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2012 (7) TMI 124 - AT - Income TaxProvision for Warranty - dis-allowance - AY 06-07 - Held that - Issue is now covered in favour of the assessee by the judgment in the case of Rotork Controls (India) Ltd (2009 (5) TMI 16 (SC)). It is undisputed that method of accounting adopted by the assessee for this year regarding making provision in respect of warranty expenses is consistently followed by the assessee in the subsequent years - Decided in favor of assessee. Dis-allowance u/s 14A read with Rule 8D of interest expenditure and administrative expenses - Held that - Since no interest bearing borrowed funds were used for investment in shares and, therefore, no dis-allowance is called for out of the interest expenditure. However, dis-allowance of ₹ 50,000/- out of administrative expenses will meet the ends of justice. Export commission - dis-allowance - failure of assessee to furnish evidence regarding actual rendering of any services by the agent - Held that - It is undisputed that export sales have been made during the year. In view of additional evidences produced by assessee, it is found that sufficient material has been brought on record in support of this contention that services were rendered by the agent. Once it is found that the services were rendered and commissions is paid, the same should be allowed as business expenses - Decided in favor of assessee.
Issues Involved:
1. Disallowance of warranty provision for the assessment year 2005-06. 2. Disallowance of warranty provision for the assessment year 2006-07. 3. Disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D for the assessment year 2006-07. 4. Disallowance of export commission for the assessment year 2006-07. Issue-wise Detailed Analysis: 1. Disallowance of Warranty Provision for the Assessment Year 2005-06: The revenue appealed against the deletion of the addition of Rs. 48,61,158/- by the CIT(A), which was disallowed by the Assessing Officer (A.O.) as a warranty provision, deemed a contingent liability by the auditor. The CIT(A) followed the judgment of the Hon'ble Apex Court in the case of Rotork Controls (India) Ltd. Vs CIT. The Tribunal had previously restored the matter to the CIT(A) for a fresh decision in light of this judgment. The CIT(A) examined all details and decided in favor of the assessee, finding the provision reasonable and consistently followed in subsequent years. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. 2. Disallowance of Warranty Provision for the Assessment Year 2006-07: The issue raised by the revenue for this year was identical to the one for the assessment year 2005-06. Both parties agreed that the matter could be decided on similar lines. The Tribunal found no reason to interfere with the CIT(A)'s order, thus dismissing the revenue's appeal for this year as well. 3. Disallowance under Section 14A read with Rule 8D for the Assessment Year 2006-07: The assessee appealed against the disallowance of Rs. 4,54,220/- under Section 14A read with Rule 8D. The assessee argued that Rule 8D is prospective and applicable from the assessment year 2008-09 onwards, as per the judgment of the Hon'ble Bombay High Court in Godrej & Boyce Manufacturing Pvt. Ltd. Vs DCIT. The assessee had substantial own funds, and no interest-bearing borrowed funds were used for investment in shares. The Tribunal agreed that no disallowance was warranted for interest expenditure but felt that a disallowance of Rs. 50,000/- out of administrative expenses would meet the ends of justice, partly allowing this ground. 4. Disallowance of Export Commission for the Assessment Year 2006-07: The assessee appealed against the disallowance of Rs. 1,09,16,495/- paid as export commission to four parties. The A.O. disallowed the commission, citing lack of evidence for services rendered and the bifurcation of commission among four agents without a basis. The assessee submitted additional evidence indicating correspondence with the agent, M/s. Marfatia & Co., proving services rendered. The Tribunal admitted the additional evidence and found the assessee's explanation reasonable. The Tribunal concluded that the commission was paid for services rendered, thus deleting the disallowance and allowing this ground. Conclusion: The Tribunal dismissed both appeals of the revenue for the assessment years 2005-06 and 2006-07. The assessee's appeal for the assessment year 2006-07 was partly allowed. The Tribunal pronounced the order in the open court.
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