TMI Blog2014 (8) TMI 1159X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Disallowance of deduction as business expenditure - amount given as donation to the Red Cross society - Held that:- From the details of the donation given at page no.14 of the paper book, it is seen that the major amount of ₹ 42,320/- is donation to the Red Cross society, and therefore, claimed as business expenditure. The aforesaid submission of the assessee has not been controverted by the Revenue by bringing any material on record. We, therefore, are of the view that same needs to be allowed. With respect to other donations, considering meagerness/smallness of the amounts, aggregating to ₹ 3900/-, and considering the peculiar facts of the case we consider that the same be allowed. Thus, we allow this ground of the appeal of the assessee. Adjustment in respect of international transaction of royalty payment - Held that:- As only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with ex-factory sale value, without deducting various expenses, such as dealer commission, special commission, warranty etc., as has been noted by the learned CIT(A) at page no.4 of his order, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable; it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. This being so in the case of assessee, we are not inclined to take a different view on this issue, and accordingly, this ground of the CO of the assessee is allowed. Addition u/s 40(a)(ia) - Pursuance of the provisio to section 40(a)(ia) as amended retrospective with effect from 1.4.2005 by the Finance Act, 2008 - Held that:- We find that this claim of the assessee for further deduction was not before the CIT(A) or the AO, before passing their respective orders. Therefore, we deem it fit to send this issue to the file of the AO for considering admissibility or otherwise of the claim of the assessee as per the law. The assessee shall furnish all the details, as required by the AO for determination of the claim of the assessee, and accordingly, this ground of the CO of the assessee is allowed for statistical purpose. - ITA No.182/Ahd/2011, ITA No.216/Ahd/2011, ITA No.1136/Ahd/2011 With CO No.148/Ahd/2011 - - - Dated:- 27-8-2014 - SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER) For The Revenue : Shri V.K. Singh, Sr DR For The Assessee : Shri S.N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n off were Earnest Money Deposit ( EMD for short) paid in respect of submission of tenders for supply of ACs., and since the said deposits were not received back, an amount of ₹ 14,83,037/- was written off and claimed as business loss. With regard to balance written off aggregating to ₹ 30,48,835/-, the assessee submitted the reasons like party not traceable, company s efforts to recover failed, there was a dispute with customer etc. The submissions of the assessee were not found acceptable to the AO. The AO was of the view that the assessee has not justified as to how the debt has become bad, and had also not mentioned about recovery measures taken by the assessee against the parties. He was, therefore, of the view that it could not be said that the debt has become actually bad, and therefore, the same were not allowable under section 36(1)(vii) of the Act. He further placing reliance on the decision of the Hon ble Gujarat High Court in the case of Dhall Enterprises and Engineers P. Ltd. Vs. CIT, 207 CTR 729, disallowed advances written off of ₹ 14,83,037/-, balances written of ₹ 30,48,835/- and bad debts written off of ₹ 42,51,367/- aggregating to & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggrieved by the order of the CIT(A), the assessee is now in appeal before us. Before us, the learned counsel for the assessee reiterated submissions made before the CIT(A). With respect to advances written off amounting to ₹ 14,83,037/-, he submitted that in the business of the assessee, it is the business practice to give advances to the parties to supply ACs, which was in the nature of earnest money in respect of tenders, and it is a necessary business custom which cannot be foregone. He further relied on the decisions in the case of CIT Vs. Abdul Razak Co., (1982) 136 ITR 825 (Guj), in the case of Commonwealth Trust (India) Ltd. Vs. CIT, (2000) 242 ITR 593 and Commissioner of Income-tax v. Triveni Engineering and Industries Ltd., 343 ITR 245. He also pointed out the list of advances placed at page no.48 and 49 of the paper book, in support of his contention that the deposits were towards EMD. With respect to debit balances written off amounting to ₹ 30,48,835/-, he submitted that the same was paid for expenses against which invoices were not received, and was also on account of wrong accounting. He also pointed out to list of details of balances written off placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of income. Hence payments by way of donations are not allowable as deduction from the business income. In the case of Malayala Manorma Co. Ltd., Reported in (2006) 150 Taxmann 505 (Ker) he Hon ble Kerala High Court has held that contribution made to the trust for rehabilitation of earth quake victims was not expenditure laid out wholly, necessarily and exclusively for the purpose of business and was not allowable as deduction. In view of the above the AO was justified in disallowing the donation made of ₹ 46,247/-. The same is confirmed. 8. Aggrieved by the order of the CIT(A), the assessee is now in appeal before us. Before us, the learned AR submitted and pointed out to the break-up of the donation of ₹ 46,247/- at page no.14 of the paper book. From the details, he submitted that major amount of ₹ 42,320/- was paid to Red Cross Society and was given to the society to comply with the social responsibility towards society and was not in the nature of donation. With respect to other donations listed out at page no.14of the PB, he submitted that the payments were made on account of business expediency and social responsibility, and hence allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted the addition made. Since the facts are similar for this year, after considering the order of the Addl.CIT, as also submissions/evidences filed and following the order of CIT(A)-VIII for A.Y.2004-05, the disallowance made for ₹ 16,64,667/- being adjustment on account of international transaction is directed to be deleted. 14. Aggrieved by the order of the CIT(A), the Revenue is now in appeal before us. Before us, at the outset, the learned AR submitted that similar disallowance was made in A.Y.2004-05 and in appeal, the Hon ble ITAT, Ahmedabad Bench in ITA No.2363/Ahd/2008 order dated 24.9.2013 has deleted the disallowance made by the AO. He placed on record copy of the aforesaid order and pointed to para 51 at page no.28 of the order. He further submitted that since the facts of the case in the year under appeal are identical to that of earlier years, the order of the CIT(A) be upheld. The learned DR, on the other hand relied on the order of the AO. 15. We have considered rival submissions and perused the material available on record. We find that the CIT(A) while deleting the addition has noted that facts of the case of the assessee in this year are identical t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/-. The assessee was asked to show cause as to why the same should not be disallowed being provision. The assessee, inter alia , submitted that non-moving items included the inventory, which were lying for long time in the stock, and were valued at cost or market value, whichever is less , which is as per the method of valuation regularly followed by the assessee-company. It was further submitted that the items of inventory have become obsolete and the value of stock was reduced below its cost, and therefore, considering the reduction in market value of inventory, a provision was made. The submission of the assessee was not found acceptable to the AO, as he was of the view that the provision made by the assessee was not for any ascertained liability but has made the provision for slow moving/obsolete stock and that the provision was contingent in nature. He accordingly, disallowed the claim of the assessee. 18. Aggrieved by the order of the AO, the assessee carried the matter before the CIT(A). The CIT(A), following order of his predecessor for A.Y.2004-05, deleted the addition by holding as under: 5. On identical issue appeal has been decided by the CIT(A)-VIII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensure that all the details and evidences are obtained and are examined by the AO and only thereafter, deduction is to be allowed, if the assessee is able to establish before the AO that such write off in respect of provision for obsolescence of inventory claimed by the assessee is in line with the accepted method of valuation of stock, i.e. at cost or market price, whichever is lower. Hence, this ground no. 4 of the Revenue is also rejected. 21. Since the facts in the year under appeal are identical to earlier years as claimed by both the parties, we find no reason to interfere with the order of the CIT(A) on this issue, and thus, this ground of the Revenue is also dismissed. 22. The ground no.3 of the Revenue s appeal is with regard to deletion of disallowance on account of warranty expenses of ₹ 1,55,65,120/- . 23. During the course of assessment proceedings, the AO noticed that the assessee has debited sales and warranty commission amounting to ₹ 6,40,41,310/- which included five years warranty provision on compressors amounting to ₹ 76,12,205/- and the warranty expenses amounting to ₹ 5,61,70,715/-. The AO noticed that the warranty for AC wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd., (supra) set aside and restored the issue back to the file of the ld. CIT(A) to decide the same afresh. The relevant portion of the above ITAT order is reproduced below: 5. Regarding ground no.2, we find that this issue was decided by the ld.CIT(A) on this basis that this issue is covered in favour of the assessee by the decision of the Bangalore Bench of the Tribunal rendered in the case of IBM India Ltd. Vs. CIT, 290 ITR 183 (AT) (Bang). By now, this issue is also covered by the judgment of the Hon ble Apex Court rendered in the case of Rotork Controls India P. Ltd v. Commissioner of Income-tax, 314 ITR 62 (SC). As per these judgments of the Hon ble Apex Court rendered in the case of Rotork Controls India P. Ltd (supra), it was held that the provision made for incurring warranty expenses is allowable on provision basis also, if such provision is made by the assessee on some scientific basis. Before us, the assessee has not furnished details regarding the basis of this provision. As per the judgment of the Hon ble Apex Court, it was held that the assessee-company should scrutinise the historical trend of warranty provision made and the actual expenses incurred agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , without properly appreciating the facts of the case and the material brought on record by the AO. 3 . The ld. CIT(A) has erred in law and on facts in disallowance of warranty expenses of ₹ 1,55,65,120/- made by the AO without properly appreciating the facts of the case and the material brought on record by the AO. 31. Both the parties before us submitted that the above three issues are similar to issues raised in the appeal of the Revenue in ITA No.182/Ahd/2011 for A.Y.2005-2006, and therefore, the above grounds may be decided accordingly. 32. After hearing the parties, we find that grounds raised in this appeal are identical to the grounds raised in the appeal of the Revenue for A.Y.2005-2006, and for the reasons recorded in the appeal of the Revenue in ITA No.182/Ahd/2011 for A.Y.2005-2006 in the foregoing paras of this order, we decide the issue accordingly. 33. In the result, the appeal of the Revenue in ITA No.1136/Ahd/2011 for A.Y.2006-2007 is partly allowed for statistical purpose. CO No.148/Ahd/2011 (A.Y.2006-2007 : Assessee s CO) 34. The first ground of the CO of the assessee is as under: 1. On the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, this ground of the CO of the assessee is allowed. 38. The ground no.2 of the CO of the assessee is as under: 2. On the facts and in the circumstances of the case, this Hon ble Tribunal may be pleased o direct the AO to process and consider on merits the assessee s claim made in its letter dated 16.2.2011 addressed to the AO for claiming further deduction ₹ 1,21,39,516 in pursuance of the provisio to section 40(a)(ia) as amended retrospective with effect from 1.4.2005 by the Finance Act, 2008. 39. The assessee in its written submissions stated that as per the proviso to section 40(a)(ia) the assessee claimed deduction of ₹ 7,26,31,338/- in the return for A.Y.2006-07 for the sums of expenditure pertaining to A.Y.2005-06 on which TDS was effected and paid during the time available for A.Y.2006-07. Thus, out of disallowance effected a sum of ₹ 9,09,94,234/- during A.Y.2005-06 a sum of ₹ 7,26,31,338/- was claimed as deduction in A.Y.2006-07. It is submitted that actually there was a further sum of ₹ 1,21,39,516 which had become deductible but could not be claimed during the assessment proceedings before the AO. However, the claim for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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