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2019 (3) TMI 2047 - AT - Income TaxProvision made and expenses not actually accrued - warranty expenses booked by the assessee under the head ‘provisions for warranty expenses’ disallowed - as per AO liability had not been ascertained or incurred - AO has held that these expenses were not ascertained and were adhoc in nature which could not be claimed as expenses for the year under consideration - HELD THAT:- The expenses had been claimed under the head’ warranty expenses’ and the assessee had been claiming this consistently on the same basis as a contractual liability. We note that the provision was made as per Note 27(D) to the balance sheet. The assessee company had written back sum under the head ‘ Excess Provision Written back and shown as ‘ Other income’ for the impugned assessment year. Coming to the judgment in the case of Bharat Earthmovers [2000 (8) TMI 4 - SUPREME COURT] allowability of a liability has to be judged as 1. a business liability has to definitely arise in the accounting year. 2. there should be certainly about the incurring of the liability. 3. it should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. 4. the liability has to be allowed although the liability may have to be quantified and discharged at a future date. It would have to be seen whether the facts of the case of the assessee meets with the criteria settled by the Hon’ble Supreme Court. On perusal of the facts of the case it is seen that the liability had definitely arisen in the accounting year and there was certainty about this. The appellant company had made a reasonable estimate of claiming at 0.5% of sales based on past expenses and technical estimates. The appellant company also stated that on the expiration of the warranty period the balance amount is offered for tax as income. Decided against revenue.
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