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2. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of provision for warranty amounting to Rs. 5.66 crore.

2.1 The Commissioner of Income tax (Appeals) erred in holding that the appellant had adopted a flat rate on the turnover of truck and non truck segment eventhough the assessee company is adopting the rate which changes from year to year based on previous year experience.

2.2 The Commissioner of Income tax (Appeals) ought to have appreciated that warranty is an estimate based on previous experience and that actual expenditure may not match the provision and any excess or shortage in the provision is made is adjusted in the subsequent year. Rotork Controls India P.Ltd Vs. CIT, 314 ITR 62(SC).

3. Briefly stated facts are that the assessee is engaged in the business of manufacturing of tyres. We noted that this matter travelled up to ITAT and ITAT in ITA Nos.641 to 645/Chny/2018 dated 09.05.2018 set aside the matter back to the file of the AO to follow the principle laid down by Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd., vs. CIT,314 ITR 62(SC). The AO while giving appeal effect to the order of ITAT passed order and confirmed the disallowance reiterating the original findings.

The ld.counsel stated that this issue is pending with the AO because he has to verify the details in term of the decision of the Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd., supra, wherein the Hon'ble Supreme Court has observed as under:-

"17. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation. As stated above, the case of Indian Molasses Co. (supra) is different from the present case. As stated above, in the present case we are concerned with an army of items of sophisticated (specialiased) goods manufactured and sold by the assessee whereas the case of Indian Molasses Co. (supra) was restricted to an individual retiree. On the other hand, the case of Metal Box Company of India (supra) pertained to an army of employees who were due 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 receipts 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 number of years. In such a case it was held by this Court that the provision made by the assessee- company for meeting the liability incurred by it under the gratuity scheme would be entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The same principle is laid down in the judgment of this Court in the case of Bharat Earth Movers (supra). In that case the assessee company had formulated leave encashment scheme. It was held, following the judgment in Metal Box Company of India (supra), that the provision made by the assessee for meeting the liability incurred under leave encashment scheme proportionate 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 liability. The principle which emerges from these decisions is that if the historical trend indicates that 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 the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts under Section 37 of the 1961 Act. It would all depend on the data systematically maintained 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 2009 - Arising out of S.L.P.(C) Nos.14178-14182 of 2007 - M/s. Rotork Controls India (P) Ltd.

7. We have heard both the sides and perused the materials on record.

According to the ld.AR, the assessee has adopted the financial year 2008-09 as base year. The retail sale and actual warranty paid for 9 months was taken to arrive at the percentage of warranty to sales. This warranty percentage was further split into truck and non-truck segment. Such percentage of warranty to sales was adopted for the year under consideration and the warranty requirement was debited in the profit and loss accounts of the assessee. Further, when the provision created is more than the claim, it is reversed in the next year and this provision was consistently followed by the assessee. In the light of the circumstances, a legal obligation to make payment in future said to have been accrued. According to the AR, it is not required to wait for the contingency to offer and it can be inferred that a better liability has definitely arisen in the assessment year under consideration though the quantification is discharged on this warranty liability at a future date. The assumption of the assessee's liability is in praesenti. Though the liability discharged at a future date, it is not a contingent one. The contention of the ld. DR is that the assessee has not provided details of actual working of warranty before the Assessing Officer. According to him, expenditure which is deductible under income-tax is one which is towards a liability actually existing at the time, but putting aside of money which may become expenditure on happening of an event which IS not expenditure. The former is deductible but not the later. However, the Supreme Court in the case of Bharat Earth Movers V. CIT (245 ITR 428) held that if a business liability has definitely arisen in a financial year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though actual quantification with accuracy may not be possible, if these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. In the present case, the assessee has not produced any basis on which the provision of warranty was determined before the Assessing Officer. However, it has produced actual working of warranty before the Commissioner of Income-tax(Appeals). Therefore, it is not clear that what extent the liability actually required in the assessment year under consideration while framing the assessment by the Assessing Officer. The provision made whether on actual quantification or not, was not verified by the Assessing Officer. The Commissioner of Income-tax(Appeals) after getting the assessee's actual working of warranty not get verified from the AO and he has decided himself that it is correct. Therefore, in our opinion it is appropriate to remit the issue to the file off the Assessing Officer to examine the actual quantification of the provisions made towards warranty and decide in the light of the judgment of Supreme Court in the case of Rotork Controls India Pvt. Ltd. (supra). 7.1 We noted that the issue of warranty can be allowed on satisfying the following conditions as held by Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd. (supra):-