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2009 (1) TMI 525 - AT - Income TaxProvision for warranty expenses - obligation of providing after sale service - Whether the CIT(Appeals) was justified in deleting the addition of provisions of service warranties without appreciating the fact that as per the provisions of section 37(1) only those expenses which have been incurred wholly and exclusively for the purpose of business are allowed as deduction - HELD THAT:- We are concerned with regard to the assessee’s claim of deduction towards warranty liability under a condition or stipulation made in the sale document imposing a liability upon the assessee to discharge its obligation under warranty clause for the period of warranty, and thus, in the light of the discussion made above, the liability so accrued, though to be discharged as a future date, would be a proper deduction while working out the profits and gains of assessee’s business from sale of the commodity in question. The assessee had made the provision of warranty liability having regard to the past factor of actual expenses incurred by the assessee towards warranty liability. The assessee has worked out the amount of liability by applying a multiplying factor on the total sale made during the year on the basis of past result. This method has been followed by the assessee in uniformly right from the first year of the commencement of the production as so noted by the CIT(Appeals) in his order. We are, therefore, in the full agreement with the view taken by the CIT(Appeals) in allowing the assessee’s claim of deduction towards warranty liability, a provision thereof was made in the books of account on actuarial basis. The order of CIT(Appeals) is thus upheld. In the result, the appeal filed by the revenue is dismissed.
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