TMI Blog2014 (12) TMI 1236X X X X Extracts X X X X X X X X Extracts X X X X ..... been relied on by the CIT(A) while rejecting the claim of the assessee.Respectfully following the decision of the Bangalore Special Bench of the Tribunal and in absence of any distinguishable features brought to our notice by the Ld. DR, we set-aside the order of the CIT(A) on this issue and direct the AO to allow the claim of expenditure - Decided in favour of assessee Disallowance of Warranty Provision in normal tax computation - Held that:- The Hon’ble Supreme Court in the case of Rotork Controls Pvt. Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA ) has held that when large number of sophisticated goods are manufactured and sold with warranty and the past records show that defects existed in some of the items, the provision made by the assessee for warranty claims on the basis of past experience is an allowable deduction u/s.37. The various decisions relied on by the Ld. Counsel for the assessee also support the case of the assessee. Since the assessee in subsequent years has incurred expenditure against such warranty provision, therefore, we do not find any justification in the order of the CIT(A) restricting the disallowance to ₹ 44,94,000/- which was the amount outst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT Vs. Glaxo Smithkline Consumer Health care Ltd. reported in [2007 (7) TMI 334 - ITAT CHANDIGARH ]. Further, the Pune Bench of the Tribunal in assessee’s own case has allowed the issue of unutilized Modvat credit in favour of the assessee for A.Y. 1993-94. The Ld. Departmental Representative could not bring any distinguishable features so as to take a different view than the view taken by the Ld.CIT(A). - Decided in favour of assessee Addition on account of provision for discount on sale - Held that:- Since the Ld. Departmental Representative could not controvert the finding given by the Ld.CIT(A) that as against provision of ₹ 1.09 crores, the assessee has made payment to the tune of ₹ 1.11 crores towards the provision for discount on sales, therefore, under the facts and circumstances of the case, we find no infirmity in the order of the CIT(A) deleting the disallowance made by the AO. - Decided in favour of assessee Addition on account of loss in Foreign Exchange Rate Fluctuation - Held that:- Hon’ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd., reported in [2009 (4) TMI 4 - SUPREME COURT ] has held that losses suffered by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company as business expenditure. He, therefore, asked the assessee to explain and justify the claim of such debit of ₹ 53, 92,055/- to the profit and loss account. It was submitted by the assessee that the same was formulated as per guidelines of SEBI and the SEBI guidelines for debiting such expenditure is binding in nature. 2.2 However, the AO rejected such explanation of the assessee and held that SEBI guidelines are not binding as far as computation of income under the provisions of Income Tax are concerned. Rejecting the explanation given by the assessee and distinguishing the decision of the Chennai Bench of the Tribunal in the case of SSI Ltd. Vs. DCIT (reported in 85 TTJ 1049) cited before him, the AO held that the same is not allowable. He further observed that the differential amount of ₹ 53,92,055/- represented only the notional/contingent expenditure and not actual expenditure and therefore cannot be allowed as deduction in the computation of income. 3. Before the CIT(A) it was submitted that the scheme was primarily intended to promote the business interest of the company by making the employees stakeholder in this company. This practice is foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o its employees at concessional price of R.100/- each under ESPS against the prevalent market price of ₹ 850/- per share. The difference amount of ₹ 53.92 lakhs has been debited by the assessee company as business expenditure. We find the Bangalore Special Bench of the Tribunal in the case of Biocon Ltd., (Supra) while deciding an identical issue has held that discount on issue of Employee Stock Option Plan (ESOP) is allowable as deduction in computing the income under the head profits and gains of business or profession . It is on account of an ascertained liability and it cannot be treated as a short capital receipt. While doing so, the Special Bench of the Tribunal has also considered the decision of the Delhi Bench of the Tribunal in the case of Ranbaxy Laboratories Ltd. (Supra) which has been relied on by the CIT(A) while rejecting the claim of the assessee. Respectfully following the decision of the Bangalore Special Bench of the Tribunal and in absence of any distinguishable features brought to our notice by the Ld. DR, we set-aside the order of the CIT(A) on this issue and direct the AO to allow the claim of expenditure of ₹ 53,92,055/-. The gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working of provision for warranty from F.Y. 2001-02 to F.Y. 2004-05 in the light of decision of Hon ble Supreme Court in the case of Rotork Controls Pvt. Ltd. Vs. CIT reported in 314 ITR 62. It was submitted that provisions made were also similar to the amounts of expenditure incurred by the company over the warranty period. It was further submitted that the warranty provisions are never exceeding 0.50%. It was accordingly submitted that the entire provision for warranty should be treated as allowable expenditure. 9. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted an amount of ₹ 22,09,381/- and sustained the balance amount of ₹ 44,91,000/- by observing as under : 19. I have carefully considered the facts of the case and reply of the appellant. Warranty liability provision is an allowable expenditure as held by the Hon'ble Supreme Court in the case of Rotork Control india (P) Ltd. (Supra), provided it is calculated on scientific basis. However, the chart of warranty provision for various projects and its utilization as per Annexure-1 shows that actual expenditure has been claimed to be shown upto four-five years for which no s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existed in some of the items, the provision made by the assessee for warranty claims on the basis of past experience is allowable as deduction u/s.37. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Voltas Ltd. Vs. DCIT reported in 61 TTJ 543 he submitted that the Tribunal in the said decision has held that provision for trade guarantees during warranty period is an allowable expenditure He also relied on the decision of the Pune Bench of the Tribunal in the case of ITO Vs. Wanson (India) Ltd., reported in 5 ITD 102 (Pune) and the decision of the Bangalore Bench of the Tribunal in the case of Wipro GE Medical Systems Ltd., Vs. DCIT reported in 81 TTJ 455 (Bang.) 11. The Ld. Departmental Representative on the other hand relied on the order of the AO. He submitted that there is no proper basis for allowing the claim. 12. The Ld. Counsel or the assessee in his rejoinder submitted that even the expenditure incurred during the year against the warranty provision has been disallowed by the AO. 13. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.5 by the Revenue read as under : By Assessee : Ground 3: Disallowance of Warranty Provision in computation of tax as per the provisions of section 115 JB of the Act The Ld. CIT(A) erred in holding that provision for warranty is excessive to the extent of INR 4,494,000 and adding the same while computing the book profits as per the provisions of section 115JB JB of the Act. The Appellant prays that no addition be made towards provision for warranty, while computing the book profits as per section 115JB of the Act. By Revenue : 5. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in directing the A.O. to recompute the book profit for the purpose of sec. 115JB of the Act, by adopting the figure of provision for warranty at ₹ 44,94,000/- as against ₹ 67,03,381/- made by the A.O.? 14.1 After hearing both the sides, we find the above grounds are consequential to the first 2 grounds by the assessee. Since we have already allowed the claim of the assessee, therefore, these grounds become academic in nature and therefore are not being adjudicated. 15. Ground of appeal No.1 by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 177.17 lakhs has noted that the actual expenses debited to P L Account amounted to ₹ 106.33 lakhs and estimated expenses to be incurred subsequently is ₹ 70.84 lakhs. According to him, the expenses of ₹ 70.84 lakhs retains its character of a contingent liability or unascertained contingent liability. Further, this expenditure has not been incurred during the year. Therefore, he disallowed 1/5th of such expense being ₹ 14.16 lakhs. We find the Ld.CIT(A) while deciding the appeal found that assessee has subsequently incurred an amount of ₹ 65,84,078/- towards stamp duty on adjudication of court order and another ₹ 4,95,610/- towards professional fees. Therefore, he held that an amount of ₹ 70,84,078/- cannot be considered as unascertained contingent liability for which he allowed 1/5th of such expenditure as deduction u/s.35DD. The Ld. Departmental Representative could not controvert the above factual findings given by the Ld.CIT(A). Accordingly, the order of the CIT(A) is upheld on this issue and the ground raised by the Revenue is dismissed. 19. Ground of appeal No.3 by the Revenue reads as under : 3. Whether on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the respondentassessee was revenue in nature. The expenses were incurred to obtain the application software which gets upgraded from time to time due to change in technology. This licence being for limited period would have to be renewed from time to time. In the aforesaid circumstances, the Tribunal held that considering the nature of the software licence i.e. application software, the same has to be allowed as a revenue expenditure. In view of the finding of fact arrived at further by the Tribunal that the expenses have been incurred on application software which is for a limited time frame and has to be renewed from time to time, we see no reason to entertain question B as framed by the revenue. 22.1 Respectfully following the decision of the jurisdictional High Court cited (Supra), the order of the CIT(A) on this issue is upheld and the ground raised by the Revenue is dismissed. 23. Ground of appeal No.4 by the Revenue reads as under : 4. Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the adhoc additions on account of car expenses, communication expenses, and workman staff welfare costs, when the same were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n held that partial disallowance of expenditure for maintenance of vehicles in case of a private limited company cannot be made. Addition, if any can be made in the hands of the concerned directors as perquisites but cannot be disallowed in the hands of a limited company. In this view of the matter, we uphold the order of the CIT(A) on this issue and the ground raised by the Revenue is dismissed. ITA No.1842/PN/2012 (A.Y. 2003-04) (By Assessee) : ITA No.2054/PN/2012 (A.Y. 2003-04) ( By Revenue) : 27. Grounds of appeal No.1 by the assessee and grounds of appeal No.1 by the Revenue read as under : By Assessee : Ground 1: Disallowance of Warranty Provision in normal tax computation The Ld. Commissioner of Income Tax (Appeals)- V, Pune {Ld. 'CIT(A)'} erred in holding that provision for warranty of INR 4,552,024 is excessive in nature and restricting the allowance to the extent of actual expenses of INR 732,024. The Appellant prays that the entire provision for warranty of INR 4,552,024 should be allowed while computing the taxable income. By Revenue : 1a. Whether on the facts and circumstances of the case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on the facts and circumstances of the case and in law, the CIT(A) was justified in holding that the unutilized CENVAT credit cannot be treated as income of the assessee, when sec. 145A introduced w.e.f. 01.04.1999 mandates inclusion of tax, duty, cess etc. in the value of stock and the CENVAT credit available is equivalent to duty paid. 29.1 Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee company has availed CENVAT credit of ₹ 17,41,57,482/- out of which total utilization was ₹ 16,42,38,089/- leaving the balance credit of ₹ 99,19,393/-. The Assessing officer confronted the assessee on this issue and asked why the same should not be treated as income of the assessee company. The assessee submitted that unutilized MODVAT credit should not be added to the income of the assessee as the issue has been decided by Hon'ble Pune, Tribunal in favour of the assessee in A.Y. 1993-94 and further the issue is also covered by Supreme Court's judgment in the case of CIT Vs. Indo Nippon Chemicals Co. Ltd. 261 1TR Page 275. The Assessing officer did not accept the contention of the assessee on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 1993-94. The Ld. Departmental Representative could not bring any distinguishable features so as to take a different view than the view taken by the Ld.CIT(A). Under these circumstances and in view of the various decisions cited by the Ld. Counsel for the assessee, we find no infirmity in the order of the CIT(A). Accordingly, ground raised by the Revenue is dismissed. 32. Grounds of appeal No.3 by the Revenue reads as under : 3a. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of ₹ 1,08,59,472/- made on account of provision for discount on sale when no evidence was brought on record by the CIT(A) which would support that contingent event occurred during the year especially when sales were made during the last quarter. 3b. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of ₹ 1,08,59,472/- made on account of provision for discount on sale placing reliance upon the case of Rotork Controls Ltd vs. CIT [314 ITR 62] when nothing has been brought on record to suggest that the provision was made on scientific basis. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty may have to be quantified and discharged at a later date. The ratio of the above decision of the Supreme Court is applicable in this case too. In an another judgment of Hon'ble Supreme court in Rotork Controls India (P) Ltd Vs.CTT 314 ITR 62 it has been held that provision for warranty liability is an allowable expenditure provided it has been calculated on scientific basis. In this case the learned counsel of the appellant has submitted that against the provision of ₹ 1.09 Crores actual payment was to the tune of ₹ 1.11 Crores which justifies the provisions made in this regard. Therefore, on the facts and circumstances of the case and also relying upon the above judgments of Hon'ble Apex Court, it is held that the Assessing Officer was not justified in holding that that the liability for sales discount had not accrued during the financial year relevant to A.Y. 2003-04. Accordingly he is directed to delete the addition of Rs.l,08,59,472/-. Thus the ground is allowed. 33.1 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 34. We have considered the rival arguments made by both the sides, perused the orders of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction. However, when the invoices are actually received or paid as the case may be, the same is done on the basis of rate applicable on the date of payment. This leads to gain or loss on account of fluctuation of exchange rates, it was further submitted that net result of loss of ₹ 72.10 lakhs is directly related to business of the assessee and since the loss has been incurred during the previous year, the same is allowable as business loss. The A.O however, did not accept the contention of the assessee holding that purchases are to be debited at the actual cost incurred for making the purchases and .similarly the receipts should also be accounted for on the basis of actual. Accordingly he disallowed the loss on account of exchange rate fluctuation amounting to ₹ 72,10,000/- 36. In appeal the Ld.CIT(A) deleted the addition by observing as under : 22. 1 have carefully considered the facts of the case as well as reply of the appellant In this case it is seen that the in the heading of the relevant para 7 of the Assessment order which deals with the issue mention is made in respect of fixed assets while from the reading of the para it becomes clear that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Dempo Co. Pvt. Ltd. has held that a loss arising in the process of conversion of foreign currency which is part of the trading asset of the assessee is a trading loss as any other loss. The cause which occasions to loss is immaterial. What is material is whether the loss has accrued in the course of carrying on the business or is incidental to it. It has been held that if there is a loss in a trading asset, it would be a trading loss whatever be its cause because it would be a loss in the course of carrying on the business. Similarly, the Hon ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd., reported in 312 ITR 254 has held that losses suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the date of the balance sheet is an item of expenditure u/s.37(1) of the I.T.Act. 37.1 Respectfully following the ratio of the above decisions and considering the fact that loss amounting to ₹ 72,10,000/- was incurred by the assessee on account of foreign exchange rate fluctuation in respect of import and export transactions made during the year we find no infirmity in the order of the CIT(A) allowing the claim of loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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