The
appellant had undertaken Govt. Contracts and had made provision for
“Performance Guarantee” since it was to maintain certain establishment and
undertake certain tasks in case any performance complaint is received for a
period of three as agreed in the contract. AO disallowed the same on the ground
that the liability was contingent and no proper estimation was made for
arriving at such a figure. On Revenue’s appeal, the Hon’ble High Court observed
that the appellant had taken statistics from experienced suppliers from the
market and had also taken help of experts. The appellant was to widen its
network of engineers and technical staff to different places in the State so
that every compliant could be attended within minimum span of time not
exceeding 24 hours. Penalty of Rs.500 per day was also envisaged if complaint
was not attended within 24 hours. The appellant was also to set apart 3% of the
deal value towards performance warranties. The Hon’ble High Court was of the
view that it was not a case where estimation of performance guarantee was on ad
hoc basis without any foundation. Hence, Revenue’s appeal was dismissed.
[S
KUMAR INDUSTRIES LTD. – TAX APPEAL NO.162 of 2010 - GHC]
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