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2010 (7) TMI 82 - HC - Income TaxProvision for warranty – allowable deduction – scientific basis of making provision – deduction of provisions for the purpose of section 115JB – Held that: - there could be three broad options available to a company while making a provision viz., (a) account for warranty expense in the year in which it is incurred; (b) it makes a provision for warranty only when the customer makes a claim; and (c) it provides for warranty at 2 per cent. of the turnover of the company based on past experience (historical trend) - Hon'ble Supreme Court while holding the first two options would not be appropriate, the third option would be more appropriate as that would fulfil the accrual concept as well as the matching concept -, a categoric stand was made that the assessee was making a reasonable estimate of the provision for warranty claims and that it was consistently adopting a method of taking the average of actual settlements of the immediately preceding three years while working out the provision based on the percentage of current year's sales. - the assessee herein made a scientific approach while making a provision for warranty account for the relevant years and therefore, there was no scope to disallow the claim made by the assessee – decided in favor of assessee
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