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[2007] 293 ITR 311 (MAD.) HIGH COURT OF MADRAS Commissioner of Income-tax v. Rotork Controls India Ltd. P.D. DINAKARAN AND MRS. CHITRA VENKATARAMAN, JJ. TAX CASE (APPEAL) NOS. 163 OF 2003 1, 94, 95, 229, 565 OF 2004 AND 2203 OF 2006 FEBRUARY 5, 2007 Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of â–  Where assessee made provision for warranty charges to meet future requirements arising on account of warranty clause in agreement but no warranty claim had crystallized against assessee till date, such provision for unascertained liability was not allowable as deduction [Assessment year 1991-92] The assessee made a provision as regards warranty charges payable under the terms of sale. It was stated that such a provision was made in the accounts to meet out the future requirements arising on account of the warranty clause in the sale agreement. It was admitted by the assessee that the warranty provision made as against the liability had not crystallised against the assessee. Consequently, holding the provisions as unascertained liability, the assessing authority rejected the plea of the assessee for deduction of provision for warranty. Held that considering the nature of the liability, which was yet to crystallize and was loaded with uncertainty of the event to cause a liability, there was no justification to accept the plea of the assessee. JUDGMENT Mrs. Chitra Venkataraman, J.-All these appeals are clubbed together, for passing a common order, considering the identity of the issues raised therein. The common question that arises for consideration is, whether the Tribunal was right in holding that the warranty provision is an allowable deduction and, whether the Tribunal was right in holding that a provision made in respect of future claims that may not rise at all is a deductible expenditure in the current year ? In T.C. No. 94 of 2004, apart from the warranty charges, there is yet another question relating to the disallowance under section 40A(2)(b)(iv) of the Income-tax Act, regarding payment of corporate service charges paid to a closely connected company. The facts in all these appeals centre on the question of warranty…

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