Estimated warranty liability deductible under mercantile accounting where the expense had accrued and was not contingent.

Estimated warranty service costs debited to the profit and loss account were treated as an accrued liability, not a contingent liability, where the assessee consistently claimed the deduction, maintained a full-scale service department, and followed a settled method for estimating warranty-related expenses. Applying the mercantile system of accounting, the court accepted that an estimated liability already accrued, though payable later, is deductible as expenditure. The provision was therefore allowable, and the Revenue's appeals failed.

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Issues: Whether the provision for estimated warranty service costs debited to the profit and loss account constituted a contingent liability and, if not, whether the amount was allowable as an expenditure.

Analysis: The assessee consistently claimed the expenditure from the relevant assessment year onwards. The Tribunal found that the assessee maintained a full-scale service department and followed a settled method for estimating the warranty-related expenses. The claim was supported by the principle that, where an assessee follows the mercantile system of accounting, an estimated liability that has accrued but is to be discharged at a future date is deductible as expenditure.

Conclusion: The provision was not a contingent liability and the expenditure was allowable; the Revenue's appeals failed.

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