Income Tax Act, 1961

--Business expenditure--Provisions for warranty claims Provision not based on scientific basis--Commissioner pointed out that the assessing officer omitted to examine the admissibility of the provision specially when the same was representing the provision towards warranty cost. According to him, the provision created by assessee was not established to have been made on a scientific case. Consequently, the provision for warranty claims created by assessee was a contingent liability and the same was not deductible. He the provision created by the assessee was not established to have been made on a scientific basis. Consequently, the provision for warranty claims created by the assessee was a contingent liability and the same was not deductible. He initiated proceedings under section 263 as he felt that the order of assessing officer was erroneous and prejudicial to the interests of the revenue. Pointed out that assessing officer had not at all examined the aspect with regard to the admissibility of the said sum shown as provision for warranty cost. It further also pointed out that the method as projected by the assessee in their reply, in showing the warranty provisions under the categories of after market (AM) and original equipment (OE) by debiting the account by passing a journal voucher, was never explained before assessing officer nor was it examined by him. Thus, the Tribunal held that liability is only an unascertained contingent liability. Held: Warranty liability was only a provision for unascertained contingent liability and same was not deductible.

Income Tax Act, 1961 Section 37(1)

In the Madras High Court

R. Banumathi & K. Ravichandrabaabu J.J.

Renowned Auto Products MFRS. Ltd. v. ITO

Tax Case (Appeal) No. 324 of 2010

18 February, 2013

Appellant by : R. Kumar

Respondent by : K. Suresh Kumar, Standing for Income-tax

K. Ravichandrabaabu J.