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"014. We have carefully considered the rival contention and perused the orders of the road lower authorities as well as the order of the assessing officer in case of the assessee for assessment year 2007-08. We find that assessee is a manufacturer of power driven pumps. These pumps are sold to customers in India as well as in overseas market. Assessee does not have any offices outside India but market is served by the associated Enterprises of the assessee. For this purpose, the assessee pays the commission to the associated enterprises. This year such commission payment was of ₹ 35,424,361/-. Though the transaction was accepted by the learned transfer pricing officer at arm's-length price, however, the learned assessing officer disallowed the same for the reason that assessee has not deducted tax at source u/s 195 of the Act and hence disallowable u/s 40
"023. We have carefully considered the rival contentions and perused the orders of the lower authorities. Assessee made provision for warranty expenditure on the pump and sold at the rate of 1.25% . Learned AO disallowed it stating that it is merely provision and not ascertained liability. The learned Assessing Officer further noted that no tax has deducted at source on such expenditure under Section 195 read with section 9(1)(vii) of the Act, the disallowance of ₹3,73,10,068/- was made. We find that assessee is engaged in manufacturing and sale of centrifugal power driven pumps, assessee assures its customer warranty for period of 18 months after sales . As during this period of warranty, assessee indicates a liability to repair, rework and rectify any defect in the product and sold it provides warranty on the basis of past history and scientific basis of failure of the product sold. For 18 months of sale of pump, the assessee makes the provision of warranty. The learned Authorized Representative demonstrated the warranty expenditure for various period where the actual warranty percentage are ranging from 6.48% to 2.46% and which averages out to 1.25 percentage and therefore, the provision was credited in the books of account on that basis. He also referred to the past trend for last three years to show that average warranty is 1.17% of the sales. He submitted that as the warranty condition is embedded into the sale price, as soon as the sale are recorded and recognized as Revenue, related warranty cost is also required to be provided for according to the accounting standard 9 of the ICAI. He therefore, submitted that this warranty cost is ascertained liability and not merely the provision. He further, stated that this issue is squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in case of Rotork Controls India (P.) Ltd. (2009) 314 ITR 62 (SC). We find that the provision of the liability has been made by the assessee on the past trends available of the product failure and incurring of warranty expenditure for that. Naturally, assessee extends the warranty of the pumps sold for 18 months. The only information that could be used by the assessee is the past product failure. This is not proved to be incorrect by the revenue authorities. Warranty is necessary cost, which is embedded in the sale price. The contract of sale itself includes the same. Therefore, as soon as the sales are accounted for as income, the corresponding warranty liability is required to be provided as expenditure incurred. The quantum of warranty ITA NO. 810/MUM/2021 (A.Y: 2016-17) ITA NO. 593/MUM/2022 (A.Y: 2017-18) M/s. Sulzer Pumps India Pvt Ltd expenditure if determined in accordance with some method based on past trends of the product failure, and such provision is not excessive, same deserves to be allowed as expenditure against the sales income by the assessee. The honourable Supreme Court covers this issue in favour of the assessee. Before us, assessee has provided the calculations of each for provision of warranty made in the respective year as well as the financial statements of the assessee for earlier years to show that such provision are not in excess of any requirement for meeting warranty liability. The learned assessing officer and the learned dispute resolution panel did not show what is the scientific method other than this that the assessee should have employed for determining the liability of warranty. In view of this, we are of the opinion that warranty provision made by the assessee is not an unascertained liability but definite and ascertained liability, which is quantified on the basis of past history of the product failure. Accordingly, the learned assessing officer is not correct in disallowing the warranty expenditure amounting to ₹ 37,310,658/- stating that it is not allowable. Therefore, the disallowance deserves to be deleted.

32. With regard to Ground No. 10 which is in respect of disallowance of the provision towards liquidated damages, Ld. AR submitted that similar issue is raised for the A.Y. 2017-18 in Ground No. 14 and brought to our notice relevant facts relating to the ground and filed its written submissions vide letter dated 23.02.2023, for the sake of clarity it is reproduced below:-

"1. The Assessee-company is engaged in the business of manufacturing and sale of single and multistage centrifugal power- driven pumps. The pumps manufactured by the assessee-company are custom built for every order and are not off the shelf products. The assessee-company commences manufacturing the pumps for a customer only after receiving a firm order from the customer. The pumps generally take 12 to 18 months for manufacturing, depending upon the technical specifications of the pumps. The pumps generally form part of a larger project that the customer would be undertaking. For example, when IOCL places an order for a pump to be used in its oil refinery project, it is only after the supply of the pumps by the assessee-company that the ONGC can continue with its project. Thus, from the perspective of the customer of the assessee- company, time is the essence of the contract in so far as the delay in supply of pumps by the assessee- company would delay the larger project being undertaken by the Assessee's customer. Accordingly, the contract entered into by the assessee-company with its customers provides for a specific date or a specific time period for the delivery of the pumps contracted. The contract also provides that, in the event of delay by the assessee-