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2011 (3) TMI 1012 - AT - Income TaxDis-allowance u/s 14A by treating them as having been incurred for earning tax-free dividend - Held that - assessee has demonstrated that there were no expenses incurred in making investment in shares which yielded the tax free dividend income. In A.Y. 2004-05 on identical facts this Tribunal has already held that no dis-allowance u/s 14A is called for. Hence dis-allowance made by the AO should be deleted - Decided in favor of assessee Dis-allowance of provision for warranty - Held that - Supreme Court in the case of Rotork Controls India Pvt. Ltd. (2009 - TMI - 33420 - SUPREME COURT OF INDIA - Income Tax) held that in a case where there was warranty obligation such obligation was part of the sale price and stood attached to the sale price of the product. Warranty obligation is a present obligation as a result past events resulting in an out flow of resources and a reliable estimate could be made of the amount of obligation. If it is so made it is a liability allowable as deduction u/s 37. Accordingly the deduction claimed by the assessee be allowed Transfer of Lifts Field Operations undertaking - appellant prays that in the absence of ascertainable cost of acquisition / cost of improvement of the undertaking the machinery for computation of capital gain fails and therefore capital gains are not chargeable at all - sale or exchange - Held that - In present case transfer of the undertaking by the assessee consequent to scheme of arrangement approved by Hon ble Bombay High Court cannot said to be a sale of undertaking by the assessee. Therefore we hold that computation provisions fail in the present case and consequently there can be no capital gain that could be brought to tax Addition - adjustment in the value of stock u/s. 145A by including the unutilized Cenvat credit in closing stock of raw materials - assessee has valued its inventory exclusive of taxes duties etc. paid or incurred on such closing stock - Held that - Assessee has also not claimed deduction on account of excise duty on closing stock. Thus the assessee had duly given effect to the provisions of section 145A as well as the provisions section 43B. We accordingly direct that the addition made be deleted. Addition of income under various heads such as technical services interest dividend as per AIR - AO based on the AIR database noticed that income tax on aforesaid has been deducted at source by the person making payment to the assessee but the assessee has not offered such receipts to tax - Held that - Issue is remanded back for fresh consideration by the AO in the light of the reconciliation provided by the assessee.
Issues Involved:
1. Disallowance of expenses under section 14A. 2. Disallowance of provision for warranty. 3. Transfer of Lift Division and its liability for Capital Gains. 4. Denial of Indexation benefits. 5. Adjustment in the value of stock under section 145A. 6. Addition as "Income as per AIR not reconciled." 7. Addition of income under various heads as per AIR. Detailed Analysis: 1. Disallowance of Expenses under Section 14A: The assessee, a company engaged in various manufacturing and marketing activities, earned tax-free dividend income. The AO disallowed Rs. 12,89,000/- under section 14A, attributing it to expenses incurred for earning the dividend. The CIT(A) directed the AO to apply Rule 8D for computing the disallowance. The Tribunal found that no expenses were incurred for earning the dividend, referencing a similar decision in A.Y. 2004-05. Consequently, the disallowance was deleted, and Ground No.1 was allowed. 2. Disallowance of Provision for Warranty: The assessee made a provision for warranty amounting to Rs. 78,91,000/-, which was disallowed by the AO as a contingent liability. The CIT(A) upheld this view. The Tribunal, referencing the Supreme Court decision in Rotork Controls India Pvt. Ltd. vs. CIT, held that a properly estimated provision for warranty is an allowable deduction under section 37. The Tribunal found the assessee's estimate reasonable, thus allowing the deduction and Ground No.2. 3. Transfer of Lift Division and Liability for Capital Gains: The assessee transferred its Lift Division to another company under a court-approved scheme, receiving preference shares and bonds in return. The AO treated this as a slump sale under section 50B, computing capital gains. The Tribunal, analyzing the nature of the transaction, concluded it was an exchange, not a sale, and thus not a slump sale under section 2(42C). Consequently, the provisions of section 50B were not applicable. The Tribunal held that the computation provisions failed, and no capital gains could be brought to tax, allowing Ground No.3. Ground No.4, being an alternate plea, did not require adjudication. 4. Denial of Indexation Benefits: Since the Tribunal concluded that the transaction was not a slump sale, the issue of indexation benefits under Ground No.4 was not adjudicated. 5. Adjustment in the Value of Stock under Section 145A: The AO adjusted the closing stock value by Rs. 20,92,601/- under section 145A, including unutilized Cenvat credit. The Tribunal found that the assessee had already given effect to section 145A in its tax audit report, and the AO's adjustment was incorrect. The addition was deleted, and Ground No.5 was allowed. 6. Addition as "Income as per AIR not Reconciled": The AO made an addition of Rs. 4,36,700/- based on AIR data without providing a basis or giving the assessee an opportunity to explain. The Tribunal set aside the CIT(A)'s order and directed the AO to furnish the basis for the addition and allow the assessee to explain the discrepancy. Ground No.6 was remanded for fresh consideration. 7. Addition of Income under Various Heads as per AIR: The AO added Rs. 17,15,222/- based on AIR data, ignoring the assessee's reconciliation for Rs. 12,27,826/-. The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO for fresh consideration, directing him to consider the reconciliation provided by the assessee. Ground No.7 was remanded for fresh consideration. Conclusion: The Tribunal allowed the appeal of the assessee partly, addressing each issue comprehensively and providing directions for fresh consideration where necessary.
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