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ACIT Circle-3(1), New Delhi Versus Conviva Technologies Ltd.

2015 (3) TMI 973 - ITAT DELHI

Provision for warranty expenses - disallowance on the ground that the same is unascertained liability - CIT(A) deleting the disallowance - Held that:- Unable to see any valid reason to interfere with the conclusion of the ld. CIT(A) for AY 2007-08 when the same claim of expenditure has been allowed by the AO in the preceding assessment year 2005- 06 and 2006-07 in the order passed u/s 143(3) of the Act. We also note that the same claim of the assessee in AY 2008-09 was also allowed by the ld. CI .....

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We are in agreement with the conclusion of the ld. CIT(A) that it cannot be presumed that the expenses were not incurred by the assessee company in absence of any adverse material or evidence. At the same time, we are of the considered opinion that there was no good cause for the AO for making 50% ad hoc disallowance of the Software Services Charges claimed by the assessee as if, the AO was of the opinion that payment were not genuine that the entire expenses should have been disallowed. We are .....

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that although the principle of res judicata does not apply to the taxation matter but the rule of consistency has to be followed by the Revenue Authorities and flip flop approach on the similar issue is not permissible unless and until any substantial change in the facts and circumstances of the case is brought out. - Decided against revenue.

Disallowance of depreciation on computer peripherals/accessories - 15% v/s 60% - CIT(A) deleting the disallowance - Held that:- Issue is square .....

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]wherein their lordship has held that even if for the pre rule 8D period the procedure for making disallowance u/s 14A of the Act has been given and the Tribunal for AY 2008-09 we hold that the similar issue in the similar set of facts and circumstances of the present case also deserve to be restored to the file of AO for fresh adjudication- Decided in favour of revenue for statistical purposes. - I.T.A. No.-2846/Del/2012 - Dated:- 23-3-2015 - Shri J. S. Reddy And Shri C. M. Garg,JJ. For the Pet .....

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nses amounting to ₹ 4,00,978/- on the ground that the same is unascertained liability. 2. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance of Software service charge amounting to ₹ 12,38,26,881/- as no details were provided. 3. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance of depreciation on computer peripherals/accessories @ 15% instead of rate of 60% amounting to ₹ 10,80,230/-. 4. The Ld. CIT(A) has erred on facts and in la .....

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disallowances and additions on account of disallowance u/s 14A of the Act, provisions for warranty expenses, software services charges, gratuity u/s 40A(7) of the Act and depreciation on computer peripherals and finalize the assessment at ₹ 31,90,62,670/- as against the returned income of ₹ 19,03,01,880/-. 4. Being aggrieved by the above assessment order the assessee preferred an appeal before ld. CIT(A) which was allowed on all the counts deleting the disallowance and additions made .....

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e, the ld. AR supporting the impugned order, submitted that during earlier assessment order viz., 2005-06 and 2006-07 the warranty expenses claimed by the assessee has been allowed by the Department in the assessment order passed u/s 143(3) of the Act Income Tax Act, 1961 ( for short the Act ). The ld. AR further submitted a copy of the decision of ITAT Delhi B Bench dated 30.04.2013 In ITA No.2804/Del/2012 for subsequent assessment year 2008-09 in assessee s own case and contended that the issu .....

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or warranty expenses. 8. Ld. DR relied on the order of the Assessing Officer and also submitted that the provision has been made for unascertained liability. The assessee was failed to prove the actual incurrence of liability under the warranty clauses on 6 ITA No.2804/Del./2012 the basis of fixing the percentage of the turnover. In absence of such deductions, the claim of the assessee on the basis of percentage of the turnover should not have been allowed. He also relied on the order of Hon' .....

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he software supplied to the customers might have bugs/issues, thus, the sale of the software and warranty are inextricably bound by each other. In view of these facts, once the sale has been recorded. Then the liability in respect of the warranty has also to be considered as cost against the sales. Such cost for warranty is not contingent liability. The quantification of the warranty has been made on technical estimates based on past experience and the warranty clauses s contained in the agreeme .....

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ged at a future date. Therefore, such claim has to be considered while working out the profit and gain of the business for the year under consideration. He relied on the decision of CIT (A). 10. We have heard both the sides on the issue. The assessee company is doing the business of computer software and trading of bought out products. The company also produces softwares to its customers as per their specifications. Thus, the assessee has to provide performance guarantee and for the same, the cl .....

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ranty clause. In view of this, it can be said that it is a liability which has arisen in the relevant year though its actual quantification and discharge is deferred to a future date. The facts on the record also do not show that such provision has been made for evading the tax. In view of these facts, we find 8 ITA No.2804/Del./2012 no fault in the order of CIT (A) and we sustain the same on this issue. This ground of revenue is dismissed. 9. In view of above, we are unable to see any valid rea .....

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favour of the assessee by earlier and subsequent orders, therefore, same claim of warranty expenses was rightly allowed by the ld. CIT(A) for the year under consideration. We are unable to see any infirmity or any other valid reason to interfere with the same. Accordingly, ground no. 1 of the Revenue, being devoid of merit, is dismissed. Ground No.2 10. Apropos ground no. 2 the ld. DR submitted that the ld. CIT(A) has erred on facts and in law in deleting the disallowances of Software Services C .....

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o the addition on this count. The ld. DR submitted that the impugned order may be set aside by restoring that of the AO on this issue. 11. Replying to the above, the ld. AR supporting the impugned order submitted that there was no basis for the AO for ad hoc disallowance of 50% of Software Services Charges as there is no concept of ad hoc disallowances in this regard. The ld. AR further drawn our attention towards this fact that during AY 2005-06 the AO made similar disallowance which was allowe .....

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AY 2005- 06, we note that the ld. CIT(A) granted relief to the assessee for the assessment year under consideration with following observations and conclusion: 5.4 I have carefully considered the submissions made by the Ld. AR and gone through the assessment order. The disallowance was made by the AO on the account of software service charges mainly because the appellant company failed to furnish the details in this regard. It is seen that the AO requested the appellant company to furnish the de .....

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The AO in his remand report dt. 2.2.2011 reiterated that the documents were never produced before him during the course of assessment proceedings. However, he did not prefer to give his comments regarding the genuineness of these documents. The AO has not did not dispute that the ledger account of the software service charged were not produced before him. His only objection was regarding the non production of bills and vouchers. Since these are the important documents for deciding the issue in .....

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ellant company on account of revenue sharing professional charges through the banking channels. In view of these evidences, it cannot be said that the expenses were not incurred genuinely by the appellant company. Therefore, in my opinion there is no basis for disallowing 50% of the expenditure on account of software service charges as claimed by the appellant company in its profit and loss account Therefore, the AO is directed to delete the addition on account. 13. The only objection of the AO .....

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. DR has not disputed this fact that the assessee company has paid the Software Services charges in the form of royalty amounting to ₹ 24,72,91,063/- to a Korean Company on account of Bharti Airtel Mobility through banking channels and the payments were made after due deduction of tax at source (TDS) thereon. 15. In view of aforesaid factual matrix of the case as noted by the ld. CIT(A) and not disputed by the AO, we are in agreement with the conclusion of the ld. CIT(A) that it cannot be .....

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AO. We cannot ignore that the ld. CIT(A) for AY 2005-06 has also allowed similar claim of the assessee and on specific query from the Bench the ld. DR was unable to guide us whether the Department further agitated the issue before the Tribunal and hence, we may safely presumed that the order of the ld. CIT(A) for AY 2005-06 has been accepted by the Department. On the rule of consistency it is a well accepted proposition that although the principle of res judicata does not apply to the taxation m .....

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ound no. 2 of the Revenue is also dismissed. Ground No. 3 16. At the outset the ld. DR fairly accepted that the issue is squarely covered in favour of the assessee by the decision of Hon ble jurisdictional High Court of Delhi in the case of CIT vs. BSES Rajdhani Powers Ltd. dated 31.08.2010 in ITA No.1266/2010 therefore, we are of the considered view that the ld. CIT(A) has rightly granted relief for the assessee on this issue and we upheld the same. Accordingly, ground no. 3 of the Revenue is a .....

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erious objection if the matter is restored back to the file of the AO for fresh adjudication in the light of decision of the Tribunal dated 30.4.2013 for AY 2008-09 (Supra). 19. On careful consideration of above submissions, we note that the ITAT has restored the issue to the file of the AO with following observations and conclusion: 6. We have heard both the sides on this issue. Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT - [2011] 203 Taxmann 364 (Delhi) in paras .....

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s part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) & (3) would require the assessing officer to first reject the claim of the assessee wit .....

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of section 14A and Rule 8D would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the asse .....

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he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, 5 ITA No.2804/Del./2012 the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of t .....

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h the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment. Here, on the one hand, assessee claims that no expenditure was incurred for earning dividend income and on .....

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