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Issues involved: The judgment involves the disallowance of warranty provision expenses treated as contingent liability.
Issue 1: Disallowance of warranty provision expenses The Assessing Officer (AO) disallowed a sum of &8377; 1,83,15,989/- after reducing the actual expenses of &8377; 48,67,564/- relatable to sales of the current year, stating that the warranty provision made in the accounts was contingent and not allowable as an ascertained liability. The AO concluded that the actual liability would only be allowed upon crystallization in the year under consideration. The appellant contended that excess warranty provision written back in the accounts for earlier years were not eliminated, leading to double addition. The ld. CIT(A) upheld the AO's decision based on consistency with previous decisions. However, the ld. CIT(A) allowed expenses actually incurred during the year but charged to the provision account, to be treated as current year expenses. The appellant appealed against these findings. Issue 2: Appeal and Decision The ITAT, in line with a previous order in the assessee's own case, allowed the claim of provision for warranty expenses. The ITAT noted that the provision was made based on technical evaluation and past experience, and that warranty was integral to the sale price of the product. Referring to the decision of the Hon'ble Supreme Court in Rotork Controls India P Ltd. vs. CIT, the ITAT emphasized the conditions for recognizing a provision as a liability. The ITAT found that the warranty expenses were allowable as they were based on reliable estimates and past events, and that the AO had previously allowed similar claims. Therefore, the ITAT allowed the claim of the assessee for deduction of provision for warranty expenses for the relevant assessment years. No additional grounds were raised, and the appeal was allowed. This summary provides a detailed overview of the judgment, highlighting the issues involved and the comprehensive details of the decision for each issue.
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