Unsettled Claims As Well As IBNR Would Amount To Contingent Liabilities; Section 37 Deduction Allowable: Delhi High Court

The bench emphasized that provisions for warranty in respect of sophisticated goods, backed by systematic data, merit deduction under Section 37 of the Income Tax Act. \r

The appellant, the Principal Commissioner of Income Tax, contested the ITAT's decision to delete the disallowance of unsettled claims provision, arguing it as ad hoc and already covered under Rule 6E.The dispute centered on unsettled claims and IBNR reserves. The Tribunal noted the systematic recording of unsettled claims and upheld the provision's validity. \r

Additionally, it recognized IBNR reserves as actuarial estimates historically used in the insurance sector. Upholding the Tribunal's decision, the court ruled that liabilities backed by empirical data or methodology are not contingent liabilities, thus allowing their deduction.