The Tax Publishers2020 TaxPub(DT) 4471 (Del-Trib)

INCOME TAX ACT, 1961

Section 37(1)

Impovement in technology would not justify disallowance of claim/expenditure on account of provision for warranty, though in a given case on basis of data it could be relevant factor in making calculations.

Business expenditure - Provision for warranty - AO disallowed deduction taking note of inprovement in technology -

Assessee claimed deduction of provision made for warranty expenditure in respect of mobile phone handsets held that claim of the assessee was not an ascertained liability and same could not be accepted as Mobile technology was changing very fast and provision of warranty made by assessee based on past experience was not relevant. Further, the new models with improved technologies would have less failure rates as compared to other mobile model phones. Therefore, warranty provision made by assessee was a contingent liability.Held: Impovement in technology would not justify disallowance of claim/expenditure on account of provision for warranty, though in a given case on basis of data it could be relevant factor in making calculations. Moreover, in case of doubt and debate, AO should have asked for the basis and formula/criteria applied by assessee to compute provision for warranty. Accordingly, AO was not justified in disallowing deduction.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2004-05 & 2005-06


INCOME TAX ACT, 1961

Section 37(1)

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