Case Law Details
Demag Delaval Industries Turbomachinery Pvt. Ltd. Vs. ACIT (ITAT Mumbai)
The assessee had made provision for warranty of Rs. 2,76,18,000/-which was claimed as expenditure. The same was denied by the Assessing Officer on the ground that it is an unascertained liability and a contingent liability. Learned CIT(A) in principal upheld the action of the Assessing Officer but directed that only the provision made during the year should be disallowed.
Against this order assessee is in appeal before us. The learned counsel of the assessee submitted that issue is squarely covered by the decision of honourable Supreme Court in the case of Rotork Controls India P. Ltd. Vs. CIT (314 ITR 62)(SC). He submitted that subsequently the assessing officer and learned CIT appeals have followed this decision of Supreme Court and allowed assessee’s claim in subsequent years.
Upon hearing both the counsel and perusing the record, we find that Hon’ble Supreme Court in the case of Rotork Controls India P. Ltd. (supra) has been expounded the following :-
“(1) A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized;
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