Contractual liability deduction for warranty-related bus defects allowed at the agreed amount where no basis existed for reduction.

Contractual liability for post-manufacturing defects and warranty-related maintenance was deductible at the agreed rate where the assessee was bound under the bus supply arrangement to bear rectification, repair and defect-removal costs. The agreement allowed a fixed amount to be settled by mutual consent, and the record showed that the higher amount had been withheld towards the assessee's full liability. In the absence of material supporting a lower allowance, restricting the deduction to a reduced per-vehicle amount was unjustified. The deduction was therefore allowed at the agreed per-vehicle amount, and the question of law was answered in favour of the assessee.

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Issues: Whether the assessee was entitled to deduction of Rs. 2,000 per bus towards liability for removal of post-manufacturing defects and warranty-related maintenance, instead of the reduced amount allowed by the Tribunal.

Analysis: The liability arose from the contractual arrangement under which the assessee was bound to bear the expenses for rectification, amendment, repair, and removal of manufacturing defects in the buses. The agreement permitted a fixed amount to be determined by mutual consent for discharging that obligation, and the record showed that Rs. 2,000 per vehicle had been withheld towards the assessee's entire liability. In the absence of material justifying a lesser deduction, the restriction of the allowance to Rs. 1,000 per vehicle was not warranted.

Conclusion: The assessee was entitled to deduction of Rs. 2,000 per vehicle, and the question of law was answered in favour of the assessee and against the Revenue.

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