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The ACIT, Gandhinagar Circle, Gandhinagar Versus M/s. Tudor India Ltd and Vica-Versa

Disallowance of incentive - change in the method of accounting - Held that:- The assessee changed the method of account for these expenses from cash to mercantile during the year under appeal, but still the assessee has claimed some of the expenses on cash basis and some of them on mercantile basis during the year itself. According to section 145 Hybrid System of accounting is not at all allowable now. Therefore, the finding of the ld. CIT(A) is hereby upheld - Decided against assessee.

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rospective effect. Therefore, we do not see any reason to interfere with the order of the ld. CIT(A), same is hereby upheld - Decided against assessee.

Disallowance made in respect of advance written off u/s.37 - Held that:- The assessee has placed details with regard to the parties to whom the advances have been given, the authorities below have not made any inquiry from such parties, therefore, we are of the considered view that the disallowance made cannot be sustained in view of t .....

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possible to exactly determine the amount of liability and if no claims are lodged with the assessee, nothing would be required to be paid, then also I believe in that case the assessee would write back the whole amount of provision to its profit and loss account and there is section 41 in the statute to take care of such amounts if the same is granted as deductible here we do not see any reason to interfere with the order of the ld. CIT(A), same is hereby upheld. - Decided against revenue.
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on this issue, same are hereby upheld. -Decided against revenue. - I.T.A. No.1298/Ahd/2012, I.T.A. No.1308/Ahd/2011 - Dated:- 21-8-2015 - SHRI PRAMOD KUMAR AND SHRI KUL BHARAT, JJ. For The Revenue : Shri Shiva Sewak,Sr.D.R. For The Assessee : Shri Sanjay R.Shah, CA ORDER PER SHRI KUL BHARAT, JUDICIAL MEMBER : These cross-appeals by the Revenue and the Assessee are directed against the order of the Ld. Commissioner of Income Tax(Appeals)- Gandhinagar [ CIT(A) in short] dated 21/03/2012 pertainin .....

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r grounds, which are without prejudice to each other. 1. The order passed by the learned Commissioner of Income Tax (Appeals) is erroneous and contrary to the provisions of law & facts and therefore requires to be suitably modified. It is submitted that it be so done now. 2. The learned CIT(Appeals) erred in not allowing the incentives paid to dealers of ₹ 57,66,297 considering the same to be prior period expenses. It is submitted it be so held now. 2.1. Learned CIT(Appeals) has erred .....

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appreciating that the appellant had applied for the approval of the Central Government during the concerned year itself and the approval was granted in the subsequent year which would related back to the date of application. It is submitted it be so held now. 4. Learned CIT(Appeals) erred in upholding the disallowance made in respect of advance written off of ₹ 2,09,151 u/s.37 on the ground that appellant failed to substantiate nexus between advance given and business of assessee. It is su .....

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#8377; 2,11,10,925/-, incentive to dealers of ₹ 56,50,193/-, penalty for breach of contract of ₹ 65,52,000/-, additional remuneration paid to MD of ₹ 4,95,192/- and Advances written off of ₹ 2,09,151/-. Against the said assessment order, the assessee preferred an appeal before the ld. CIT(A), who after considering the submissions of the assessee, partly allowed the appeal; thereby the ld. CIT(A) deleted the addition made on account of provision for warranty expenditure, c .....

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to 2.1 are inter-connected which are against the disallowance of incentive of ₹ 57,66,297/- confirmed by the ld. CIT(A). The ld.counsel for the assessee argued at length and submitted that the assessee changed in the method of accounting for these expenses from cash to mercantile during the year under appeal. Therefore, there was some distortion likely to be happed. In this eventuality, the expenditure so claimed are allowable. The ld.counsel for the assessee placed reliance o the judgeme .....

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have considered the facts placed before me in this regard, Interestingly, the appellant on one hand claims that it has changed the method of accounting for these expenses from cash to mercantile during the year; but still has admittedly claimed some of the expenses on cash basis and some of them on mercantile basis during the year, itself. According to section 145 Hybrid System of Accounting is not at all allowable now. The agreements with the distributors show that the distributors are entitle .....

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fically told about my proposal to enhance the income. The appellant has itself not disputed [actually it has asserted that the expenses are claimed on cash basis although accrued in earlier year(as discussed in earlier paragraph)] and even till 20/03/2012 had neither disputed these facts nor submitted the agreements with dealers for earlier years. Therefore, I hold the following on the issue: - that only mercantile system of accounting is allowed as it is the system for all other incomes and exp .....

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lowed being prior period expenses accrued in earlier year and claimed admittedly and erroneously on cash basis, in earlier year. The income is directed to be enhanced, accordingly. The ground and the enhancement notice is decided as directed above. 4.1. The aforesaid finding of the ld. CIT(A) has not been controverted by the ld.counsel for the assessee by placing any contrary material on record. Although the assessee changed the method of account for these expenses from cash to mercantile during .....

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he ground that the expenditure has not accrued during the year under appeal. The ld.counsel for the assessee submitted that there is no dispute with regard to the genuineness of the expenditure. The expenditure has been disallowed on the ground that the expenditure does not pertain to the year under appeal. The ld.counsel for the assessee submitted that the amount was subsequently rectified by the Ministry of Company Affairs. 5.1. On the contrary, ld. Sr. DR submitted that approval was admittedl .....

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y material on record suggesting that the approval so made by the Ministry of Company affairs was with retrospective effect. Therefore, we do not see any reason to interfere with the order of the ld. CIT(A), same is hereby upheld. Thus, ground Nos.3 & 3.1 are dismissed. 7. Ground No.4 is against upholding the disallowance made in respect of advance written off of R.2,09,151/- u/s.37 of the Act. The ld.counsel for the assessee submitted that the ld. CTI(A) was not justified in confirming the d .....

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uthorities below. We find that the AO in para-7.2 of his order has given reasoning for making the disallowance, the same is reproduced hereunder:- 7.2. I have carefully considered the submission of the assessee and find that advances written off to the extent of ₹ 2,09,151/- in respect of 8 entries are not an allowable expenses in view of the fact that:- (i) There is nothing on record which suggest that these advances have actually become bad which necessitates written off. (ii) There is n .....

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e advances written off does nto represent bad debts covered u/s.36(1)(vii) and hence does not come within purview of 36(1)(vii). Therefore the decision relied upon by the assessee in case of TRF Ltd cannot be applied. Also the assessee failed to substantiate nexus between the advance given and business of the assessee and hence cannot be allowed u/s.37 of the Act and in view of that AO s addition is upheld and appellant s ground is dismissed. 8.2. The contention of the assessee is that the advan .....

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tion in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the AO has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account .....

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holding that the judgement of the Hon ble Apex Court is not applicable as the assessee failed to substantiate nexus between the advance given and business of the assessee. However, the assessee has placed details with regard to the parties to whom the advances have been given, the authorities below have not made any inquiry from such parties, therefore, we are of the considered view that the disallowance made cannot be sustained in view of the judgement of the Hon ble Apex Court rendered in the .....

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and oanf acts in deleting the addition made by the AO of ₹ 65,52,000/- in respect of penalty for breach of contract. 3. On the facts and circumstances of the case the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 4. It is therefore prayed that the order of the learned CIT(Appeals) may be set aside and that of the A.O. be restored to the above extent. 9.1. First ground in Revenue s appeal is against deletion of addition made by the AO on the provision for warranty amo .....

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provision made every year on the basis of the experience and claims made by the customers. 10. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld. CIT(A) has given findings on fact in paras-5.3 to 5.8 of his order, which are reproduced hereunder:- 5.3 I have gone through the facts of the Appellant's case, the contentions of the AO vide his order of assessment and the submissions made by the a .....

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In view of such facts, it is required to provide certain amount in books of accounts for the purpose of meeting such liability. 5.4 Coming to the observation of AO wherein he held the same to be of contingent nature, I believe that it is important here to understand the meaning of contingent. Contingent is something which is dependent on some other thing. Here this liability will arise only if certain batteries come out to be defective. Over the experience of the appellant, it has observed that .....

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rranty became an integral part of the sale price; in other words, the warranty provisions had to be recognized because the assessee had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income tax Act, 1961." 5.5. The only factor, as per the said decision of th .....

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ecovery made on sale of lead out of the returned batteries is also reduced while calculating the warranty costs incurred in past years. Further, warranty provision is made based on past experiences of actual warranty costs incurred by the Appellant in proportion to actual sales made by it. Also the amount of provision no longer required is written back to profit and loss account and duly offered to tax. 5.6 As regards calculation of the warranty provision, the same is done as per a systematic me .....

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such amounts if the same is granted as deductible here. 5.7 Further, Gujarat High Court in case of CIT-II Vs. Inductotherm (India) Pvt. Ltd. in Tax Appeal No. 2087 of 2010 followed the decision of apex court as mentioned above and dismissed the appeal of the revenue. 5.8 In view of above discussion, AO is directed to allow the claim of the assessee and delete the addition made in this regard. This ground of appellant is allowed. 10.1. The ld.counsel for the assessee relied upon the judgement of .....

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ition of ₹ 65,52,000/- made on account of disallowance of penalty expenditure for breach of contract. The ld. Sr. DR argued that the ld. CIT(A) was not justified in deleting the addition. He submitted that the assessee-company was not the party to the contract, therefore, there was no reason to make payment to group concern but only reimbursement of penalty amount. 11.1. On the contrary, ld.counsel for the assessee submitted that the argument of the Revenue is fundamentally incorrect. He d .....

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ge-43 of the paper-book):- Affiliates shall mean any Person in which either Daramic or Excide, directly or indirectly, owns or controls fifty percent (50%) or more of the ownership indicia, as well as any Person which, directly or indirectly, owns 50% or more of, or otherwise controls the management decisions of Exide or Daramic. 12. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that there was Automotiv .....

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of the assessee is that it is the part of the agreement, therefore the AO was not justified in making the addition. We find that the ld. CIT(A) has given findings in paras-7.3 to 7.6 of his order, which are in the following manner:- 7.3 I have gone through the submission made by the AR. I find that the payment has been by the parent company of the appellant and the same is recovered from the assessee. Proper debit notes are submitted by the assessee on the basis of which the said payment was mad .....

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vation that the same was of contingent nature depending upon the fact disclosed in the Tax Audit Report but while dealing with payment of penalty, he has not considered the amount shown in Tax Audit Report in this regard. This payment has not been paid for any offence which is prohibited by law and the same has been paid in normal business course incidental to carrying on the business as damages for breach of commercial contract. Hence I find that the conditions of the residuary section stands f .....

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h regard to this international transaction and reply to same effect was also filed before the TPO, that is to say the transaction was categorically dealt with by the TPO during the course of the TP proceedings. Here it is important to quote the decision of Delhi ITAT in case of Oracle India Private Limited (ITA No. 18/Del/2007) wherein it has been held that provisions of 40A(2) cannot override the transfer pricing provisions and where no adjustment has been proposed by the TPO, then there was no .....

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