Provision for damaged goods is deductible only when a present obligation, probable outflow, and reliable estimate are shown.

A provision for damaged goods is deductible only where there is a present obligation from a past event, an outflow of resources is probable, and the amount can be reliably estimated. Applying this settled principle and following its earlier ruling in the assessee's own case, the Gujarat High Court held that the Assessing Officer's disallowance was unsustainable. The addition made on account of the provision for damaged goods was therefore rightly deleted, and the issue was decided in favour of the assessee and against the Revenue.

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Issues: Whether the deletion of addition made by the Assessing Officer on account of disallowance of provision for damaged goods was justified.

Analysis: The Court followed its earlier decision in the assessee's own case and noted that the relevant issue had already been answered in favour of the assessee. It applied the settled principle that a provision is recognised only where there is a present obligation arising from a past event, an outflow of resources is probable, and the amount can be reliably estimated. On that basis, the disallowance made by the Assessing Officer was held to be unsustainable.

Conclusion: The addition on account of provision for damaged goods was rightly deleted and the issue was decided in favour of the assessee and against the Revenue.

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