2011 (7) TMI 573

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....sdiction held, it was not allowable as expenditure. Therefore, he issued a show-cause notice to the assessee to file objection to the proposed action of allowing the provision for warranty. The assessee submitted his reply. He contended that the provision for warranty is created on accrual basis on last day of each quarter. Withdrawal is arrived at on the basis of earlier experience with the customer, sale of similar equipments and analysis on a scientific basis. Actual warranty related expenses incurred are adjusted against the provision. The provision is generally kept for one year and balance if any, is written back. The provision for warranty is an accrued expenditure. The Commissioner was not satisfied with the said explanation. He hel....

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....rovision can be recognized. 11. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. 12. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. W....