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| The Tax Publishers2020 TaxPub(DT) 3465 (Karn-HC) : (2020) 316 CTR 0772 INCOME TAX ACT, 1961
Section 37(1)
Where assessee's claim for provision of warranty was sought to be disallowed by revenue, considering that warranty was made every year in accordance with AS 29 and provision was worked out scientifically every year, than merely because ratio between actual expenditure and provision was less than 70: 100, same could not be disallowed.
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Business expenditure - Allowability - Provision made for warranty expenses in terms of AS 29 issued by ICAI -
Assessee claimed provision for warranty. AO alleged that there is no provision under Income Tax Act, 1961 to allow any expenditure, which is in the nature of provision and is contingent. Accordingly, AO disallowed provision claimed by assessee. Held: Provision for warranty was made every year in accordance with accounting standards 29 prescribed by Institute of Chartered Accountants. In instant case, assessee made provision on basis of sale and also actual trend of last few years and provision was worked out scientifically every year. CIT(A) grossly erred in not allowing provision for warranty for concerned assessment year on allegation that ratio between actual expenditure and provision was less than 70: 100. Ratio so adopted by CIT(A) was imaginary and arbitrary and was without any basis.
REFERRED : Rotork Controls India Pvt. Ltd. v. CIT (2009) 314 ITR 62 (SC) : 2009 TaxPub(DT) 1730 (SC).
FAVOUR : In assessee's favour.
A.Y. : 2008-09
IN THE KARNATAKA HIGH COURT
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