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Issues involved: Appeal against the deletion of provision for warranty in the assessment for AY 2006-07.
Summary: The appeal was filed by the Revenue against the deletion of a provision for warranty in the assessment for AY 2006-07. The Assessing Officer disallowed the provision for warranty and added it to the total income of the assessee, based on the contention that it was a contingent liability. However, the CIT(A) directed the Assessing Officer to delete the addition, citing the decision of the Hon'ble Supreme Court in the case of Rotork Controls India P. Ltd. The CIT(A) found that the provision for warranty was justified as it was calculated on a scientific basis and had been reversed in the subsequent year. The Revenue challenged this decision before the ITAT. The Departmental Representative argued that the CIT(A) had given full relief to the assessee, contrary to previous years where only partial relief was granted. On the other hand, the Counsel for the assessee justified the deletion of the addition, stating that the provision had been reversed in the following year and actual expenses were higher. The ITAT considered the arguments, reviewed the orders of the Assessing Officer and the CIT(A), and found that the provision for warranty was justified. The ITAT upheld the decision of the CIT(A) to delete the addition, as the provision had been reversed in the subsequent year and actual expenses exceeded the provision amount. The appeal filed by the Revenue was dismissed, and the decision of the CIT(A) was upheld based on the principles established in the case of Rotork Controls India P. Ltd. In conclusion, the ITAT upheld the decision of the CIT(A) to delete the addition of the provision for warranty, based on the scientific calculation and subsequent reversal of the provision in the following year, in line with the principles laid down by the Hon'ble Supreme Court.
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