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2015 (7) TMI 876 - HC - Income TaxProvision made towards anticipated warranty claims - whether an allowable deduction - whether Tribunal was correct in holding that a provision for warranty claim made by the assessee for any claims made by the assessee's customers in future in respect of defect on repairs towards goods sold should be allowed as an expenditure during the current assessment year itself? - Held that:- It is discernable that the assessee takes into consideration the past historical cost, cost escalation, length of warranty with regard to the equipment and spares, increase in volumes over such period etc. It is also clear that the actual expenses incurred on warranty are debited to provisional account and not to the Profit and Loss Account. On consideration of the entire facts and circumstances the provisions made reflect accrual of liability that the impugned provisions is computed on scientific and reasonable basis and hence they declined to interfere with the conclusions drawn by the first Appellate Authority which had granted the relief. This is the basis on which the assessee was expected to put forth his claim for warranty by virtue of the impugned orders where an order of remand was passed. The said order is in conformity with the law declared by the Apex Court in the case of Rotork Controls India (P) Ltd. v. CIT [2009 (5) TMI 16 - SUPREME COURT OF INDIA ] and therefore once a claim of warranty is made after undertaking the aforesaid exercise before putting forth a claim, we are satisfied from the material on record that the claim made by the assessee is in accordance with law and in accordance with the judgment of the Supreme Court and therefore no case for interference with the said order is made out much less for remanding the case to the Assessing Authority - Decided in favour of assessee. Entitlment to deduction under Section 80HHC - without including the sales tax and excise duty collected during the assessment year by the assessee when computing the total turnover before computing the deduction? - Held that:- The Apex Court in the case of CIT v. Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME Court] held that the excise duty and sales tax cannot form part of turnover in the formula contained in Section 80HHC of the Act and therefore the order passed by the Tribunal is in accordance with law and no case for interference is made out. Accordingly this question of law is answered in favour of the assessee Whether Tribunal was correct in holding that the assessee which manufactures motor spares, has also interest income which cannot be excluded to an extent of 90% while computing the profits of the business as per explanation (baa) to Section 80HHC of the Act and Section 80HHE of the Act? - Held that:- As decided in case of ACG Associated Capsules (P.) Ltd., v. CIT [2012 (2) TMI 101 - SUPREME COURT OF INDIA] ninety per cent of neither the gross rent nor gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head "profits and gains of business or profession", was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business - Decided in favour of assessee. Whether the Tribunal was correct in holding that 90% of fee refund from Robert Bosch cannot be treated as business income of the assessee but should be treated as other income and consequently deduction as per section 80HHC was not allowable? - Held that:- As decided in CIT v. Motor Industries Co. Ltd. [2010 (8) TMI 333 - Karnataka High Court] The disputed income was earned by the assessee for its fees towards developmental work from the foreign enterprise. The developmental work was intimately connected with the business of manufacture and sale of goods by the assessee. There was immediate nexus between the activity of export and the developmental work. The consideration received for developmental work was not liable to be deducted under clause (baa) in computing the profits of the business - Decided in favour of the assessee. Whether the Tribunal was correct in holding that the assessing officer cannot exclude expenditure incurred in foreign exchange for providing technical services in working out the export turnover as well as total turnover for the purpose of deduction under section 80HHE of the Act? - Held that:- The assessee is engaged in the business of export out of India of computer software and its transmission to places from India outside India. Before a computer software is exported, the Software Engineers of the assessee would have initial discussion with regard to the requirements, specifications etc. Thereafter computer software is manufactured and then it is transmitted from India to a place outside India. The software Engineers deputed abroad who among other things have to do testing, installation and monitoring of software supplied to the client. Though the said services are technical in nature it does not fall within clause (ii) of sub-section (1) of section 80HHE of the Act of providing technical services outside India in connection with the development or production of computer software. It falls under sub-clause (i) of sub-section (1) of Section 80HHE of the Act. Therefore, the said expenditure cannot be excluded in computing export turn over. In that view of the matter we do not see any merit in this appeal. Accordingly, the said question of law is answered in favour of the assessee Whether the Tribunal was correct in holding that Scrap Sales Turnover cannot be included in the total turnover for the purpose of computation of deduction under Section 80HHC and 80HHE of the Act? - Held that:- In the instant case the assessee is in the business of export of computer software. For the purpose of Section 80HHC of the Act the income generated from the sale of scrap cannot be included in the total turnover and that is precisely what the Tribunal had held. We do not see any error in the said finding. In view of the law declared by the Apex Court in the case of CIT v. Punjab Stainless Steel Industries [2014 (5) TMI 238 - SUPREME COURT ] the said question of law is answered in favour of the assessee.
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