TMI Blog2015 (2) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... cer the basis by which the provision for the liability of warranty was computed. Thereafter, the Assessing Officer is directed to examine the reasonableness of the same in the light of the parameters laid down by Hon’ble Apex Court in the case of Rotork Controls India P.Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA). We direct the Assessing Officer to allow the liability which is found to be reasonable considering the facts and circumstances of the case. We further direct the Assessing Officer that if any part of the liability is disallowed, he will ensure that if the same is written back in the subsequent year, then, in the subsequent year, the tax may not be levied on the provision written back which is disallowed in this year, otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4. Learned counsel for the assessee stated that it is apparent that there is a typographical error in the ground and therefore, the request of the learned DR for substituting the 100% disallowance instead of 50% disallowance may be accepted and the appeal may be proceeded on merits. 5. In view of the above, we deem the ground as modified and in the ground of appeal, disallowance of 50% would be read as disallowance of 100%. With this, we proceed to decide the appeal on merits. 6. At the time of hearing before us, learned DR referred to the decision of Hon'ble Supreme Court in the case of Rotork Controls India P.Ltd. Vs. CIT - [2009] 314 ITR 62 (SC) for giving relief to the assessee and stated that as per the above decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of Fiamm Group that the liability of warranty is 2 to 2.5%. That the accounting year relevant to assessment year 31 st March, 2005 was the first year of the assessee s business in India and, therefore, the assessee made the provision for warranty as per its global experience. That when in the subsequent year it came to the knowledge of the assessee that the claim of warranty in India is not as high as in the global market, the assessee itself wrote back the provision for warranty and offered the same as income. He pointed out that `100.33 lakhs is offered as income in AY 2008-09 and `89.63 lakhs in AY 2009-10. The CIT(A) has also directed the Assessing Officer verify this aspect and thereafter allowed the relief if these provisions have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 37 of the Income-tax Act, 1961. The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted 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 produce 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 recognized when : (a) an enterprise has a present obligation as a resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,350 1,33,43,468 3,47,106 3,47,106 Additional provision during the year 74,05,358 1,29,29,833 1,65,11,140 Provisions utilized during the year (25,78,800) (8,95,951) (35,14,868) Provisions reversed during the year 89,63,343) (1,00,33,740) Closing balance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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