2009 (5) TMI 16 - SC - Income Tax

Provision for Warranty - Appellant-company sells Valve Actuators. Bulk of the sales is to BHEL. At the time of sale appellant (assessee) provides a Standard Warranty whereby in the event of any Beacon Rotork Actuator or part thereof becoming defective within certain period, the company undertakes to rectify or replace the defective part free of charge. For the AY1991-92, the assessee made a net provision for warranty at ₹ 5,18,554/-. In this matter, honorable Apex Court allowed the claim of provision for warranty stating that, "with making of provision on the basis of estimated present value of contingent liability holds good during the assessment years in question qua warranty claims".