TMI Blog2016 (6) TMI 1463X X X X Extracts X X X X X X X X Extracts X X X X ..... im of expenditure being consistent with the method of accounting followed and the provision has been made on concluded transactions, the order of the Assessing Officer is held to be incorrect. We do not see any reason to differ from this view, which is in accordance with Section 145 of the Act. Deduction u/s 80HHE - HELD THAT:- When no claim for deduction under Sec. 80HHE of the Act was made by the assessee, the issue for consideration thereof was an academic exercise. CIT(A) as well as the Tribunal ought not to have made any further observations thereafter, for giving treatment for the computation of the deduction under Sec. 80HHE. The observations can be said on hypothesis and surmises. CIT (A) as well as the Tribunal could observe for consideration of the claim of deduction u/s 80HHE in accordance with law. Under the circumstances, we find that the observations made by the CIT (A) as well as the Tribunal for the deduction under Sec. 80HHE deserves to be expunged by observing to the extent that the claim, if any, can be made by the assessee for deduction under Sec. 80HHE is to be considered in accordance with law. Hence, to that extent, the order of the Tribunal is set as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales made through franchises. However, learned counsel appearing for the assessee would contend that Appellate Commissioner deleted the allocation of expenses made by the Assessing Officer based on the order of ITAT in the very same assessee s case reported in 81 TTJ 455 and the decision of the Apex Court in Indo Nipan Limited s case (261 ITR 775 ). It is noticed that over 5.6% of the sales is made through franchises, however, the assessee adopted sales as basis for allocation. The sale made through the franchises stands on a different footing than the sale made directly by the assessee company. In the case of sale made through franchise, no effort is involved by the assessee except getting commission whereas the direct sales made by the assessee requires much more efforts and obviously the expenditure of the nature of consumables, salary and benefits etc., are incurred. It is also significant to observe that the Assessing Officer has not disturbed the method adopted by the assessee for the purpose of allocation of expenses in the trading turnover. What the Assessing Officer has done is removing the value of Franchise sales from the total sales as the Franchise sales are dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observations made, after giving opportunity of hearing to the assessee. All contentions are left open to the parties. 6. The aforesaid would now lead us to examine question (b). We may record that the relevant discussion of the A.O. to the aforesaid question are at para 4.1 in the order of the assessment, which reads as under : 4.1 It is seen that the assessee had written off obsolete stock to the extent of ₹ 1,18,69,458/-. The details regarding the items, date of purchase, etc. was called for vide Q.No.3 of this office letter dated 6.7.2006. The assessee vide letter dated 29.11.2006 has furnished the details of the break up of obsolete stock written off. In the letter, the assessee has stated that the stock has been written off as obsolete due to technological changes and lack of market for the products. The assessee s reply has been examined. The assessee has not furnished the date of purchase of the stock and also how these stocks became obsolete due to technological change. In the absence of date of purchase of these stock, it is not possible to come to a conclusion whether the particular stock has become obsolete due to technological change or lack of market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, demand for the products, changes in technologies, etc., The write off of stock has been done on the advice of the technical team and audit team shows that experts opinion has been taken before the same is written off. It is also a fact that the obsolete stock written off when compared with the turnover of the company is very negligible and miniscule. Accordingly, we uphold the order of the Id. CIT(A) on this issue and dismiss the grounds. 9. If the question is examined in the light of the above discussion of the earlier authority, one may say that whether the stock has become obsolete or not, is a question of fact for which the Tribunal is the ultimate fact finding authority. 10. However, Mr. Aravind, the learned Counsel appearing for the appellants, contended that A.O. during the course of enquiry, called for the date of purchase of the stock which was declared as obsolete, but the assessee having failed to submit the document, the A.O. was within his power to disallow the writing off of the obsolete stock. He submitted that neither the CIT(A) nor the Tribunal appreciated the said aspect, and therefore, the discussion made by the A.O. ought to have been maintained. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of this, the Tribunal rejected the Revenue s appeal. 4 .Considering the aforesaid, we find that the decision of the Tribunal turns entirely on facts and no substantial question of law arises for our consideration. 13. Under these circumstances, question (a) is already answered earlier and question (b) is not required to be answered. The appeal shall stand disposed of accordingly. ITA 890/2008 : 14. The present appeal preferred by the Revenue has been admitted on the following four questions vide order dated 21-06-2010 : i) Whether the Appellate Authorities were correct in holding that the provision in respect of a percentage of sale to account for various expenses transferred to a separate account is an allowable expenditure even though the same is a contingent liability which has not accrued? ii) Whether the Appellate Authorities were correct in holding that a provision for reserves for warranty is an allowable expenditure even though it is a contingent liability? iii) Whether the Appellate Authorities were correct in holding that allocation of expenditure as worked out by the assessee on account of consumables, salary etc. on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise should have a present obligation as a result of past event. b) it is probable that an outflow of resources will be required to settle the obligation. c) a reliable estimate can be made out of the amount of obligation. He would contend that only if these three tests laid down by the Apex Court are satisfied by the assessee, provision made relating to the percentage of sale to account for various expenses transferred to a separate account, whether is an allowable expenditure or not, would be ascertained though the same is a contingent liability which has not accrued. None of the authorities below have examined this issue in the light of the Judgment pronounced by the Apex Court in Rotork Controls Case (supra). No finding is forth coming from the records that the assessee has satisfied the three conditions laid down by the Apex Court to claim the benefit of a provision. In such circumstances, he requests this Court to remand the matter back to the assessing officer so as to enable him to examine the case of the assessee in the light of the tests laid down by the Apex Court in Rotork Controls Case (supra). 5. On the other hand Smt. Anuradha, learned counsel appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer to examine the issue in the light of the Judgment of the Apex Court in Rotork Controls Case (supra). 8. Learned Counsel Smt. Anuradha, appearing for the assessee would contend that this issue is covered in favour of the assessee in assessee s own case by the order of this Court in ITA 438-444/12, affirmed by the Hon ble Supreme Court in Rotork Controls Case(supra), in none of these cases remand is made. 9. After considering the rival submissions of the learned counsel for the parties on this issue, we are of the view that this issue is similar to that of Question No.1. In view of the observations made in Question No.1, we are not inclined to remit the matter back to the Assessing Officer on this issue more particularly, this issue being covered by the Judgment of the Co-ordinate Bench of this Court in the very same assessee s case reported in 270 ITR 259 and 278 ITR 337 confirmed by the Apex Court in Rotork Controls Case (supra). 19. In view of the aforesaid decision of a Division Bench of this Court, we need not further discuss the matter, more particularly, when the learned Counsel appearing for both the sides are in agreement that question Nos. 1 and 2 in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of allocation of expenses in the trading turnover. What the Assessing Officer has done is removing the value of Franchise sales from the total sales as the Franchise sales are different from direct sales. This methodology adopted by the Assessing Officer is not properly considered by the CIT and ITAT. CIT was of the view that the course adopted by the Assessing Officer in allocating the expenses amounts to prescribing a new method of estimation based on the Proportionate turnover contrary to the method of accounting regularly followed by the assessee and accepted by the department in earlier years. This view is confirmed by the ITAT placing reliance on the Judgment of the Apex Court in Indo Nippan s case (supra). The Apex Court in Indo Nippan s case has held that whatever method the Assessing Officer adopts, the method has to be consistent with the accepted principles of accountancy. 18. In the present case, what the Assessing Officer has done is to delete the value of franchise sales from total expenses. No method of accountancy adopted by the assessee is disturbed. The course adopted by the Assessing Officer to delete the franchise sales is based on the reasoning that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustments as per Transfer Pricing Officer s order and other additions / disallowances made, the loss have been converted into profit and accordingly the deduction u/s.80HHE is computed as per Annexure III. While computing the deduction u/s. 80HHE, the expenditure incurred in foreign currency in providing technical services has been excluded from the export turnover and total turnover. Similarly, expenditure on freight, telecommunication charges and insurance attributable to delivery of computer software outside India is also excluded from the total turnover and export turnover. However, the assessee has declared a loss of ₹ 101,94,16,673/-. After making the disallowance discussed u/s.80HHE is not allowed. The adjustments proposed by the TPO of ₹ 114 crores is not considered for computing the business income for the purpose of deductions u/s. 80HHE as per the proviso to sec.92C(4) of the Act. 23. The aforesaid shows that CIT (A) did find the issue as academic, since assessee did not claim deduction under Sec. 80HHE, but the CIT (A) did not end there and further observed that in the event any claim is made, the decision of the Tribunal in respect of the assesses own ..... X X X X Extracts X X X X X X X X Extracts X X X X
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