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2018 (6) TMI 1119 - AT - Income TaxDisallowance on account of warranty expenses - allowable busniss expenses - Held that:- The warranty provision has been created by the assessee following the accounting standard 29 of “provision, contingent liability and contingent assets” which is mandatory for the companies. The Hon'ble Supreme Court in Rotork Controls India Pvt. Ltd Vs. CIT (2009 (5) TMI 16 - SUPREME COURT OF INDIA) has held that provision of warranty expense is allowable as deduction u/s 37 of the Act. Warranty is an integral part of the sale price which is attached to the sale price of the product. It was further held that warranty provision had to be recognized because the assessee had a present obligation as a result of the past events resulting in an outflow of resources and reliable estimate can be made of the amount of the obligation. Present value of the contingent liability if properly ascertained and discounted on accrual basis can be an item of deduction u/s 37. In the present case there is no allegation on the assessee that the warranty provision made by the assessee is not a reliable estimate. - Decided in favour of assessee.
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