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Since, it is unascertained liability claimed purely on provisional basis without actually incurring during the year, the amount is disallowed by the AO.

4. We have examined the record and the judicial pronouncements on this issue.

5. On the issue of allowability of provision made by appellant, Hon'ble Supreme Court in case of Rotork Controls India P. Ltd. 314 HR 62 observed as under:-

"For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently. Thus, the decision on the warranty provision should be based on past experience of the company. 4 detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized at the end or the period prescribed in the warranty. Therefore, the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis of sensible estimate should be made. The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way."

(b) It is probable that an outflow of resources will be required to settle the obligation; and

(c) A reliable estimate can be made of the amount of the obligation."

7. Ld.CIT(A) held that identical issue was involved in the case of appellant in A.Y. 2011-12and the same has been decided by the ld. CIT(A) in which he has given a finding that the warranty expenses are to be allowed on the basis of their actual incurring during the year and not on provisional basis, Accordingly, the ld. CIT(A) held in the instant case that, out of total warranty expenses debited to the P&L A/c, the warranty expenses actually incurred during the year under consideration are allowable and the expenses which have not been actually incurred but have been debited purely on provisional basis were disallowed. While deciding the appeal the Ld. CIT(A) also referred to the order passed by Ld.DRP-1, Delhi in the case of appellant in AY 2012- 13, where Ld.DRP-1 has discussed identical issue involving the allowability of warranty expenses on provisional basis, as claimed by the appellant. While passing the order, Ld.DRP-1, Delhi has also referred the decision of the Hon'ble Supreme Court in the case of M/s Rotork Controls India (P) Ltd. vs CIT [2009] 314 ITR 62 (SC). Perusal of the order passed by DRP-1, Delhi shows that the panel has discussed the applicability of three conditions laid down by Hon'ble Supreme Court in the case referred (M/s Rotork Controls India (p) Ltd V/s CIT [2009] 314 ITR 62 (SC), as to whether the three conditions are satisfied in the case of appellant or not. The panel has concluded that none of the three conditions in the case of appellant are satisfied, so as to allow to the appellant, the warranty expenses on provisional basis.

 The disallowance has been made arbitrarily grossly ignoring the contentions and submissions made by the assessee that the provision was made on scientific basis and therefore the judgement of Hon'ble Supreme Court in the case of Rotork Controls India Private Limited is squarely applicable to the assessee.

 AS 29 denotes ," Provisions, Contingent Liabilities and Contingent Assets", in which the provision is defined. A provision is defined as a liability which can be measured only by using a substantial degree of estimation.

10. M/S. ROTORK CONTROLS INDIA (P) LTD. VERSUS COMMISSIONER OF INCOME TAX, CHENNAI [20093 314 ITR 62 (SC)- Dated.- May 12, 2009 was reiterated in the following judgments.

 THE PRINCIPAL COMMISSIONER OF INCOME TAX -6 VERSUS M/S. NOKIA INDIA PVT. LTD. 2018 (9) TMI 877 - DELHI HIGH COURT- Dated.- August 31, 2018

6. We have considered the contention but do not find any merit in the same. As stated by the Assessing Officer in the assessment order, the table reveals that there was substantial increase and jump in sales year after year in the Assessment Years 2002-03, 2003-04, 2004-05 and 2005-06, from Rs.58.97 crores to Rs.830.51 crores to Rs.2408.01 crores, and then to Rs.4729.14 crores, respectively. The provision for warranty would accordingly increase in numerical terms. Pertinently, the percentage of closing provision of warranty with reference to quantum of sales had decreased and came down as is reflected in the figure in the column (h) of the table above. In the present case, we are only concerned with the Assessment Year 2003-04 in which the percentage of closing provision to sales was only 0.81%. Variation in figure would indicate that no thumb rule was applied. Moreover in case of doubt and debate, Income Tax Authorities should have asked for the basis and the formula/criteria applied by the respondent/assessee to compute provision for warranty. On the other hand without disputing the computation, disallowance was made by holding that actual expenditure on warranty claims and not provision for warranty was allowable as expenditure. This proposition is wrong and incorrect. Improvement in technology would not justify disallowance of claim/expenditure on account of provision for warranty, though in a given case on basis of data it could be relevant factor in making the calculations.