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2013 (7) TMI 144 - HC - Income TaxProvision of warranty and Rectification expenses - unascertained liabilities - assessee had made provision for liquidated damages under two heads viz., one towards delay in delivery and other towards non performance. - The rectification expenses is mainly for repairs and replacements - Deduction u/s 37 - Held that:- provision is recognised when an enterprise has a present obligation as a result of a past event; that it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made on the amount of the obligation. If these conditions are not met, no provision could be recognized. - when the company made reliable estimate based on the performance capacity and the quality therein and the materials relating thereto, we do not find any justifiable ground to reject the plea of the assesee on the provision made. - Decided in favor of assessee. Commissioner of Income Tax (Appeals) committed an error in his finding on the ground that the amount claimed in the nature of warranty was not stated so, but described as provision towards the liquidity damages. We do not find that the description of the claim would govern the claim on the provision for warranty when the terms of the agreement specifically provided that the liquidated damages was for non performance. Given the above fact, one can not reject the claim for provision made towards the warranty on the performance of the machineries supplied - Following the decision of ROTORK CONTROLS INDIA P. LTD v. CIT [2009 (5) TMI 16 - SUPREME COURT OF INDIA] - Decided in favour of assessee. Regarding rectification expenses - Held that:- it was stated that the said provision was based on the information that some of the equipments supplied by the company required repair and replacement and that technical team estimated such expenses for making provision in the account. The claim thus based on materials and the information of the technical team - Deduction allowed - Decided in favor of assessee.
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