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2015 (5) TMI 869

Disallowance of warranty provision - whether ITAT was right in law in treating provision for warranty in the present case as an ascertained liability, despite failure on part of the assessee to establish historical or scientific basis of arriving at the said provision? - Held that:- The question is answered in favour of the respondent by the judgment of Commissioner of Income Tax v. Majestic Auto Ltd. [(7) TMI 568 - PUNJAB & HARYANA HIGH COURT] which was also relied upon by the Tribunal.

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e, for the respondent JUDGEMENT S.J.VAZIFDAR A.C.J. (Oral) This order will dispose of Income Tax Appeal Nos. 434 and 439 of 2014 as similar questions of law are involved in both the cases. The facts have been taken from I.T.A. No. 434 of 2014. 2. Both these appeals are against the order of the Income Tax Appellate Tribunal dismissing the appellant s appeal against the order of the Commissioner of Income Tax (Appeals). The C.I.T. (Appeals) deleted the disallowance of warranty provision. The matte .....

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ench of this Court and by a judgment of the Supreme Court. 5. The respondent filed a return of income of 11,72,00,980/-. The revised return declared the same income. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (for short the Act ) at a total income of 11,64,04,200/-. The assessee had debited an amount of 2,66,33,000/- on account of warranty expenses in the Profit and Loss account. The respondent stated that the warranty costs were determined on the basis of the .....

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Officer held that the warranty expenses are not an allowable deduction and that the liability was contingent and not in praesenti. The Assessing Officer held that the test was whether a provision provides for a known liability of which the amount can be determined with substantial accuracy. He held that the decisive factor is not the methodology of accountancy or the practice followed by the respondent but the principle is whether such a liability is contingent or in praesenti. Observing that it .....

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of manufacture and sale of air conditioners. As noted by the C.I.T. (A), under the agreements entered into by it with its customers, the respondent gives free of cost repair and replacement warranty for a minimum period of one year from the date of sale. 9. The respondent contended that the amount debited to its Profit & Loss account was based on the past experience. The respondent has been in this same line of business for several years. It is not suggested that the records, including the b .....

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Movers case (supra), Hon'ble the Supreme Court dealing with the proposition that the assessee would be entitled to deduction in the accounting year, although the liability may have to be quantified and discharged at a future rate, held that such a liability is to be treated in the present time and would not be contingent liability. It was held as under: So is the view taken in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) wherein this Court has held that the liability on the assessee having .....

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