2011 (7) TMI 1230 - AT - Income Tax

Summary

Issues involved: Disallowance of expenses u/s 14A of Act, disallowance of provision for warranty, treatment of capital expenditure as revenue expenses, addition made u/s 145A of the Act.

Disallowance of expenses u/s 14A of Act:
The Appellant, engaged in manufacturing of transformers, contested the disallowance of expenses amounting to &8377; 7,74,000/- u/s 14A of the Act. The AO had disallowed the amount, which was confirmed by the CIT(A). However, the Tribunal referred to a previous decision in the Appellant's own case for AY 2005-06 and ruled in favor of the Appellant, directing the deletion of the disallowance.

Disallowance of provision for warranty:
The Appellant debited &8377; 60,50,000/- for anticipated warranty liabilities in its accounts. The AO disallowed the claim, but the CIT(A) allowed it based on the decision of the Hon'ble Supreme Court in Rotork Controls India Pvt. Ltd. The Tribunal upheld the CIT(A)'s decision, citing similar grounds from AY 2005-06 and allowing the provision for warranty claim.

Treatment of capital expenditure as revenue expenses:
The Appellant paid a premium for leasing a factory land and claimed &8377; 12,600/- as leasehold land written off. The AO treated it as capital expenditure, but the CIT(A) considered it as revenue expenses following the judgment in Madras Industrial Investment Corporation case. The Tribunal remitted the matter back to the AO for further examination.

Addition made u/s 145A of the Act:
The AO made an addition of &8377; 1,59,67,649/- u/s 145A of the Act, which was later deleted by the CIT(A) based on the exclusive method of accounting followed by the assessee. The Tribunal upheld the CIT(A)'s decision, referring to a previous judgment in the Appellant's own case for AY 2005-06 and confirming the deletion of the addition made u/s 145 of the Act.

In conclusion, the Tribunal ruled in favor of the Appellant for the disallowance of expenses u/s 14A and provision for warranty, remitted the treatment of capital expenditure back to the AO for further examination, and confirmed the deletion of the addition made u/s 145A of the Act.