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TMI Blog2009 (11) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... taken the view that until the contractual obligation of the assessee under the contract comes to an end and there was no income accrued to the assessee. This issue had come up for consideration in the appeal for the assessment year 1991-92. wherein in agreeing to the contention of assessee, the CIT(A) decided the issue in favour of assessee. Following the same approach for the reasons recorded therein, the issue at hand was allowed in favour of the assessee in remaining two years. Accordingly, the AO was directed to delete the addition made on account of warranty amount. The same has been opposed before us by the revenue who supported the order of the AO. While the learned AR supported the order of CIT(A) and in this regard, the learned AR relied on the decision of the Hon'ble Supreme Court in the case of M/s Rotork Controls India (P) Ltd., vs CIT reported in 223 CTR 425(SC) wherein on this issue, it was held that a provision is recognized when- a) an enterprise has a present obligation as a result of a past event, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method of accounting under which the warranty amounts are apportioned over a period of time for which the services are rendered. This method of accounting in respect of rendering of services is a recognized method as per AS-9 issued by the Institute of Chartered Accountants of India. In fact, the issue relates to recognition of revenue arising out of the warranty price included in the sale price rather than the allowability of provision for customer services to be rendered. According to CIT(A) when the services are to be performed over a period of time, the assessee is right in accounting for proportionate amount of the time services charges received by the assessee. Otherwise, it was found from the details that the warranty revenues are closely matched by the warranty costs and therefore, it cannot be said that the assessee is merely making some unrealistic provision for various customer services. Accordingly, the CIT(A) held that the basic issue is regarding recognition of revenue on account of warranty charges received by the assessee as part of the sale price of the products and therefore, the proportionate completion method as per AS-9 does not require to be interfered with. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the obsolescent stock . 3.1 The AO observed that as per the inventory given to Allahabad Bank for the hypothecation purpose, the value as on 31-03-1991 was ₹ 2014.59 lakhs whereas the closing stock shown in the account was ₹ 1849.22 lakhs. It was explained to the AO that the inventory given to the bank was on the basis of un-audited estimate basis whereas the value of stock taken in the accounts furnished to the return of income was as per audited accounts. The AO did not accept the submission on the ground that the inventory given o the Bank was certified to be true. The difference was therefore, added the AO. In appeal, the CIT(A) observed that the difference between stock and closing stock as per the Bank arose due to the inventory of obsolete items not having netted off from the Bank statement and since this contention was verifiable with reference to the record, the AO was directed to verify the same and delete the addition subject to verification of assessee's contention. This factual and reasoned finding, whereby CIT(A) set aside the issue to AO with certain definite direction needs no interference from our side. The same is upheld. 4. The next iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck in both the years. Same is upheld. 5. The next issue raised by revenue in AY: 1991-92 is regarding allowability of arbitration award granted, which reads as under; On the facts and circumstances of the case, the ld. CIT(A) has erred in directing to allow the compensation payable by the assessee of ₹ 1,18,71,647/- by way of arbitration award as revenue expenditure without appreciating the fact that compensation for which the award has been allowed is nothing but in respect of purchase consideration and therefore, the same is of capital nature . 5.1 This issue is regarding compensation payable by the assessee of ₹ 1,18,71,647/- by-way of arbitration award. This claim was first raised in the assessment year 1990-91, the claim arose as the assessee company was jointly promoted by the Digital Equipment (holdings BB) a subsidiary of international and M/s Hinditron associated with Digital in India and on account of negotiations with M/s Hinditron the assessee company was required to pay market fee of 10% of the value of the orders placed by Indian customers which was already under negotiations by M/s Hinditron. The dispute had arisen due to such pipeline orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders and such nature of payments is like sale commission and the same has been rightly allowed by the CIT(A), Even if the same has been paid in lumpsum, it will not change the nature of payment. Accordingly, we uphold the order of CIT(A) on the issue. 6. The next issue is with regards to disallowance Under Rule 6D. This issue pertains to revenue's appeal in assessment year 1989-90, 1990-91 and 1991-92. It was pointed out that this issue has been held against the assessee in ITA Nos.4824, 701 and 702 vide para-4 of the said order, wherein the Tribunal decided the issue against the assessee by holding as under; 4. The next issue is against disallowance of traveling expenses Under Rule 6D for AY: 1995-96 and 1996-97. 4.1 The appellant had calculated the disallowance Under Rule 6D taking the total trips made by employee. As per provisions of Rule 6D, the disallowance has to be made on trip-basis wise and not on the basis of total trips undertaken by the employee, accordingly the AO made disallowance on the basis of each trip. In appeal, the CIT(A) confirmed the disallowance mad by the AO on each trip basis. Aggrieved by the orders of authorities below the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, forecast for the future etc. It was explained that in computer industry fact changes are taking place with the result that whenever improvement capacity increases the prices come down and also the old version of the software becomes obsolete. It was also explained that several parts become useless when the old models are discontinued. It was also submitted that despite being obsolete, it was not possible to sell this inventory in the market because of the parent company which requires destruction. It was also stated that parts will not be sold in the market. Considering the contention raised on behalf of assessee, the CIT(A) observed that there is no dispute that in computer field, the rate of obsolete is very fast and with the result items and pats become outdated. For which the AO has agreed in principle. However, the AO has restricted the same to 50%. The same has been deleted by the CIT(A), by aggregating to the contention on behalf of assessee. Same has been opposed before us on behalf of the revenue. 8.1 Before us, the learned AR submitted that this issue is covered in favour of assessee in ITA No.4824,701 and 702(Mum.) vide para-11.4, wherein it has been claimed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 53,74,930/- and investment allowance of ₹ 30,19,810/- on the lumpsum technical know-how fees paid by the assessee. The AO has disallowed the claim and given the allowance u/s 35AB of the IT Act. This issue also came up for consideration in the assessment 1991-92, wherein the CIT(A) held that since the assessee is not the owner of the technical know-how, this amount cannot be considered as an asset in the hands of the assessee and therefore, depreciation etc. was rightly disallowed and the AO correctly applied the provisions of sec.35AB of the IT Act and no interference with the action of the AO was warranted. Accordingly, the issue at hand was decided against the assessee in both the years. 10.1 Before us, the learned AR submitted that in ITA Nos.4824,701 and 702(Mum.) wherein vide para-3 has been claimed to be decided in favour of the assessee by observing as under: 3. The first issue in appeal is against the disallowance of depreciation on technical know-how for the assessment year 1992-93, 1995-96 and 1996-97. 3.1 The appellant had claimed depreciation on technical know-how of ₹ 20,15,968/- for the AY: 1992-93, ₹ 8,50,847/- for AY: 1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business more profitably and efficiently are all in, the nature of repairs and revenue expenditure and its does not bring any benefit of enduring nature to the appellant. The advantage obtained by the appellant is advantage in commercial sense i.e for the purpose of business and not for the acquisition of capital assets. The issue is covered by the decision of the Delhi High Court in 148 ITR 52 mentioned supra. Accordingly, we hold the above expenditure as revenue is nature and reverse the orders o the authorities below on this issue and direct the AO to allow the entire expenditure as revenue as claimed by the appellant. The appellant succeeds on this issue . 11.2 Nothing contrary was brought to our knowledge. The facts being same, so following the same reasoning, we hold the above expenditure as revenue expenditure and reverse the order of authorities below on the issue, and direct the AO to allow the expenditure in question, being revenue. 12. The next issue is with regards to provident fund u/s 43B of Act raised by assessee in AY: 1990-91. The AO disallowed certain amount on account of PF u/s 43B, because the same were paid beyond the permissible period, which was u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 6,10,551/- as receivable in FY: 1990-91 and were shown as misc. income and since the said amounts were not realized till his date the same were written off. The AO on the other hand, observed that it is not clear as to how this figure has been worked out. Since the disallowance has been made for want of specific details no interference was done by the CIT(A). Before us, learned AR claimed that this issue is covered in favour of assessee in ITA Nos.4824 and others, wherein the Tribunal vide para 15.3 has held as under; 15.3 We have gone through the records and we agree with the finding of the CIT(A) and we see no reason to reverse the decision of the CIT(A) in deleting the disallowance of bad debts amounting to ₹ 1,22,272/-as he has rightly held that the amount is not recoverable and the appellant is justified in writing off the same. Accordingly, the ground of the department on this issue is dismissed . 15.1 We find that in year before us, the claim has been disallowed in absence of details, so this issue is restored to the AO with direction to decide the issue at hand, as per facts and law after providing opportunity of hearing to assessee. 16. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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