE AT RS.1,56,85,757/ -. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE BY OBSERVING AS UNDER: 5.2 GROUND NO.2 - THIS GROUND OF APPEAL IS DIRECT ED AGAINST THE DISALLOWANCE OF RS.15043597/- CLAIMED TOWARDS THE WARRANTY EXPENDIT URE. IT IS SEEN THAT THE A. O. HAS DISALLOWED SUCH EXPENSES ON THE GROUND THAT THE ACT UAL EXPENSES INCURRED ARE HARDLY 5% OF WHAT HAS BEEN DEBITED IN THE BOOKS OF ACCOUNTS. IT WAS SUBMITTED BY THE APPELLANT BEFORE THE ASSESSING OFFICER THAT IT HAD ACTUALLY D EBITED RS.15685757/- AS WARRANTY EXPENSES IN ITS ACCOUNTS AND THE SAID EXPENSES CONS ISTED OF TWO PORTIONS, FIRSTLY THE EXPENSES ACTUALLY INCURRED FOR MEETING WARRANTY LIA BILITY I.E. WARRANTY REPLACEMENT EXPENSES AND THE SECOND PORTION BEING IN THE NATURE OF PROVISIONS. THE A/R OF THE APPELLANT CONTENDED THAT EVEN THOUGH THE EXPENSES H AD NOT CRYSTALLIZED THEY WERE IN THE NORMAL COURSE OF BUSINESS AND LIKELY TO BE INCURRED OVER THE PERIOD OF WARRANTY. IN SUPPORT OF ITS CONTENTION THE APPELLANT PRODUCED TH E QUANTUM OF EXPENSES ACTUALLY INCURRED IN LAST THREE YEARS WITH DETAILED WORKING OF WARRANTY, REPLACEMENT EXPENDITURE THEN WARRANTY EXPENSES AND TOTAL PERTAINING TO F.Y. 2002-03, 2003-04 & 2004-05. AT THE APPELLATE STAGE THE APPELLANT SUBMITTED THAT IT IS TRUE THAT IN F.Y.2002-03 & 2003-04 THERE WAS NO WARRANTY REPLACEMENT EXPENSES BUT THE SAME WAS INCURRED ONLY WHEN THE CUSTOMERS INSIST ON THE SAME OTHERWISE PAYOUT IS BE ING MADE BY THE APPELLANT WHICH IS THE WARRANTY EXPENSES INCURRED DURING THE YEAR. IT IS S UBMITTED THAT THE CONTENTION OF THE A.O. THAT ONLY 5% OF THE AMOUNT HAS BEEN PAID WHICH IS G ROSSLY INCORRECT AND INDEED THE METHOD IS BEING FOLLOWED SINCE EARLIER YEARS AND ON THE BASIS OF THE PAST EXPERIENCES SUCH PROVISIONS IS BEING MADE IN THE BOOKS OF ACCOUNTS W HICH IS EVIDENT FROM THE DETAILS OF WORKING FURNISHED BY THE APPELLANT. FOR THE CURRENT YEAR I.E. THE RELEVANT YEAR 2006-2007, PROVISIONS OF SUCH WARRANTY EXPENSES IS BEING MADE ON THE BASIS OF PAST EXPERIENCE AND HAD BEEN COMPUTED IN A SYSTEMATIC AND SCIENTIFIC MA NNER AND HENCE THE SAME IS 3 ITA NO.1537 & 1538/K/2011 BCH ELECTRIC LTD. AY 2006-07 & 2007-08 ALLOWABLE EXPENSES. IN SUPPORT OF ITS CONTENTION TH AT SUCH EXPENSES ARE CLEARLY ALLOWABLE EXPENDITURE; THE APPELLANT RELIED UPON A NUMBERS OF DECISIONS OF THE VARIOUS HIGH COURTS AND SUPREME COURT. MY ATTENTION WAS DRAWN TO THE DE CISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONTROL INDIA PVT. LTD VS. CIT 314 ITR 62 (SC) WHERE IN IT HAS BEEN HELD THAT SUCH ESTIMATED PROVISIONS FOR WA RRANTY AS AN ALLOWABLE EXPENSES. IN THIS CASE THE HON'BLE SUPREME COURT HELD THAT IN A CASE WHERE THERE WAS WARRANTY OBLIGATION SUCH OBLIGATION WAS PART OF THE SALE PRI CE AND SHOULD ATTACH TO THE SALE PRICE OF THE PRODUCT. WARRANTY OBLIGATION IS A PRESENT OBLIG ATION AS A RESULT PAST EVENTS RESULTING IN AN OUTFLOW OF RESOURCES AND A RELIABLE ESTIMATE COULD BE MADE OF THE AMOUNT OF OBLIGATION. IF IT IS SO MADE IT IS A LIABILITY ALLO WABLE AS DEDUCTION U/S.37 OF THE IT ACT. IT IS SEEN THAT THE HON'BLE APEX COURT HAS ALSO LAID DOWN THAT THE ESTIMATE OF LIABILITY HAS TO BE ON THE BASIS OF STATISTICAL DATA AVAILABLE IN TH E PAST. IN THE PRESENT CASE THE APPELLANT HAD FILED THE NECESSARY DATA ON THE BASIS OF WHICH THE PROVISION OF WARRANTY EXPENSES HAD BEEN MADE BUT THE SAME WAS NOT CONSIDERED BY THE A. O. SINCE THE APPELLANT HAS MADE THE PROVISIONS ON THE BASIS OF A PRINCIPLE LAID DOWN BY THE APEX COURT, I AM OF THE VIEW THAT THE CLAIM OF THE APPELLANT IN THE PRESENT CASE HAS TO BE ALLOWED. RECENTLY THE HON'BLE ITAT MUMBAI BENCH 'B' IN THE CASE OF M/S. BHARAT BI GLY LTD VS. ADDL. CIT, RANGE-61, MUMBAI IN ITA NO.64L0/MUM/2008 HAD ALSO HELD THE SI MILAR VIEW AS HELD BY THE HON'BLE SUPREME COURT. THUS, THIS GROUND OF APPEAL IS ALLOW ED AND ADDITION MADE BY THE A.O. IS DELETED. AGGRIEVED REVENUE CAME IN SECOND APPEAL BEFORE TRIB UNAL. 5. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE DREW OUR ATTENTION TO ASSESSEES PAPER BOOK CONSISTS OF PAGES 1 TO 198 WH EREIN COMPLETE DETAILS OF WORKING OF WARRANTY PROVISION IS GIVEN AT PAGES 196 AND 197 FO R THE RELEVANT AY 2006-07 AND 2007-08 RESPECTIVELY. THE RELEVANT DETAILS FROM PA GE 196 FOR AY 2006-07 READS AS UNDER: WARRANTY EXPENSES: WARRANTY EXPENSES BOOKED AS PER WARRANTY CLAIMED P ROCESSED DURING THE YEAR 10,956,851 PROVISION MADE FOR THE YEAR ENDED 31.03.2006 4,086,746 ADD: WARRANTY REPLACEMENT EXP. 642, 160 TOTAL EXPENSES DEBITED IN THE P/L A/C 15 ,685,757 CALCULATION OF WARRANTY PROVISION: YEAR SALES ACTUAL PAYOUT % YEAR AMOUNT 2004-05 2003-04 1,013,342,025 818,478,271 2005-06 2004-05 12,824,037 8,028,072 1.27 0.98 TOTAL 1,831,820,296 20,852,109 2.25 AVERAGE 610,606,765 6,950,703 0.75 LD. COUNSEL FOR THE ASSESSEE STATED THAT SUCH WARRA NTY EXPENSES ARE BEING MADE ON THE BASIS OF PAST EXPERIENCE AND HAS BEEN COMPUTED IN A SYSTEMATIC AND SCIENTIFIC MANNER YEAR ON YEAR BASIS. LD. COUNSEL FOR THE ASSESSEE DR EW OUR ATTENTION TO THE CHART REPRODUCED BY AO AND EVEN BY US IN PARA 3 ABOVE. H E NARRATED THAT BY APPLYING THE 4 ITA NO.1537 & 1538/K/2011 BCH ELECTRIC LTD. AY 2006-07 & 2007-08 PERCENTAGE ON THE SALE FOR AY 2005-06 RELEVANT TO F Y 2004-05 THE WARRANTY EXPENSES WORKS OUT AND HE FILED THE DETAILS AS UNDER: YEAR SALES ACTUAL YEAR OF PAY OUT AMOUNT OF PAY OUT 2003-04 2002-03 AGGREGATE RS.81,84,78,271/- RS.68,87,60,046/- RS.150,72,38,317/- 2004-05 2003-04 RS. 80,28,072/- RS.66,90,068/- RS.1,47,18,140/- AVERAGE 1,47,18,140/150,72,38,317 = 0.9765% BY APPLYING THE ABOVE PERCENTAGE ON THE SALE OF AY 2005-06 RELEVANT TO FY 2004-05 THE WARRANTY EXPENSES IS WORKED OUT WHICH IS AS FOLLOWS : SALE RS.101,33,42,025/- WARRANTY PAY OUT RS. 98,95,257/- ACTUAL PAY OUT RS. 80,28,072/- PROVISION MADE RS. 18,67,185/- IN VIEW OF THE ABOVE, LD. COUNSEL FOR THE ASSESSEE STATED THAT THE WARRANTY PAY OUT WORKS OUT AT RS.98,35,257/- OUT OF WHICH RS.80,28,0 72/- HAS ALREADY BEEN PAID DURING THE YEAR AND PROVISION FOR WARRANTY EXPENSES IS ONL Y FOR RS.18,67,185/-. LD. COUNSEL FOR THE ASSESSEE STATED THAT THE CONTENTION OF THE AO THAT ONLY 5% OF THE AMOUNT HAS BEEN PAID IS TOTALLY INCORRECT. ACCORDING TO HIM, INDEED THIS METHOD IS BEING FOLLOWING SINCE EARLIER YEARS AND ON THE BASIS OF PAST EXPERI ENCE SUCH PROVISION IS BEING MADE IN THE BOOKS OF ACCOUNT AND SIMILAR PROVISION IS MADE IN THE CURRENT ASSESSMENT YEAR I.E. 2006-07 AS WELL AS THE PROVISION HAS BEEN MADE AS U NDER: YEAR SALES ACTUAL PAYOUT (YEAR) AMOUNT 2004-05 2003-04 AGGREGATE RS.1,013,342,025.00 RS. 818,478,271.00 RS. 915,910,148.00 2005-06 2004-05 RS.12,824,037.31 RS. 8,028,072.00 RS.10,426,054.66 LD. COUNSEL FOR THE ASSESSEE STATED THAT APPLYING T HE PERCENTAGE TO CURRENT SALES THE WARRANTY REPLACEMENT PROVISION IS AS UNDER: BY APPLYING ABOVE % TO CURRENT YEAR SALE. SALE 2005-06 A 1,485,581,912.17 WARRANTY PAY OUT B 16,910,783.49 B X AVERAGE ACTUAL PAY OUT C 12,824,037.31 PROVISION MADE D 4,086,746.12 B C EXISTING PROVISION E 1,867,185.00 PROVISION REQUIRED F 2,219,561.18 D-E DETAIL OF WARRANTY EXPENSES CURRENT YEAR EXPENSES 10,956,851 PROVISION MADE 4,086,746 TOTAL 15,043,597 ADD: WARRANTY REPLACEMENT EXP. 642,160 15,685,757 5 ITA NO.1537 & 1538/K/2011 BCH ELECTRIC LTD. AY 2006-07 & 2007-08 LD. COUNSEL FOR THE ASSESSEE EXPLAINED THAT SUCH WA RRANTY EXPENSES ARE TOWARDS EXPENSES WHICH HAVE BEEN INCURRED OR ARE LIKELY TO THE INCURRED WITHIN THE PERIOD OF WHICH WARRANTY HAS BEEN ASSURED TO THE CUSTOMER AGA INST PRODUCTS SOLD AND AS SUCH, SUCH EXPENSES ARE DEDUCTIBLE BUSINESS EXPENDITURE. SUCH WARRANTY EXPENSES ARE BOOKED ON THE BASIS OF PAST EXPERIENCE, WHICH HAS COME UP BEF ORE THE COMPANY IN THE PAST YEARS AND AS SUCH BOOKING OF SUCH EXPENSES ON PAST EXPERI ENCE COUPLED WITH FUTURE EXPECTATION OF LIKELIHOOD OF SUCH EXPENDITURE. 6. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE, NOW WE WILL GO THROUGH THE CASE OF HONBLE SUPREME COURT, AS REFERRED BY LD. S ENIOR ADVOCATE SH. BAJORIA, IN THE CASE OF RETORK CONTROLS INDIA P. LTD. VS. CIT (2009 ) 314 ITR 62 (SC) WHEREIN HONBLE SUPREME COURT HELD THAT SUCH ESTIMATED PROVISION FO R WARRANTY AS AN ALLOWABLE EXPENSES. HONBLE SUPREME COURT FINALLY HELD AS UNDER:- 18. AT THIS STAGE, WE ONCE AGAIN REITERATE THAT A LIABILITY IS A PRESENT OBLIGATION ARISING FROM PAST EVENTS, THE SETTLEMENT OF WHICH IS EXPECT ED TO RESULT IN AN OUTFLOW OF RESOURCES AND IN RESPECT OF WHICH A RELIABLE ESTIMATE IS POSS IBLE OF THE AMOUNT OF OBLIGATION. AS STATED ABOVE, THE CASE OF INDIAN MOLASSES CO. [1959 ] 37 ITR 66 (SC) IS DIFFERENT FROM THE PRESENT CASE. AS STATED ABOVE, IN THE PRESENT C ASE WE ARE CONCERNED WITH AN ARMY OF ITEMS OF SOPHISTICATED (SPECIALISED) GOODS MANUFACT URED AND SOLD BY THE ASSESSEE WHEREAS THE CASE OF INDIAN MOLASSES CO. [1959] 37 ITR 66 (SC) WAS RESTRICTED TO AN INDIVIDUAL RETIREE. ON THE OTHER HAND, THE CASE OF METAL BOX COMPANY OF INDIA [1969] 73 ITR 53 (SC) PERTAINED TO AN ARMY OF EMPLOYEES WHO WERE DU E TO RETIRE IN FUTURE. IN THAT CASE, THE COMPANY HAD ESTIMATED ITS LIABILITY UNDER TWO GRATUITY SCHEMES AND THE AMOUNT OF LIABILITY WAS DEDUCTED FROM THE GROSS REC EIPTS IN THE PROFIT AND LOSS ACCOUNT. THE COMPANY HAD WORKED OUT ITS ESTIMATED LIABILITY ON ACTUARIAL VALUATION. IT HAD MADE PROVISION FOR SUCH LIABILITY SPREAD OVER TO A NUMBE R OF YEARS. IN SUCH A CASE IT WAS HELD BY THIS COURT THAT THE PROVISION MADE BY THE ASSESS EE-COMPANY FOR MEETING THE LIABILITY INCURRED BY IT UNDER THE GRATUITY SCHEME WOULD BE E NTITLED TO DEDUCTION OUT OF THE GROSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE P ROVISION IS MADE FOR THE LIABILITY. THE SAME PRINCIPLE IS LAID DOWN IN THE JUDGMENT OF THIS COURT IN THE CASE OF BHARAT EARTH MOVERS [2000] 245 ITR 428 . IN THAT CASE, THE ASSESSEE-COMPANY HAD FORMULATED LEAVE ENCASHMENT SCHEME. IT WAS HELD, FOLLOWING THE JUDGM ENT IN METAL BOX COMPANY OF INDIA [1969] 73 ITR 53 (SC), THAT THE PROVISION MADE BY THE ASSESSEE FOR MEETING THE LIABILITY INCURRED UNDER THE LEAVE ENCASHMENT SCHEME PROPORTI ONATE WITH THE ENTITLEMENT EARNED BY THE EMPLOYEES, WAS ENTITLED TO DEDUCTION OUT OF GROSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVISION IS MADE FOR THAT LIABILI TY. THE PRINCIPLE WHICH EMERGES FROM THESE DECISIONS IS THAT IF THE HISTORICAL TREND IND ICATES THAT A LARGE NUMBER OF SOPHISTICATED GOODS WERE BEING MANUFACTURED IN THE PAST AND IN THE PAST IF THE FACTS ESTABLISHED SHOW THAT DEFECTS EXISTED IN SOME OF TH E ITEMS MANUFACTURED AND SOLD THEN THE PROVISION MADE FOR WARRANTY IN RESPECT OF THE A RMY OF SUCH SOPHISTICATED GOODS WOULD BE ENTITLED TO DEDUCTION FROM THE GROSS RECEI PTS UNDER SECTION 37 OF THE 1961 ACT. IT WOULD ALL DEPEND ON THE DATA SYSTEMATICALLY MAIN TAINED BY THE ASSESSEE. IT MAY BE NOTED THAT IN ALL THE IMPUGNED JUDGMENTS BEFORE US THE ASSESSEE(S) HAS SUCCEEDED EXCEPT IN THE CASE OF CIVIL APPEAL NOS. OF 2009ARISING OU T OF S. L. P. (C) NOS. 14178-14182 OF 2007 ROTORK CONTROLS INDIA (P) LTD. V. CIT, IN WHICH THE MADRAS HIGH COURT HAS 6 ITA NO.1537 & 1538/K/2011 BCH ELECTRIC LTD. AY 2006-07 & 2007-08 OVERRULED THE DECISION OF THE TRIBUNAL ALLOWING DED UCTION UNDER SECTION 37 OF THE 1961 ACT. HOWEVER, THE HIGH COURT HAS FAILED TO NOTICE T HE ' REVERSAL' WHICH CONSTITUTED PART OF THE DATA SYSTEMATICALLY MAINTAINED BY THE ASSESS EE OVER LAST DECADE. 19. FOR THE ABOVE REASONS, WE SET ASIDE THE IMPUGNE D JUDGMENT OF THE MADRAS HIGH COURT DATED FEBRUARY 5, 2007, AND ACCORDINGLY THE C IVIL APPEALS STAND ALLOWED IN FAVOUR OF THE ASSESSEE WITH NO ORDER AS TO COSTS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND TH E PRECEDENT OF HONBLE SUPREME COURT, SINCE IN THE PRESENT CASE BEFORE US THE PROV ISION FOR SUCH WARRANTY IS BEING MADE ON THE BASIS OF PAST EXPERIENCE AND HAS BEEN COMPUT ED IN A SYSTEMATIC AND SCIENTIFIC MANNER, AS IN THE PRESENT CASE, SURELY WE HAVE TO A PPRECIATE THAT THESE WARRANTY EXPENSES ARE TOWARDS EXPENSES WHICH HAVE BEEN INCURRED OR AR E LIKELY TO BE INCURRED WITHIN THE PERIOD FOR WHICH WARRANTY HAS BEEN ASSURED TO THE C USTOMERS AGAINST THE SALE OF PRODUCTS AND AS SUCH, SUCH EXPENSES ARE DEDUCTIBLE AS BUSINE SS EXPENDITURE. SUCH EXPENDITURE HAVING BEEN INCURRED WHOLLY FOR THE PURPOSE OF BUSI NESS IS FULLY ALLOWABLE AS BUSINESS EXPENDITURE. ACCORDINGLY, WE UPHOLD THE ORDER OF C IT(A). HENCE, WE DISMISS BOTH THE APPEALS OF REVENUE. 7. IN THE RESULT, BOTH APPEALS OF REVENUE ARE DISMI SSED. 8. ORDER IS PRONOUNCED IN THE OPEN COURT ON 18.12.2 015 SD/- SD/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 18TH DECEMBER, 2015 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT DCIT, CIRCLE-7, KOLKATA. 2 RESPONDENT M/S. BCH ELECTRIC LTD., (OLD NAME BHA RTIA INDUSTRIES LTD.) BLOCK-1E, 1 ST FLOOR, 216, AJC BOSE ROAD, KOLKATA-700 017. 3. THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .