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TMI Blog2009 (10) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal, having found that the provision for warranty is based on a scientific method and that it was based on past practice and experience, is right in law in holding that the provision is not allowable as deduction ? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in coming to the conclusion that on the ratio of the decision of the Madras High Court in CIT v. Rotork Controls India Ltd. [2007] 293 ITR 311 (Mad), the claim made by the appellant towards provision for warranty is not allowable as deduction in computing the income ?" 2. The facts of the case are as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod of ascertainment of the possible liability, taking into account of number of lifts sold and the past data. The Assessing Officer completed the assessment by order dated December 28, 2006, by disallowing the provision for warranty claim to the extent of Rs. 19,64,210 on the ground that it is in the nature of unascertained liability. The appeal filed by the assessee before the Commissioner of Income-tax (Appeals) was allowed accepting the claim of the assessee. Against that order, the Department filed an appeal before the Tribunal in I. T. A. No. 2192/Mds/2007. The Tribunal by referring to the decision of this court in the case of CIT v. Rotork Controls India Ltd. [2007] 293 ITR 311 (Mad), has held that the provision for warranty cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognised when : (a)an enterprise has a present obligation as a result of a past event ; (b) it is probable that an outflow of resources will be required to settle the obligation, and (c) a reliable estimat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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