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2013 (4) TMI 663 - AT - Income TaxDisallowance of warranty provision which are contingent and unascertained liability - CIT(A) deleted the disallowance - Held that:- Assessee is engaged in the business of manufacturing and sale of air conditioners, compressors etc. and gives a free of cost repair and replacement warranty as per the agreed terms and conditions with the customers for a minimum period of one year at the time of sale. The provision for warranty has been recognized based on past warranty trends, warranty claims received during the year and the unspent provision for warranty for prior years. Thus, agree with the CIT(A) that the treatment of warranty provision is in consonance with accepted principles of commercial practice and accountancy followed year after year consistently. It is undisputed that the warranty clause is a part of the sales document and imposes a liability upon the assessee to discharge its obligations under that clause for the period of warranty. As decided in Rotark Controls India P Ltd. vs. C.I.T. [2009 (5) TMI 16 - SUPREME COURT OF INDIA] & C.I.T. vs. Majestic Auto Ltd. (2006 (7) TMI 568 - PUNJAB & HARYANA HIGH COURT) has affirmed that the provision for warranty claims and free services charges were allowable as deduction on the facts that quantification of warranty claim and liability of free services has been made on scientific basis. In favour of assessee.
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