TMI Blog2009 (10) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that any expenditure not being expenditure in the nature of capital expenditure or personal expenditure laid out or expended wholly and exclusively for the purpose of business is allowable expenses in computing income chargeable under the head Business or profession . Since in the case under consideration, the expenditure claimed by the assessee is revenue in nature, therefore, the same is allowable u/s 37(1) of the Act and not u/s 35AB of the Act. The above view is supported by the fact that the Finance (No. 2) Act, 1998 introduced from the assessment year 1999-2000 onwards, the concept of allowance of depreciation on intangible assets like know-how, patent rights, copyrights, etc. As a consequence, sub-section (1) was also amended so as to provide that any expenditure of capital nature incurred on or after 1-4-1998 on the acquisition of know-how used for the purposes of business shall not qualify for deduction under the said section 35AB. Such capital expenditure incurred after 31-3-1998 would be eligible for depreciation allowance. We, therefore, set aside the orders of the revenue authorities and allow the claim of the assessee. Accordingly, ground Nos. 5 and 6 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.K. Pahwa for the Respondent. ORDER A.L. Gehlot, Accountant Member. - These cross appeals filed by the assessee are directed against the order of CIT(A)-XXIII, Mumbai passed on 30-8-2004 for the assessment year 1997-98. The learned AR filed a chart showing ground wise details. The learned representatives of the parties submitted that the chart is in accordance with grounds of appeal raised in Form 36. We, therefore, decided the grounds of appeals in accordance with said chart. ITA No. 7845/M/04 - appeal by assessee 2. Ground No. 1 is against disallowance of travelling expenditure of Rs. 3,00,000 under section 37(3), read with rule 6D of the Act. 3. The assessee had computed disallowance as per rule 6D on the basis of aggregate trips undertaken by employees. The Assessing Officer held that the disallowance under rule 6D had to be worked out on the basis of per trip undertaken by the employees. Since the assessee did not furnish detailed working under rule 6D on the basis of per trip, the Assessing Officer estimated the disallowance at Rs. 3 lakhs. The CIT(A) directed Assessing Officer to compute the disallowance on the basis of per trip as similar direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 2 is against the disallowance of Rs. 89,40,389 under section 37(4) on account of expenditure on maintenance of guest house. 7.1 Briefly the facts of this ground are that during the course of assessment proceedings, the Assessing Officer noticed from tax audit report that the assessee incurred expenditure of Rs. 1,02,99,125 in connection with the maintenance of Guest House. Out of this expenditure, the assessee, suo motu, added back Rs. 33,74,252. As per the tax audit report, the assessee company claimed expenses of rent, taxes and repairs incurred in connection with company s guest house amounting to Rs. 40,02,456, which is allowable under section 30 of the Act. The Assessing Officer rejected the assessee s claim and made addition of Rs. 1,02,99,125. The assessee challenged the issue before the CIT(A) raising the ground for Rs. 89,40,289. The CIT(A) noted the details in this respect, which are as under: (1) Rent Rs. 8,71,821 (2) Depreciation Rs. 5,69,150 (3) Rates, taxes and repairs Rs. 31,30,635 (4) Occupancy charges of the Nature of power Rs. 23,53,267 Total Rs. 89,40,389 7.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bited to the profit loss account. 12. Briefly the facts of this ground are that during the course of assessment proceedings, the Assessing Officer noticed from the tax audit report that the auditors had identified 14 items of expenses, which were debited in P L a/c as revenue expenses. On the basis of audit report, the assessee, suo motu, added back certain amount of expenditure in computation of total income, except the following expenses : (1)Amortisation of premium on leasehold land Rs. 1,77,397 (2)Legal fees for JV with Mahindra Ford India Ltd. Rs. 6,80,850 (3)Legal fees for JV with Owens Corning India Ltd. Rs. 4,76,850 12.1 The CIT(A) confirmed the order of Assessing Officer observing that the Assessing Officer noted that the amount of Rs. 1,77,397 relates to amortization of premium on leasehold land. The land was taken on lease for 99 years. He further held that the expenditures relates to a capital asset and, therefore, is in capital nature. As regards the legal fee paid to M/s. Little Co. in connection with joint venture with Mahindra Ford India Ltd. and Owens Corning India Ltd., the Assessing Officer held that these expenses were incurred for obtaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o that of 1996-97, we respectfully follow the order of ITAT in assessment year 1996-97 and in the light of that, we remit the matter back to the file of the CIT(A) to decide the issue with identical direction given by the ITAT in 1996-97. 16. Ground No. 4 is against the disallowance of Rs. 11,39,60,786 on account of Foreign Currency Convertible Bonds (FCCB) issue expenses. 17. During the year the assessee-company had made an issue of FCCB aggregating to US $ 115 Million, which were convertible into shares at the option of the bond holders after initial lock-in period of approximately 6 months. The Assessing Officer observed that the bonds were fully convertible into shares and that the issue of bonds was made after creating an authorized capital which could take into account all the bonds as shares. He further noted that the issue document stated that the proceeds of the issue were intended to be used for capital expenditure and general corporate purposes. The Assessing Officer held that the expenditure incurred on issue of FCCB mainly relates to shares and such expenses have to be treated as capital expenditure as it led to enhancement of the capital structure of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. CIT [2001] 118 Taxman 59 (Delhi) (Mag.). 20.1 In the case under consideration, the case of the revenue is that expenditure incurred by the assessee on account of foreign currency convertible bonds are in the nature of share issue expenses, which is capital in nature. In this regard, the learned AR has relied on the judgment of Hon ble High Court of Rajasthan in the case of Secure Meters Ltd. ( supra ) wherein it was held that debentures when issued is a loan, whether it is convertible or non-convertible, does not militate against the nature of the debenture being loan. Therefore, the expenditure incurred would be admissible as revenue expenditure in the light of the judgment of the Apex Court in the case of India Cements Ltd. ( supra ). Since the issue under consideration is directly covered by the judgment of the Rajasthan High Court and there is no contrary decision pointed out by the revenue, we respectfully follow the above judgment and in the light of that the claim of the assessee is allowed. 21. Ground No. 5 is against the disallowance of development expenses of Rs. 5,82,15,305 paid to M/s. Hawtal Whiting Engineering Company Ltd. and ground No. 6 is pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 171 Taxman 495 (SC). (2) India Petrochemicals Corpn. Ltd. v. Dy. CIT [2002] 81 ITD 263 (Ahd.). (3) Jay Engg. Works Ltd. v. CIT [2008] 166 Taxman 115 (Delhi). (4) Escorts Ltd. v. Asstt. CIT [2007] 104 ITD 427 (Delhi). (5) ITO v. Monnet Industries Ltd. [2007] 18 SOT 367 (Delhi). (6) Indian Ginning Pressing Co. Ltd. v. CIT [2001] 252 ITR 577 (Guj.). 24. The learned DR, on the other hand, relied upon the orders of the revenue authorities. 25. We have heard the learned representatives of the parties and perused the record as well as gone through the decisions cited. The issue to be examined here is whether the claim of the assessee is allowable under section 37(1) or under section 35AB of the Act. For the purpose of ready reference both the sections are reproduced below: 25.1 General. "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d: ( i )The expenditure in question should not be of the nature described under the specific provisions of sections 30 to 36. ( ii )The expenditure should not be of the nature of capital expenditure; ( iii )It should not be a personal expenditure; ( iv )The expenditure should have been laid out or expended wholly and exclusively for the purposes of the business or profession. It is thus clear that conditions at ( i ), ( ii ) and ( iii ) above are negative conditions whereas the conditions at ( iv ) above is a positive condition. If the expenditure satisfies the negative conditions, it has to satisfy the positive condition in order to be eligible for deduction under section 37(1) of the Act. Thus, section 37(1) allows deduction of any expenditure subject to conditions noticed above. 25.4 In order to attract the provisions of section 35AB, what is necessary is that assessee must have paid in any previous year prior to 1-4-1998 any lump sum consideration for acquiring any know-how for use for the purposes of his business. Once, this condition is found to have been proved then, provision of section 35AB(1) gets attracted thereby entitling an assessee to deduct 1/6th of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f enterprise of the assessee is supplemental to the existing business and as this acquisition does not amount to a new or fresh venture, the assessee is entitled to allowance as revenue expenditure. Again in CIT v. Suhrid Geigy Ltd. [1996] 220 ITR 153 , the Division Bench of this Court has taken a view that where expenses are incurred in areas which supplement the existing business and are not a fresh or new venture and the agreement for acquiring technical know-how pertains to a product already in the line of the established business and is intended to improve the operations of the existing business, its efficiency and profitability in the area of day-to-day business of the assessee s established enterprise, the expenses must be treated as revenue and not capital. In view of the principle laid down in the above referred to two decisions of this Court, we are of the opinion that the assessee is entitled to allowance of technical know-how fees of Rs. 7,16,654 paid to WCW, West Germany as revenue expenditure. . . ." 25.7 The Hon ble Apex Court in the case of Swaraj Engines Ltd. ( supra ) while dealing with the issue related to section 35AB of the Act, held as under: "4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 35AB of the Income-tax Act, 1961, whereas the payment is a capital expenditure in view of the following judgments : A. Fenner Woodroffe Co. Ltd. v. CIT [1976] 102 ITR 665 (Mad.); B. Ram Kumar Pharmaceutical Works v. CIT [1979] 119 ITR 33 (All.); C. CIT v. Warner Hindustan Ltd. [1986] 160 ITR 217 (AP); D. CIT v. Southern Switchgear Ltd. [1984] 148 ITR 272 (Mad.). 6. On bare reading of the said question, it is clear that applicability of section 35AB in the context of royalty paid to Kirloskar as a percentage of the net sale price being revenue or capital in nature and depending on the answer to that question, the applicability of section 35AB also arose for determination before the High Court. Be that as it may, the said question needs to be decided authoritatively by the High Court as it is an important question of law, particularly, after insertion of section 35AB. Therefore, we are required to remit the matter to the High Court for fresh consideration in accordance with law. 7. On the second question, we do not wish to express any opinion. It is for the High Court to decide, after construing the agreement between the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Benz they obtained a licence to use the name of M/s. Daimler Benz for the trucks which were manufactured by Telco. The substantial benefit under the agreement with M/s. Daimler Benz was that M/s. Daimler Benz permitted their trade mark to be used during the currency of the agreement and facilities were given for training personnel belonging to Telco. Obtaining information relating to the technical know-how and having well-trained personnel necessary for the manufacture of trucks was essential if trucks of good quality had to be produced and no company would allow its name to be lent to a product of another company, unless it is satisfied that the product which is sold under the name of such company, was of the required quality. Telco would also be interested in producing trucks of good quality which could be sold by the trade name of M/s. Daimler Benz and it, therefore, appears to us that Mr. Moolgaonkar was right when he stated before the ITO that the payment made under the agreement with M/s. Daimler Benz in effect was payment made for the use of the name and trade mark of M/s. Daimler Benz and making provision for training facilities. The period of the agreement was to run out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made because of devaluation. Mere length of the period of the agreement is not of much consequence, if the nature of the advice made available is such that it cannot be called a capital asset. The agreement itself could have been terminated by any party before the expiry of the term on any of the grounds stated in the agreement. There is no doubt nothing in the agreement which disables Telco from using the technique which it had mastered after getting the know-how from either M/s. Daimler Benz or M/s. Henricot. It is not possible for us to accept the argument that merely because a company, which has entered into a contract with regard to know-how, is entitled to use that know-how even after the agreement has expired, the benefit must be said to be of an enduring character. Agreement of foreign collaboration, where foreign know-how is availed of in lieu of payment, is in our view, in substance, a transaction of acquiring the necessary technical information with regard to technique of production. Instead of employing persons having knowledge of those techniques and utilising their knowledge, what is done is that technical know-how is acquired under a collaboration agreement. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of the fruits of research once for all; the Swiss company which was continuously carrying on research had agreed to make it available to the assessee; and ( f ) the stipulated payment was recurrent dependent upon the sales, and only for the period of the agreement. Except for circumstances mentioned in ( e ) and ( e ) all the circumstances referred to by the Supreme Court are also present in the instant case before us. Applying the ratio of the decision in Ciba of India Ltd. s case [1968] 69 ITR 692 (SC), in our view, it is apparent that the assessee-company had not acquired any asset or advantage of enduring nature for the benefit of its business. We may incidentally point out that we have considered in detail the decision in Ciba of India Ltd. [1968] 69 ITR 692 (SC) in Antifriction Bearings Corporation Ltd. v. CIT [1978] 114 ITR 335 (Bom.) and we have held in that case that since in the payment for taking advantage of know-how from a foreign firm, there is no transfer or acquisition of an asset, it must follow that any expenditure incurred in connection with an exploratory mission or a visit intended to finalise the collaboration agreement, in the form of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 35AB, the nature of expenditure is required to be decided at the threshold because if the expenditure is found to be revenue in nature, then, section 35AB may not applied. From these observations of the Apex Court we can say that the revenue expenses, if the other conditions are satisfied, the same is allowable under section 37(1) of the Act. Section 35AB is a special section, which was inserted with a view to provide encouragement for indigenous scientific research. The section provides that lump sum payment which is to be spreading it over 6 years or 3 years as the case may be. If we consider the fundamental concept of section 35AB and section 37(1), we are of the view that any expenditure not being expenditure in the nature of capital expenditure or personal expenditure laid out or expended wholly and exclusively for the purpose of business is allowable expenses in computing income chargeable under the head Business or profession . In other words, the expenditure, other than the expenditure in the nature of capital expenditure, i.e., revenue expenditure is allowable under section 37(1) of the Act. In section 35AB, the know-how expenditure paid in lump sum are allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating hereto. It was stated that as per the agreement SAP agreed to provide various training courses to the assessee s personnel, train the core and detailed design, manage the prototype development, interfaces and modifications to the R/3 software. The areas involved engineering, manufacturing, supplies, finance, sales and marketing. The assessee paid Rs. 2,44,24,229 as one time user licence fees for specified number of user terminals. The balance amount of Rs. 8,28,89,229 was paid for training and consultancy in connection with the use of software. It was argued that there is a constant need for renewal of software for improvement and, therefore, this expenditure cannot attain the status of a capital expenditure. Relying on the decision in the case of CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), it was argued that the expression for the purpose of the business is wider in scope than the expression for the purpose of earning profits . He relied on the Special Bench decision of ITAT, Delhi in the case of Amway India Enterprise v. Dy. CIT [2008] 111 ITD 112 and L T Komatsu v. Dy. CIT [IT Appeal No. 4986 (Mum.) of 2005] for assessment year 2002-03. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT v. Dart Mfg. India (P.) Ltd. [2008] 175 Taxman 6 (Delhi) and ITA No. 909/2008, dated 12-8-2008. 34. On the other hand, the learned DR relied on the orders of the revenue authorities. 35. We have heard the rival submissions and perused the record as well as gone through the decisions cited. The admitted facts of the case are that the assessee-company made payments to MSEB as non-refundable towards consumers contribution/service charges on account of availing additional powers. The issue to be examined in this case is whether the claim of the assessee is allowable under section 37(1) of the Act or not. As stated in earlier Para of this order that in order to claim deduction of expenditure under section 37(1) of the Act, at the relevant point of time and in the light of the judgments in Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC); CIT v. Indian Molasses Co. (P.) Ltd. [1970] 78 ITR 474 (SC); Sassoon J. David Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC); Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 (SC); CIT v. Ballarpur Industries Ltd. [1979] 119 ITR 817 (Bom.); CIT v. Navsari Cotton Silk Mills [1982] 135 ITR 546 (Guj.) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of revenue expenditure laid down and expended wholly and exclusively for the purpose of business; therefore, the same is allowable. We accordingly, allow the claim of the assessee. 36. Ground No. 9 is against the disallowance of Rs. 10,64,258 under section 40A(9) being the actual expenditure incurred during the year. 37. The Assessing Officer held that any expenditure made from the welfare fund for employees is not allowable as per provisions of section 40A(9) except as provided under section 36(1) and the provisions of section 36(1) were not applicable in respect of this expenditure. The Assessing Officer disallowed the assessee s claim by invoking the provisions of section 40A(9) of the Act. The CIT(A) following decision of his predecessors in assessment years 1995-96 and 1996-97 in assessee s own cases, confirmed the disallowance. 38. The learned AR submitted that the contribution to the fund is in the nature of a separate account maintained by the assessee in its books of account while according to section 40A(9) the disallowance is meant for contribution to a separate legal entity in the form of a fund, trust, company, society etc. It was explained that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard. We have also perused the provisions of section 40A(9), the provisions brought into statute by the Finance Act, 1984 with retrospective effect from 1-4-1980. Relevant sub-section (9) of section 40A reads as under : (9). No deduction shall be allowed in respect of any sum paid by the assessee as employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860, (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause ( iv ) or ( v ) of sub-section (1) of section 36, or as required by under any other law of or the time being in force. 14. From the above, it is evident that the sub-section (9) prohibits allowing of any deduction in respect of any sum paid by the assessee as an employer except under certain conditions specified under the clauses ( iv ) and ( v ) of section 36(1) of the Act. We have also perused the relevant orders in this regard. From Para 9 of the assessment order, we find that the assessee made some adjustments in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the years against the orders of the CIT(A) for earlier years. Following the stand taken by it in assessment years 1995-96 and 1996-97, it was contended by the assessee that the depreciation for the current year should be complied without reducing the sale proceeds from the WDV of the block of assets. The CIT(A) held that as in earlier years the assessee s contention had been rejected by my ld. Predecessors, the Assessing Officer was justified in computing the depreciation based on the WDV as on the first day of the accounting year. No interference in depreciation allowed by the Assessing Officer is, therefore, called for. However, if at subsequent stages of appeal for the assessment years 1995-96 and 1996-97 the issue is decided in favour of the assessee, consequential adjustments in the WDV and the depreciation admissible for the current year may be made by the Assessing Officer. 43. We have heard the learned representatives of the parties and perused the record. The submission of the learned representatives of the parties is that the issue relating to disallowance of depreciation in this ground is consequential to the final outcome of assessment years 1995-96 and 1996-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7] 109 ITD 1 (Delhi). 4. Jay Engineering Works Ltd. s case ( supra ). 5. Escorts Ltd. s case ( supra ). 6. Monnet Industries Ltd. s case ( supra ). 7. Indian Ginning Pressing Co. Ltd. s case ( supra ). 8. SA Builders Ltd. v. CIT [2007] 288 ITR 1 (SC). 47. The learned DR, on the other hand, relied upon the orders of the revenue authorities. 48. We have heard the learned representatives of the parties and perused the record. We find that on identical set of facts for assessment year 1996-97, the ITAT has remitted the matter back to the file of the Assessing Officer by observing as under: "22. We have heard the parties and perused the orders of the revenue as well as the aforementioned judgments and the paper book filed before us. As per the assessee, the expenditure in question is for technological upgradation only of the existing engines of the existing business. Whereas the case of the revenue is that the said expenditure is not mere upgradation and it is for entire redesigning of the engines. The orders of the revenue provide meagre information on what exactly are the technological changes brought out by the alleged expenditure and what exactly is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the Assessing Officer with a direction to decide the same in accordance with final outcome of the issue in assessment year 1994-95, after providing reasonable opportunity of hearing to the assessee. ITA No. 8140/M/04 - Appeal by revenue 52. Ground No. 1 reads as under: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating 50 per cent of the hospitality expenses of Rs. 35,33,006 as outside the purview of section 37(2) of the Act and has erred in deleting the expenses on account of canteen expenses of Rs. 43,97,311, staff tea expenses of Rs. 1,18,516, canteen and mess expenses of Rs. 36,05,096 disallowed under section 37(2) of the Act as entertainment expenses without appreciating the fact brought on record by the Assessing Officer." 53. As regards the hospitality expenses of Rs. 35,33,006, the learned representatives of the parties agreed that ITAT in assessment year 1996-97 in assessee s own case set aside the issue to the Assessing Officer by observing as under: "36. Grounds 2, 3 and 4 deal with the disallowance of Entertainment expenses under section 37(2) of the Income-tax Act. During the proceedings before us, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase in assessment years 1995-96 and 1996-97 remitted the matter back to the file of the Assessing Officer. The facts of the case under consideration are identical to that of assessment years 1995-96 and 1996-97, we also remit the matter back to the file of the Assessing Officer with identical direction as given by the ITAT in assessment year 1996-97. 54. As regards canteen expenses of Rs. 43,97,311 the learned representatives of the parties agreed that the issue is decided in favour of the assessee by the decision of ITAT in assessment year 1996-97 wherein the ITAT held as under: "10. Ground 5 relates to disallowance under section 37(2A) in respect of entertainment expenditure. The assessee claimed canteen expenses of Rs. 58,48,283. Out of this, on estimate basis, the assessee treated Rs. 56,48,283 as entertainment expenditure being incurred under the head Hospitality expenditure is attributable to the participation of the employees of the assessee and therefore, it is not treated as entertainment expenditure. Hence, the full amount of hospitality expenditure is treated as hospitality expenditure by the Assessing Officer on assessee s failure to substantiate the claim and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is directed to be deleted. As regards disallowance of canteen expenses [Rs. 43,97,311 in view of Hon ble ITAT s order for the assessment year 1991-92 (para 5)] the disallowance is deleted. The Assessing Officer is directed to recompute the disallowance under section 37(2) as per directions given above." 55.1 Since the CIT(A) deleted the disallowance by following the order of ITAT in assessment year 1991-92, we hereby confirm the order of CIT(A) on these counts. 56. Ground No. 2 reads as under: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 41,13,258 made by the Assessing Officer under section 40A(9) of the Act on account of payment to different clubs. 57. The Assessing Officer observed that various payments were made for the purpose of acquisition of corporate membership of different clubs. He, therefore, treated the expenditure as capital in nature. He further held that the expenditure cannot be said to be for the purpose of business of the assessee. The CIT(A), after considering the submissions of the assessee, deleted the addition made by the Assessing Officer by observing as under: "I ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance made on account of payments to club membership. 59. Ground No. 3 reads as under: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A), has erred in directing the Assessing Officer to recompute the disallowance made by the Assessing Officer under section 37(4) of the Act of Rs. 89,40,389 on account of rent, rates, taxes, repairs etc. incurred on maintenance of guest house in accordance with the decision in the case of Eicher Tractors 84 ITD 49 (SB) (Delhi)" 60. We have heard the learned representatives of the parties and perused the record. We find that the ITAT in assessee s own case for assessment year 1996-97 dealt the issue and held as under: "Ground 1 relates to disallowance under section 37(4) in respect of rent, rates and taxes and repairs on maintenance of Guest House. During the proceedings before us, the Ld. Sr. Counsel for assessee mentioned that an identical issue came up before the Tribunal relating to assessment year 1995-96 in the assessee s own case vide ITA No. 902/Mum./2001 and Hon ble Tribunal has discussed the same in Para 40 of the said order and finally allowed the said ground. Further, as per the chart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount of Rs. 7,76,94,842 as provision of warranty. Since the provision of Rs. 4,69,96,867 was made in assessment year 1996-97 the incremental liability of Rs. 3,06,97,975 was claimed as deduction. The assessee claimed before the Assessing Officer that the liability was estimated on scientific empirical basis after taking into account actual expenses incurred in the earlier years on major models of vehicles. The Assessing Officer held that the method adopted by the appellant cannot be considered as scientific and empirical method and that there can be no scientific basis for assumption that each and every vehicle will suffer from some type of defect during the warranty period. The Assessing Officer held that the liability claimed by the assessee is contingent in nature. The CIT(A) following the ITAT s order in assessee s own case for assessment year 1991-92 directed the Assessing Officer to allow the deduction for provision towards warranty. 63. We have heard the learned representatives of the parties and perused the record. The learned DR relied upon the judgment of the Apex Court in the case of Rotork Controls India (P.) Ltd. v. CIT [2009] 180 Taxman 422 . We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. The learned DR relied upon the judgment of the Apex Court in the case of Rotork Controls India (P.) Ltd. ( supra ). We find that in the said judgment certain principles have laid down in respect of provision. The facts of that case are directly not applicable to the facts of case under consideration. However, on identical set of facts the ITAT has already decided the issue in assessment year 1996-97, hence, to maintain consistency; the same is to be followed. The finding of the ITAT is reproduced below: "44. Ground 9 relates to the provision for pending labour demand and the Revenue is aggrieved against the decision of the CIT(A) in deleting the disallowance of the provision of Rs. 537.09 lakhs made for anticipated liability of arrear wages for which negotiations were still going on. During the proceedings before us, the Ld. DR submitted that CIT(A) erred in deleting the disallowance of the said provision of liability of arrear of wages payable to the employees for the relevant period. The Learned Sr. Counsel for the assessee argued stating that an identical issue came up before the Tribunal relating to assessment year 1994-95 in the assessee s own case vide ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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