INCOME TAX ACT, 1961

--Business expenditure--Provision for warranty chargesProvision based on scientific basis--The contract of supply, erection ad installation of lifts and elevators entered into by the assessee with the customers contained a specific warranty clause. Since the rectification of defects based on the warranty is a contractual obligation, te assessee made a scientific ascertainment of the possible liability tat would arise on account of the warranty clause. A provision had been made based on such technical ascertainejmtn on a scientific basis. Revenue disallowed the provision for warranty on the ground that it was in the nature of unascertained liability. Assessee contended that the preset value of a contingent liability, like the warranty expense, if properly ascertained ad discounted on accrual basis could be an item of deduction under section 37. Revenue contended tat the provision for warranty could not be allwoed in the absence of incurrence of liability under warranty clause. Held: The provision made for warranty in was allwoed as deduction under section 37.

Income Tax Act, 1961 Section ??

IN THE MADRAS HIGH COURT

K. RAVIRAJA PANDIAN & M. M. SUNDRESH JJ.

Kone Elevator India (P.) Ltd. v. Asstt. CIT

T. C. A. No. 942 of 2008

28 October, 2009

Appellant by : V. Ramachandmn for Anita Sumanth

Respondent by : Aran Kurian