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2007 (2) TMI 200 - HC - Income TaxProvision for Warranty - Warranty charges as a contingent liability - future requirements - Tribunal held that warranty provision is an allowable deduction and in respect of future claims that may not rise at all is a deductible expenditure in the current year? - HELD THAT:- We agree with the submission made by learned counsel for the Revenue, that considering the nature of the liability, which is yet to crystallise but loaded with uncertainty of the event to cause a liability, there is no justification to accept the plea of the assessees to uphold the order of the Tribunal. Ld counsel for the assessees reiterated the fact that under the terms of sale, warranty clause is a committed liability and, as such, the claim is reasonable as to the particular percentage in the total turnover. We do not agree with the submission of ld counsel that they could be granted some ad hoc percentage. Considering the fact that the liability, as such, being a contingent one and not a certainty, we fail to understand the reasoning of the Tribunal in accepting the case of the assessee on the strength of decisions, which certainly are based on definite data. Thus, the decision of the Tribunal deserves to be reversed. It may be noted that the assessee was providing warranty for the repair for a period of one year, when they were paying Rs. 150 per set to another company, by name, T. D. Electronics Service Company. That apart, there was another five years warranty and the expenditure on this account was estimated at Rs. 68 lakhs and this expenditure was to be incurred only when there arose a liability, to be borne. The facts herein are no different from that of the earlier cases. We do not find any justification to accept the plea of the assessee that the provision merited a deduction. Appeals preferred by the Revenue, on the question of warranty charges as a contingent liability, are allowed, holding that the same as not deductible.
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