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2014 (3) TMI 582 - HC - Income TaxNature of Expenses - Provision for warranty liability - Whether the Tribunal was correct in holding that the sum being a provision made for warranty liability in respect of products sold is not a contingent liability but should be allowed as a revenue expense – Held that:- The decision in ROTORK CONTROLS INDIA (P) LIMITED v/s COMMISSIONER OF INCOME-TAX, CHENNAI [2009 (5) TMI 16 - SUPREME COURT OF INDIA] and COMMISSIONER OF INCOME-TAX AND ANOTHER v/s M/s. IBM INDIA LIMITED [2013 (10) TMI 1225 - KARNATAKA HIGH COURT] followed - A provision is a liability which can be measured only by using a substantial degree of estimation – the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it - On this basis a sensible estimate should be made - The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Provision for warranty is rightly made by the assessee because it has incurred a present obligation as a result of past events - There is also an outflow of resources - A reliable estimate of the obligation was also possible - the appellant has incurred a liability during the relevant assessment year which was entitled to deduction under Section 37 of the 1961 Act - all the three conditions for recognizing a liability for the purposes of provisioning stand satisfied – thus, no substantial question of law is involved in the appeal and the appeal for consideration – Decided against Revenue.
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