TaxTMI 
TaxTMI 
1990 (11) TMI 200
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....selling of water pumps and car pumps. According to the system of accounting regularly followed by the assessee previous to this year the assessee was claiming actual expenses incurred in respect of warranty given to the customers. However, during the assessment year under consideration, it has changed method of accounting with respect to warranty claims from actual to the actual and provision for these expenses. Next, the assessee stands warranty for the performance of its products for a period of 12 months from the date of delivery. For the last many years the company has been accounting for the rejections on account of warranty or expenses incurred in connection with the warranty claims, as and when the claims were lodged by the manufactu....
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....ange. Such changes in method of accounting have been permitted by the Courts. In this connection one may referred to the following decisions: Sarup Chand...(1936) 4 ITR 420 (Bom), Ram Kumar Kesarnath....(1937) 5 ITR 261(Bom) at 266, Dr. Ishwari Prashad.....(1983), 143 ITR 789 (All), See also Kanwalnen Hamir Singh, (1938) 6 ITR 675 (All) at 685. The appellant has also drawn my attention to a recent decision of the Tribunal Bombay Bench in the case of Wanson(India) Ltd. vs. ITO In the case it had been held as under: "No doubt the provision made was contingent at the time when it was made but such an estimate was based on the assessee's experience in the earlier years. The assessee knew for certain that some expenditure had to be i....
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.... If defects are found, it is attributed to the mechanism. At the moment when the provision is made, it is not known when the assessee is going to contest this liability. So it is a contingent liability. Unless dispute is settled, no amount can be allowed. Reliance was also placed by him on the following decisions : (i) CIT vs. Oriental Motor Car Co. (P) Ltd. (1980)16 CTR (All) 140: (1980) 124 ITR 74 (All); (ii) Swadeshi Cotton Mill Co. Ltd vs. CIT (1980) 15 CTR (All) 334: (1980) 125 ITR 33 (All); (iii) CIT vs. Soorajmull Nagarmull (1981) 129 ITR 169 (Cal); & (iv) CIT vs. Phalton Sugar Works Ltd. (1986) 52 CTR (Bom) 158: (1986) 162 ITR 622 (Bom). As against this, the learned counsel for the assessee Shri S.S. Randhawa, relying....
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....ion here that in this assessment year the assessee had made two claim, one with respect to actual expenses which had been allowed by the Assessing Officer and the other for provision of expenses which in any case cannot be allowed. It has been settled in the above cited cases that unless the liability is settled, the claim cannot be allowed. N the case of CIT vs. Oriental Motor Car Co. (P) Ltd., it has been held by the Allahabad High Court that where the liability is a contractual in nature and crystallised only when the assessee agrees to make payment and not earlier, deduction with respect to actual expenses which had been allowed by cannot be allowed. It has been settled in the above cited cases that unless the liability is settled, the ....