Higher warranty provision cannot be disallowed without examining basis/working of claim

Brief of the case:

The ITAT Bangalore in the case of Hewlett Packard India Sales P. Ltd held that creation of warranty Provision which is much higher than previous years provision cannot be disallowed without examining the scientific basis used by the assessee in working out the same.

Facts of the case:

• Assessee had debited a sum of Rs.74,54,02,531/- towards warranty expenditure out of which a sum of Rs. 23,72,84,914/-. was provision made for warranty in respect of goods sold during the previous years.AO disallowed the provision amount by considering the same as provision for unascertained liabilities thus, not allowable as deduction u/s 37.

Please become a Premium member. If you are already a Premium member, login here to access the full content.