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Issues involved:
The issue involves the deduction of amounts set apart by the assessee for claims arising out of warranties issued to customers, as disallowed by the Assessing Officer but reversed by the CIT (Appeals) and affirmed by the Tribunal. Judgment Summary: Issue 1 - Deduction of amounts set apart for warranty claims: The assessee, engaged in manufacturing and selling TV and audio systems, offered a one-year warranty on its products. The Assessing Officer disallowed the deduction claimed by the assessee for setting apart amounts to cover warranty claims, deeming it a contingent liability. However, the CIT (Appeals) and the Tribunal held in favor of the assessee, citing precedents. The High Court, relying on previous decisions, affirmed that a liability arising from warranties is an allowable deduction even if quantified and discharged in the future. The Court emphasized that maintaining accounts on the mercantile system allows for accrued liabilities to be deducted, considering commercial practices and accountancy principles. As the amounts set apart by the assessee were reasonable based on past claims, the Tribunal's decision to allow the deduction was upheld. The appeal was dismissed as no substantial question of law arose for consideration. This judgment clarifies the treatment of warranty-related liabilities for tax deduction purposes, emphasizing the importance of past experience and reasonableness in setting aside amounts for future claims.
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