New Delhi: The income tax department has moved the supreme court challenging IT firm Hewlett Packard India Ltd’s entitlement to tax benefits on warranty expenses incurred on replacing defective parts.
Following the petition, a bench headed by Justice S. H. Kapadia has sought reply from Hewlett Packard as to why it should be allowed to claim deductions on warranty expenses.
Challenging the Karnataka high court’s judgement that dismissed its plea, the department said the high court was not correct in holding the provision made by Hewlett Packard towards warranty expenses based on estimates.
Hewlett Packard had filed its income tax returns declaring a total income of around Rs6.13 crore in April 2001 and had claimed deductions of around Rs91 lakh on the provision of warranty.
The department, however, said the provision for warranty was a contingent liability which may or may not accrue during the year.
Further, it also questioned the high court judgement in holding that the assessee followed a system of accounting that was capable of ascertaining liability with certainty.
“The high court erred in upholding the view that the method of accounting followed by the assessee was such as being capable of ascertaining the liability with certainty. In fact, the assessee did not explain the method on which it was computed,” the department said in its petition.