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2020 (8) TMI 768 - HC - Income TaxProvision for warranty - whether allowable as deduction when the assessee has not made provision on a scientific basis? - whether the assessee is entitled for deduction when excess provision towards warranty made in the previous years is not offered to tax by reversing the entries? - whether the principles laid down by the Supreme Court in Rotork Controls India (P) Ltd. [2009 (5) TMI 16 - SUPREME COURT] have been taken note of while deciding the issue of estimation of provision for the Assessment year 2008-09? - Tribunal allowed deduction - HELD THAT:- Principles laid down by the Supreme Court in Rotork Controls India (P) Ltd. Supra had been taken into account by the Commissioner of Income Tax (Appeals) and the estimation of provision for the AY 2008-09 has been found to be unscientific and unreasonable. Tribunal has noted that admittedly, the CIT (Appeals) has considered the same working method of provision in previous two years and allowed the provision. CIT (Appeals) did not allow the provision for warranty for the Assessment year on the ground that the ration between the actual and the provision is less than 70:100 - ratio adopted by the CIT (Appeals) is imaginary and arbitrary and is without any basis. It was also held that provision of warranty was made every year in accordance with accounting standards 29 and the provision is worked out scientifically every year merely because, the provision has come down to 59:100, the same cannot be disallowed. Accordingly, the finding recorded by CIT (Appeals) that estimation of provision is unscientific and is unreasonable has been set aside. Thus, it is evident that the conditions laid down by the Supreme Court to assess a provision have been met in the instant case - submission made by learned counsel for the revenue that neither Commissioner of Income Tax (Appeals) nor Tribunal has examined the ratio laid down in Rotork Controls India (P) Ltd. Supra does not deserve acceptance. In view of preceding analysis, the substantial questions of law framed are answered against the revenue.
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