TMI Blog2016 (1) TMI 1372X X X X Extracts X X X X X X X X Extracts X X X X ..... ng deduction on account of provision for warranty requires verification and since the same has not been done either by the Assessing Officer or by the ld. CIT(Appeals), the matter may be restored to the file of the Assessing Officer for the limited purpose of such verification. We find merit in this contention of the ld. D.R. and since the ld. Counsel for the assessee has also not raised any objection in this regard, we restore this issue to the file of the Assessing Officer Deduction on account of arrears of electricity charges - Held that:- Assessee has invited our attention to the relevant documentary evidence placed in the paper book to show that the bills for arrears having been raised by the CESC Limited as per the order of the Hon’ble High Court in the year under consideration, the liability on account of electricity charge arrears had arisen in that year, we find that the ld. CIT(Appeals) has already directed the Assessing Officer to verify this aspect from the relevant record after giving the assessee proper and sufficient opportunity of being heard. Addition on account of liquidated damages - Held that:- There was no justification on the part of the authorities belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional. Subsequently, the Hon’ble Apex Court [2008 (9) TMI 921 - SUPREME COURT ] has stayed the operation of this judgment of the Hon’ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. UOI (supra) and therefore, the order of the ld. CIT (Appeals) by following this judgment of the Hon’ble Calcutta High Court cannot be approved. Thus we set aside this issue to the file of the AO to await the decision of Hon'ble Supreme Court and decide the issue accordingly. This issue of assessee’s cross objection appeal is remitted back to the file of AO and allowed for statistical purposes. Reducing the technical know-how fees from the "profits of the business" for the purpose of computing deduction under section 80HHC - Held that:- We irect the Assessing Officer to include the amount of technical know-how fees in the profits of the business for the purpose of computing deduction under section 80HHC as claimed by the assessee. Deduction towards additional contribution paid to Pension Fund - Held that:- We decide this issue in favour of the assessee in principle and restore the matter to the file of the Assessing Officer for the limited purpose of verifying as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Income Tax Act, the disallowance under section 40(a)(ia) on account of non-deduction of tax from the similar payment made to a non-resident could not be made as it would result in discrimination. This stand of the assessee was not found acceptable by the Assessing Officer. According to him, the limited purpose of tax treaty was to avoid double taxation only and it could not be relied upon for deciding as to whether any amount was disallowable or not. He accordingly invoked the provision of section 40(a)(i) and made a disallowance on account of royalty and consultancy fees paid by the assessee to a Japanese Entity. 5. On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer on this issue observing that the limited purpose of section 90(2) of the Act is to allow concession relating to tax rates only and, therefore, Article 24 of the relevant DTAA could not be invoked to dispute the applicability of the provision of section 40(a)(ia). 6. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. Representatives of both the sides, this issue now stands squarely covered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble Supreme Court in the case of Rotork Controls India (Pvt.) Limited -vs.- CIT reported in 314 ITR 62, wherein the Hon ble Apex Court has held that the provision of warranty is allowable as deduction if the following conditions are satisfied:- (i) An Enterprise has a present obligation as a result of past events; (ii) It is probable that an out-flow of resources will be required to settle the obligation; (iii) A reliable estimate based on historical trend can be made on account of obligation on the basis of historical trend. 10. The ld. D.R. has not raised any contention to dispute the proposition propounded by the Hon ble Supreme Court in the case of Rotork Controls India (Pvt.) Limited (supra) on this issue. He, however, has contended that the issue as to whether the assessee in the present case has satisfied the conditions laid down by the Hon ble Supreme Court for allowing deduction on account of provision for warranty requires verification and since the same has not been done either by the Assessing Officer or by the ld. CIT(Appeals), the matter may be restored to the file of the Assessing Officer for the limited purpose of such verification. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration, the liability on account of electricity charge arrears had arisen in that year, we find that the ld. CIT(Appeals) has already directed the Assessing Officer to verify this aspect from the relevant record after giving the assessee proper and sufficient opportunity of being heard and the assessee, therefore, is at liberty to produce all the relevant documents to establish its case on this aspect of the matter before the Assessing Officer. In our opinion, there is thus no infirmity in the impugned order of the ld. CIT(Appeals) on this issue warranting any interference from our side and upholding the same, we dismiss Ground No. 3. 15. The issue raised in Ground No. 4 relates to the disallowance of ₹ 1,31,37,993/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of liquidated damages. 16. In the Profit Loss Account filed along with the return of income, a sum of ₹ 2,99,17,569/- was debited by the assessee on account of liquidated damages. During the course of assessment proceedings, it was explained by the assessee that the said amount represented deductions made by the customers for non-compliance with the delivery schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls or supporting evidence could be furnished by the assessee to substantiate its claim for liquidated damages. He contended that in the absence of such details and documents, the claim of the assessee for higher liquidated damages as compared to the immediately preceding year was not fully verifiable and such higher claim was only disallowed by the Assessing Officer treating the same as excessive or unreasonable. He contended that the mere fact that there was short a recovery of dues from the customers is not sufficient to establish that there was a case of liquidated damages recovered by the concerned customers. He also contended that the claim of the assessee for liquidated damages cannot be allowed alternatively as bad debts as sought by the ld. Counsel for the assessee as the requirements for allowing deduction on account of bad debts as contained in the relevant provisions are specific. 19. We have considered the rival submissions and also perused the relevant material available on record. It is observed that there was a short recovery of dues from the customers on account of non-compliance by the assessee with delivery schedule, shortages due to transit loss, breakage due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same are accordingly dismissed as not perssed. 21. Grounds Nos. 5(c) 6 involve the issue relating to the disallowance of ₹ 69.21 lakhs and ₹ 2.05 crores made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of payment made by the assessee to Sonata Information Technology and on account of ERP expenses respectively. 22. During the year under consideration, the assessee had incurred expenditure of ₹ 2.05 crores for upgradation of ERP. A sum of ₹ 69.21 lakhs was also paid by the assessee to M/s. Sonata Information Technology for software and hardware support as well as consultancy services in connection with the implementation of the upgraded ERP. This entire expenditure incurred by the assessee for upgradation of ERP as well as implementation thereof was claimed as deduction being revenue in nature. The Assessing Officer as well as the ld. CIT(Appeals), however, treated the same as capital in nature on the ground that the same resulted in the enduring benefit to the assessee and accordingly allowed only depreciation thereon. 23. We have heard the arguments of both the sides and also perused the relevant material availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing its functions and business process in order to ensure that the business is carried on more efficiently and effectively and by applying the functional test, the expenditure incurred on ERP package, in our opinion, cannot be treated as capital expenditure as it does not result in creation of any new asset or advantage of enduring nature in the capital field. We, therefore, direct the Assessing Officer to allow the deduction claimed by the assessee on account of expenditure incurred on upgradation of ERP and implementation thereof treating the same as revenue in nature. 24. Ground No. 7 relating to the issue of Dealers incentive is not pressed by the ld. Counsel for the assessee at the time of hearing before us. The same is accordingly dismissed as not pressed. 25. The issue raised in Ground No. 8 relates to the disallowance of 1.51 crores made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of provision made by the assessee for leave encashment. 26. The assessee-Company during the year under consideration had made a provision of ₹ 1.51 crores for leave encashment on the basis of an acturial valuation and the same was claimed as deduction b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Civil Appeal of the Department is allowed. We further make it clear that the assessee would during the pendency of this Civil Appeal, pay tax as if section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns . 28. We have carefully perused the Interim Order dated 8th May, 2009 passed by the Hon ble Supreme Court in the matter. It is observed that the Hon ble Apex Court in the said order has made it clear that the assessee, during the pendency of the Civil Appeal, would pay tax as if Section 43B(f) is on the Statute Book, but at the same time, it would be entitled to make claim in its return. Keeping in view all these developments, the Coordinate Bench of this Tribunal in the case of Dy. CIT -vs.- BLA Industries Pvt. Ltd. (ITA No. 1434/KOL/2012 dated 16.01.2015) has restored the similar issue to the file of the Assessing Officer with a direction to await till the final decision of the Hon ble Supreme Court on the issue and then to decide the issue accordingly. Following the said decision of the Coordinate Bench, we restore this issue to the file of the Assessing Officer with the similar direction. Ground No. 8 is according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly allowed. 35. The issue raised in Ground No. 6 relating to the disallowance made under section 14A has not been pressed by the ld. Counsel for the assessee at the time of hearing before us. The same is accordingly dismissed as not pressed. 36. In Ground No. 7(a), the assessee has challenged the action of the ld. CIT(Appeals) in upholding the order of the Assessing Officer reducing the technical know-how fees from the profits of the business for the purpose of computing deduction under section 80HHC. 37. While computing the deduction allowable to the assessee under section 80HHC, the technical know-how fees amounting to ₹ 34,08,824/- was reduced by the Assessing Officer from the profits of the business . For this conclusion, he relied on Explanation (baa) to Section 80HHC(4B) and held that the technical know-how fees received by the assessee being in the nature of brokerage, commission, interest, rent, etc., the same was required to be reduced to the extent of 90% from the profits of the business for the purpose of computing deduction under section 80HHC. On appeal, the ld. CIT(Appeals) upheld the action of the Assessing Officer on this issue by relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 80HHC as held, inter alia, by the Hon ble Bombay High Court in the case of K.K. Doshi Co. (supra) and Kantilal Chhotelal (supra). We, therefore, direct the Assessing Officer to include the amount of technical know-how fees in the profits of the business for the purpose of computing deduction under section 80HHC as claimed by the assessee. Ground No 7(a) of the assessee s appeal for A.Y. 2004-05 is accordingly allowed. 40. Grounds No. 7(b) and 7(c) are not pressed by the ld. Counsel for the assessee. The same are accordingly dismissed as not pressed. 41. The issue involved in Ground No. 8 in asessee s appeal for A.Y. 2004-05 relates to the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of assessee s claim for deduction towards additional contribution paid to Pension Fund amounting to ₹ 914.70 lakhs. 42. After having noticed that there was a short fall in the accumulated funds for making payments of Pension to employees in future and keeping in view the falling interest rates on investment, additional contribution of ₹ 9,14,07,000/- was made by the assessee on the basis of actuarial report i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons or to the number of members of the fund; 9. We may now refer to the Fourth Schedule. Part B of the Schedule deals with the approved superannuation funds. Conditions relating to the grant of approval and the procedure therefor are set out in these, two Parts. Rule 11 of Part B provides, that in addition to any power conferred by Part B, the CBDT may make rules, inter alia, limiting the ordinary annual contribution and any other contributions to an approved superannuation fund by an employer. Rules 87 and 88 of the Income-tax Rules, 1962 ('the Rules'), are prescribed in pursuance of section 36(1)(iv). For convenient reference these rules are reproduced below: 87. Ordinary annual contributions.-The ordinary annual contribution by the employer to a fund in respect of any particular employee shall not exceed twenty-five per cent of his salary for each year as reduced by the employer's contribution, if any, to any provident fund (whether recognised or not) in respect of the same employee for that year. 88. Initial contributions.-Subject to any condition which the Board may think fit to specify under clause (iv) of sub-section (1) of section 36, the amount to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference . 44. It is manifest from the relevant portion of the order of the Tribunal passed in the case of Glaxo Smithkline Pharmaceuticals (supra) that a similar claim of the assessee for deduction on account of additional contribution paid to Pension Fund in the similar facts and circumstances has been allowed by the Tribunal after taking into consideration the relevant provisions of section 36(1)(iv) as well as the relevant Rules, i.e. Rules 87 88 of the Income Tax Rules, 1962. The ld. D.R., however, has contended that the relevant aspect as to whether the payment made by the assessee is within the limits specified in the relevant Rule or not requires verification as this aspect had not been verified by the Assessing Officer. Accordingly, we decide this issue in favour of the assessee in principle by following the decision of the Coordinate Bench of this Tribunal in the case of Glaxo Smithkline Pharmaceuticals (supra) and restore the matter to the file of the Assessing Officer for the limited purpose of verifying as to whether the amount paid by the assessee to Pension Fund is within the limits specified in the relevant Rules. Subject to this direction, Ground No. 8 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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