2014 (11) TMI 597 - AT - Income Tax

Computation of deduction u/s 80HHC Exclusion of 90% of net job charges Held that - In assessee s own case it has been held that u/s 80HHC 90% of the labour charges have to be deducted and the deductions should be on the net and not the gross - The assessee is entitled to deduction of 90% towards the labour charges on the net income and not on the gross income Decided against revenue. Allowability of provision for warranty as a deduction Held that - In assessee s own case it has been held that provisioning to be an admissible expenses, since a sensible analysis of historical trends enables a robust and reliable estimation of a present obligation which arises out of an obligating event - If such a provision is based on the past experience, containing demonstrable data of the expenses incurred by the assessee for providing warranty, then it would be an ascertained liability - FAA has rightly allowed the claim of the assessee Decided against revenue. Computation of book profits u/s 115JB Computation of Book profit for the purpose of MAT - reduction of book profit by deduction allowable u/s 80HHC (Export Benefit) - Held that - Following the decision in Ajanta Pharma Ltd. Versus Commissioner of Income Tax-9, Mumbai 2010 (9) TMI 8 - SUPREME COURT - the total amount of deduction computed u/s 80HHC is to be deducted from the book profit u/s 115JB - ultimate deduction granted to the assessee u/s 80HHC is not the amount which is to be reduced from the book profit, but the amount originally computed for deduction u/s 80HHC has to be reduced, but after the Finance Act, 2000, the rate of deduction has been reduced in phased manner - the AO is directed to reexamine this aspect and compute the deduction admissible to the assessee while preparing the book profit for the purpose of section 115JB Decided partly in favour of assessee.

Summary

Issues Involved:
1. Exclusion of 90% of job work charges from profits of the business while computing deduction under section 80HHC.
2. Allowance of provision for warranty as a deduction.
3. Deduction computed under section 80HHC while computing book profit under section 115JB.

Detailed Analysis:

1. Exclusion of 90% of Job Work Charges:
The Revenue contested the CIT (A)'s decision to exclude 90% of the net job work charges from the profits of the business while computing the deduction under section 80HHC. The assessee argued that the job work charges should be included in the profits of the business. The CIT (A) relied on a Supreme Court judgment and held that 90% of the net job work charges should be excluded. This issue had previously been resolved in favor of the assessee by the High Court, which upheld the exclusion of 90% of the net job work charges. The Tribunal followed the High Court's decision and found no error in the CIT (A)'s order, rejecting both the Revenue's appeal and the assessee's cross-objection on this issue.

2. Allowance of Provision for Warranty:
The Revenue argued that the provision for warranty, amounting to Rs. 16,09,453/-, was a contingent liability and should not be allowed as a deduction. The CIT (A) allowed the deduction by following the Supreme Court's judgment in Rotork Controls India P. Ltd. v. CIT. The Revenue contended that there was no historical data or scientific study to justify the provision. The assessee provided a detailed note explaining the circumstances and historical trends that justified the provision. The Tribunal found that the CIT (A) had correctly interpreted the Supreme Court's judgment, which allowed provisioning based on a sensible analysis of historical trends. The Tribunal upheld the CIT (A)'s decision, rejecting the Revenue's additional ground of appeal.

3. Deduction Computed Under Section 80HHC While Computing Book Profit Under Section 115JB:
The assessee argued that the deduction computed under section 80HHC should be allowed while computing the book profit under section 115JB, citing the Supreme Court's decision in Ajanta Pharma Ltd. v. CIT. The Supreme Court clarified that the total amount of deduction computed under section 80HHC should be deducted from the book profit under section 115JB. The Tribunal directed the Assessing Officer to reexamine this aspect and compute the deduction accordingly, following the Supreme Court's judgment. The Tribunal allowed the assessee's cross-objection on this issue.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection, following the judgments of the High Court and Supreme Court on the respective issues. The order was pronounced in the Open Court on 14th November 2014.