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The Assistant Commissioner of Income Tax, Company Circle III (2) , Chennai Versus M/s. Thermodyne Technologies Private Limited

2017 (6) TMI 244 - ITAT CHENNAI

Disallowance of claim for deduction being the provision for warranty quantified at 2% of the total sales in the computation of taxable total income - Held that:- In our opinion, the warranty based on the actionable basis or scientific basis, it is to be allowed. This fact was not demonstrated by the assessee before the Ld.CIT(A). If the methodology followed to make such warranty provisions in the books of accounts is on notional basis, then notional provisions cannot be allowed. The assessee is .....

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as a revenue loss in view of the judgment of Supreme Court in the case of Woodward Governor India (P) Ltd. in [2009 (4) TMI 4 - SUPREME COURT]. Accordingly, this ground of assessee is allowed - TDS u/s 195 - Disallowance u/s.40(a)(i)- commission paid without deducting TDS - Held that:- A similar issue came for consideration before this Tribunal in assessee's own case for assessment year 2008-09 as held that the non-resident agent did not provide technical services for the purposes of runnin .....

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fter completion of the contract. On the date of the bills, no enforceable liability had accrued or arisen. When the assessee had no right to receive the money by virtue of the contract between the parties and the assessee also had no right to enforce payment, it could not be said that the right to receive payment of the remaining 10 per cent of the value of job had accrued - Decided in favour of assessee - Addition made towards forfeited trade advances - Held that:- CIT(A) deleted the additi .....

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his cross appeal is filed by the Assessee in ITA No.2403/Mds./14 & the Revenue in ITA No.2385/Mds/14 are directed against the order of the Learned Commissioner of Income Tax(A)-III, Chennai dated 27.06.2014 pertaining to the assessment year 2008-09. The other appeal of the assessee in ITA No.1480/Mds./2014 is directed against the order of Learned Commissioner of Income Tax(A)- III, Chennai dated 12.03.14 pertaining for assessment year 2006-07 and another appeal of the assessee in ITA No.807/ .....

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rd to sustenance of disallowance of the claim for deduction of ₹ 27,62,934/- being the provision for warranty quantified at 2% of the total sales in the computation of taxable total income without assigning proper reasons and justification. 3. The facts of the issue are that the AO disallowed the provision for warranty amounting to ₹ 27,62,934/- as it is not an allowable expenditure, relying on the decision of the Hon ble jurisdictional High Court in the case CIT Vs. Rotark Controls .....

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CIT in (2000) 245 ITR 428(SC) wherein the Apex Court laid down certain important guidelines with regard to provisions for warranty to be allowed as a business expenditure. The gist of the guidelines is as follows:- a provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past even; (b) it is probable that an outflow of resources will be required to settle the obl .....

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the ld. Assessing Officer. Against this, the assessee is in appeal before us. 4. Before us, ld.A.R submitted that on the basis of past experience, the assessee provided 2% of total sales as a provision for warranty and the same was written back in two equal installments, while the expenditure incurred for such warranty related items are written off as expenses in the years of incidence and he placed reliance in the judgement of Supreme Court in the case of M/s.Rotork Controls India Ltd. in 314 .....

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und to explain the basis on which it was provided in the books of accounts of the assessee. Accordingly, the issue in dispute is remitted to the file of ld. Assessing Officer for fresh consideration. 5.1. In the result, the appeal No.1480/Mds/2014 is partly allowed for statistical purposes. ITA No.2403/Mds./14(Assessee s appeal) & 2385/Mds./2014(Revenue s appeal) for A.Y 2008-09 These are cross appeals. First we take Assessee s appeal. 6. In assessee s appeal, Ground Nos.2 to 4 is with regar .....

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ny has chosen to keep a portion of the receipt of export in EEFC account based on RBI guidelines. Aggrieved, the assessee carried the appeal before the Ld.CIT(A). Before Ld.CIT(A), the assessee submitted that the assessee company maintained accounts regularly on mercantile system and following accounting standards prescribed by ICAI, on account of fluctuation in the rate of foreign exchange as on the date of balance sheet was an item of expenditure u/s.37(1) of the Act, notwithstanding that the .....

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rtain important factors to be taken into account on account of fluctuation in foreign exchange currency rates. The Ld.CIT(A) observed that the facts of the present case are completely different from the facts in the case referred to above. According to Ld.CIT(A), in this case the assessee has not been able to prove that the factors mentioned by the Apex court in the case of Woodward Governor India (P) Ltd., had been adhered to by the assessee in its case. The facts of the assessee s case is that .....

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of Woodward Governor India (P) Ltd. in [2009] 312 ITR 254(SC). Accordingly, this ground of assessee is allowed 9.1. In the result, the appeal in 2403/Mds.2014 is partly allowed. Revenue s Appeal 10. The first issue in Revenue s appeal is with regard to deletion of disallowance of ₹ 13,65,327/- u/s.40(a)(i) of the Act in respect of commission paid to M/s.Tricel Ltd, without deducting TDS. 10.1. The facts of the issue are that the AO found that the assessee made payments to a foreign agent a .....

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d the appeal before the Ld.CIT(A). On appeal, the Ld.CIT(A) observed that the same issue was decided in favour of assessee in assessee's own case for assessment year 2009-10 by CIT(A)-1, Madurai and Ld.CIT(A) following the decision taken on this issue in the above CIT(A) s order, Ld.CIT(A) directed the AO to delete the addition made u/s.40(a)(i) of the Act. Against this, the Revenue is in appeal before us. 10.2. We have heard both the parties and perused the material on record. A similar iss .....

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al High Court in the case of CIT Vs. Faizan Shoes Pvt Ltd. [2014} 367 ITR 155, wherein by dismissing the appeal of the Revenue, the Hon ble High Court has held as under:- Held, dismissing the appeal, that on a reading of section 9(1)(vii), commission paid by the assessee to the non-resident agents would not come under the term fees for technical services . For procuring orders for leather business from overseas buyers, wholesalers or retailers, as the case may be, the non-resident agent was paid .....

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esident agent did not provide technical services for the purposes of running of the business of the assessee in India. Therefore, the commission paid to the nonresident agents would not fall within the definition of fees for technical services and the assessee was not liable to deduct tax at source on payment of commission. 28. Respectfully following the above judgement of the Hon ble Jurisdictional High court cited supar, the ground raised by the Revenue is dismissed. In view of the order of th .....

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by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). On appeal, the Ld.CIT(A) observed that the same issue was decided in favour of assessee in assessee's own case for assessment year 2009-10 by CIT(A)-1, Madurai and Ld.CIT(A) following the decision taken on this issue in the above CIT(A) s order, Ld.CIT(A) directed the AO to delete the addition of ₹ 53,62,227/-. Against this, the Revenue is in appeal before us. 11.2 After hearing both the parti .....

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ould not be said that the right to receive payment of the remaining 10 per cent of the value of job had accrued. Accordingly, this ground of Revenue stands dismissed. 11.3 In the result, the appeal of Revenue in ITA No.2385/Mds./2014 is dismissed. ITA No.807/Mds./2013 (Revenue s appeal) (A.Y 2009-10) 12. The first issue in Revenue s appeal is with regard to deletion of disallowance u/s.40(a)(i) of the Act in respect of commission paid to M/s.Tricel Ltd., and M/s.English Boiler, without deducting .....

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arlier the same issue in para -11 of this order in ITA No.2385/Mds./2014, this issue is squarely covered in favour of the assessee by the decision of the Madras High Court in the case of CIT vs East Coast Constructions and Ind. Ltd, 283 ITR 297(Mad.). Accordingly, this ground of Revenue stands dismissed. 14. The last issue is with regard to deletion of addition of ₹ 50 lakhs made towards forfeited trade advances. 14.1 The facts of the issue are that the AO found that unsecured loans also i .....

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ion of ₹ 50lakhs towards forfeited trade advances. Aggrieved, the assessee carried the appeal before the Ld.CIT(A). 14.2 During the appellate proceedings before Ld.CIT(A), ld.A.R explained that the said advance (credit balance of ₹ 50 lakh) was already brought to taxation by means of write back by way of credit to administrative expenses, defraying the amount of ₹ 30 lakhs from office maintenance -General and ₹ 20 lakhs from Draughtsman Service Charges .The ld.A.R submitt .....

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