2011 (7) TMI 1246 - AT - Income Tax

Summary

Issues Involved: Whether provision for warranty is allowable u/s 37(1) of the I.T Act or not.

The Appellate Tribunal ITAT MUMBAI, in the case of the assessee, addressed the issue of whether a provision for warranty is allowable u/s 37(1) of the Income Tax Act. The Assessing Officer disallowed the provision for warranty amounting to &8377; 16,19,000 as business expenditure, stating it was merely a provision and not an ascertained liability. The Ld. CIT (A) upheld this disallowance. However, the assessee contended that in a previous year, the Tribunal allowed the warranty claim u/s 37 of the I.T. Act. The Tribunal, in the assessee's own case for A.Y. 2005-2006, considered the issue and allowed the claim based on the judgment of the Hon'ble Supreme Court in Rotork Control India (P) Ltd. vs. CIT. The Tribunal held that warranty provisions are deductible as the assessee had a present obligation due to past events, resulting in an outflow of resources, and a reliable estimate could be made of the obligation. Consequently, the Tribunal allowed the appeal, following its decision in the assessee's previous case.

In conclusion, the appeal filed by the assessee was allowed by the Tribunal based on the precedent set in the assessee's own case for A.Y. 2005-2006, where it was established that provisions for warranty are deductible u/s 37 of the Income Tax Act.