TMI Blog2017 (2) TMI 502X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered view that the CIT (A) has rightly and validly deleted the addition Disallowance of provision for warranty in excess of actual warranty claims being the same as unascertained liability - Held that:- Following the order passed by the coordinate Bench in assessee’s own case for AY 2009-10 by following the judgment in case of Rotork Controls (2009 (5) TMI 16 - SUPREME COURT OF INDIA) wherein held that estimated provisions for warranty are allowable for deduction, thus we find no illegality or perversity in the deletion of disallowance Disallowance u/s 14A computation - work out the disallowance under Rule 8D - Held that:- The entire exercise to work out the disallowance under Rule 8D done by the AO is on the basis of imagined expenditure based upon the average value of the investment whereas the expression “expenditure incurred” refers to actual expenditure and not imagined expenditure. AO without recording his dissatisfaction of the correctness of the claim of expenditure made by the assessee and without arriving at the conclusion that the claim of assessee that “no expenditure has been incurred is incorrect” proceeded to invoke the provisions of section 14A read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of hearing. 3. The Appellant, M/s. Eicher Motors Limited (hereinafter referred to as the assessee ) in ITA No.2268/Del/2014 by filing the present appeal sought to set aside the impugned order dated 31.01.2014 passed by the Commissioner of Income-tax (Appeals)- XIII, New Delhi qua the assessment year 2010-11 on the grounds inter alia that :- 1. That the learned Commissioner of Income Tax (A)-XIII, New Delhi has grossly erred on facts and in law in confirming the disallowance of notional expenses of ₹ 26,97,608/- u/s 14A of the Income Tax Act allegedly relating to dividend income. 2. That the learned Commissioner of Income Tax (A)-XIII, New Delhi has grossly erred on facts and in law in confirming the disallowance of normal expenses of ₹ 26,97,608/- u/s 14A while computing book profit u/s 115JB of the Income Tax Act. 3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing. 4. Briefly stated the facts necessary for adjudication of the issues involved in both the aforesaid cross appeals are : during the scrutiny proceedings qua Assessment Year 2010-11, Assessing Officer noticed that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Rules, 1962 (for short the Rules ). Ld. AR for the assessee submitted that there is neither any interest nor any administrative expenses relating to the dividend income, as such no disallowance u/s 14A is required. AO has disagreed with the submissions raised by the assessee and worked out disallowance under Rule 8D to the tune of ₹ 318,84,938/-. However, ld. CIT (A), in view of the revised working of the average investments and assets, worked out the disallowance of interest and administrative expenses and restricted the same to ₹ 26,97,608/- u/s 14A of the Act. 8. Assessee carried the matter before the ld. CIT (A) by filing the appeal who has partly allowed the same. Feeling aggrieved, the revenue as well as assessee has come up before the Tribunal by way of filing present cross appeals. 9. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 of ITA NO.2228/DEL/2014 10. The ld. DR for the revenue challenging the impugned order contended that since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany i.e. the expenditure of R D should not be incurred purely for market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection and activities of a like nature. 16. In the instant case, assessee company claimed to have incurred R D expenditure to bring down the noise level by redesigning intake and exhaust system; to reduce environmental pollution on account of unburnt gases by combustion chamber redesign, after treatment of exhaust system (e.g. hot tube engine management system); carburetor redesign, engine management system, throttle sensor. Undisputedly, after examining the objectives of the R D facilities used by the assessee company at Chennai, Department of Scientific and Industrial Research (DSIR) accorded approval u/s 35(2AB) in respect of Chennai centre of the assessee company first time on 11.08.2005, renewed from time to time on the basis of physical inspection and remained intact till 04.10.2012. Order of approval of in-house research and development facilities u/s 35(2AB) of the Act, in form no.3CM dated 18.12.2008 renewed up to 04.12.2012 are available at pages 54 to 60 of the paper book. Bare perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts of the company are sold along with warranty and assessee is under obligation to replace any component bearing manufacturing defect free of cost and at the end of the relevant previous year, assessee had made aggregate provisions for warranty at ₹ 7,38,00,000/-. 32. Ld. D.R. relied upon the order passed by Assessing Officer. However, Ld. A.R. relied upon the order passed by L. CIT(A) and contended that the assessee only claimed regarding deduction of amount earmarked for provision for warranty, has been allowed by the Revenue during the Assessment Years 2002-03, 2003-04, 2006-07 and 2007-08 and no appeal has been filed by the Department against Ld. CIT(A)'s order. Ld. A.R. also relied upon the decision delivered by Income tax Appellate Tribunal Delhi Bench 'B', New Delhi in assessee's own case entitled DCIT Vs M/s. Eicher Motors Ltd. in I.T.A. No. 3560/Del12008 order dated 18.09.2009 . Ld. A.R. also relied upon the judgment of Hon'ble Supreme Court in the case entitled Rotork Controls India Pvt. Ltd. Vs CIT, 314 ITR 62 (S.C.). The ratio of judgment (supra) is that estimated provisions for warranty are allowable for deduction. Operative part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrols India Ltd. (supra) in the assessee's own case for the Assessment Year 2002- 03 held that assessee had estimated the provisions for warranty on the basis of past history. The estimate of warranty made by the assessee on the basis of past history cannot be treated as a provision for any ascertained liability and allowed the provision for warranty as deduction. Following the law laid down by Hon'ble Supreme Court in the judgement (supra), decision of coordinate bench in the assessee's own case, we find that there is no infirmity or perversity in the findings returned by Ld. CIT(A) in allowing the ascertained liability as allowable expenditure u/s 3 7( 1) of the Act. So, ground No.3 is determined in favour of the assessee. 21. Following the order passed by the coordinate Bench in assessee s own case for AY 2009-10 (supra), by following the judgment passed by the Hon ble Supreme Court in case of Rotork Controls (supra), we find no illegality or perversity in the deletion of disallowance of ₹ 2,10,00,000/- by the ld. CIT (A) vide impugned order. So, ground no.2 is determined against the revenue. GROUND NO.1 2 OF ITA NO.2268/DEL/2014 22. Undispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure made by the assessee or with correctness of the claim made by the assessee that no expenditure has been incurred and that determination of amount of expenditure in relation to exempt income under Rule 8D only come into play when AO rejects claim of assessee in this regard. 24. Hon ble Punjab Haryana High Court in judgment cited as Hero Cycles Ltd. (supra) also held that disallowance u/s 14A can only be made if the AO establishes proximate nexus of expenditure with exempt income. ITAT, Delhi Bench in case of SIL Investment Ltd. (supra) also held that the AO cannot make disallowance u/s 14A without brining any evidence on record to establish that any expenditure had been incurred by the assessee for earning exempt income. 25. In the light of the settled proposition laid down in the judgments (supra) discussed in the preceding para, when we examine the disallowance worked out by the AO under Rule 8D, reproduced hereunder, the AO has not brought on record any evidence to establish if any expenditure has been incurred by the assessee for earning exempt income :- Sl.No. Particulars Amount in Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other expenses 131,912 Books Periodicals 72,148 Membership Fees 441,096 Recruitment/Joining Expenses 51,314 C Development Expenses Inspection Testing 2,390,014 Product Development Expenses 15,057,518 Sub Total (C) D Depreciation 15,770,484 E Grand Total 83,380,447 F Less :- Excluded in Computation of Income a. Depreciation 15,770,484 b. R D work in progress of FY 2008-09, charged off 4,031,328 c.Loss on sale of Fixed Assets 116,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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