2015 (3) TMI 973 - AT - Income Tax

Provision for warranty expenses - disallowance on the ground that the same is unascertained liability - CIT(A) deleting the disallowance - Held that - Unable to see any valid reason to interfere with the conclusion of the ld. CIT(A) for AY 2007-08 when the same claim of expenditure has been allowed by the AO in the preceding assessment year 2005- 06 and 2006-07 in the order passed u/s 143(3) of the Act. We also note that the same claim of the assessee in AY 2008-09 was also allowed by the ld. CIT(A) VI vide his order dated 15.3.2012 which has been upheld by the ITAT Delhi B Bench by the order reported in 2013 (5) TMI 275 - ITAT DELHI . Hence we hold that the issue is squarely covered in favour of the assessee by earlier and subsequent orders therefore same claim of warranty expenses was rightly allowed by the ld. CIT(A) for the year under consideration - Decided against revenue. Disallowance of Software Services Charges - CIT(A) deleting the disallowance - Held that - We are in agreement with the conclusion of the ld. CIT(A) that it cannot be presumed that the expenses were not incurred by the assessee company in absence of any adverse material or evidence. At the same time we are of the considered opinion that there was no good cause for the AO for making 50% ad hoc disallowance of the Software Services Charges claimed by the assessee as if the AO was of the opinion that payment were not genuine that the entire expenses should have been disallowed. We are unable to see any valid reason or ground for making 50% disallowance by the AO. We cannot ignore that the ld. CIT(A) for AY 2005-06 has also allowed similar claim of the assessee and on specific query from the Bench the ld. DR was unable to guide us whether the Department further agitated the issue before the Tribunal and hence we may safely presumed that the order of the ld. CIT(A) for AY 2005-06 has been accepted by the Department. On the rule of consistency it is a well accepted proposition that although the principle of res judicata does not apply to the taxation matter but the rule of consistency has to be followed by the Revenue Authorities and flip flop approach on the similar issue is not permissible unless and until any substantial change in the facts and circumstances of the case is brought out. - Decided against revenue. Disallowance of depreciation on computer peripherals/accessories - 15% v/s 60% - CIT(A) deleting the disallowance - Held that - Issue is squarely covered in favour of the assessee by the decision of CIT vs. BSES Rajdhani Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT we are of the considered view that the ld. CIT(A) has rightly granted relief for the assessee on this issue as entitled to depreciation at the higher rate of 60%. - Decided against revenue. Disallowance u/s 14A - CIT(A) deleted disallowance - Held that - Respectfully following the decision of Maxopp Investment Ltd. vs. CIT 2011 (11) TMI 267 - Delhi High Court wherein their lordship has held that even if for the pre rule 8D period the procedure for making disallowance u/s 14A of the Act has been given and the Tribunal for AY 2008-09 we hold that the similar issue in the similar set of facts and circumstances of the present case also deserve to be restored to the file of AO for fresh adjudication- Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Deletion of disallowance of provision for warranty expenses.
2. Deletion of disallowance of software service charges.
3. Deletion of disallowance of depreciation on computer peripherals/accessories.
4. Deletion of disallowance by applying provisions of Section 14A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Ground No. 1: Deletion of Disallowance of Provision for Warranty Expenses
The Revenue contended that the CIT(A) erred in deleting the disallowance of Rs. 4,00,978/- for warranty expenses, arguing that it was an unascertained liability. The assessee countered by citing previous assessment orders for AY 2005-06 and 2006-07, where similar expenses were allowed, and referenced the ITAT Delhi's decision for AY 2008-09, which upheld the allowance of such expenses. The Tribunal noted that the warranty expenses were based on technical estimates and past experience, and were inextricably linked to sales, making them a committed liability. Thus, the Tribunal found no reason to interfere with the CIT(A)'s decision, dismissing the Revenue's ground.

Ground No. 2: Deletion of Disallowance of Software Service Charges
The Revenue argued that the CIT(A) erred in deleting the disallowance of Rs. 12,38,26,881/- for software service charges due to lack of details provided by the assessee. The assessee maintained that there was no basis for the AO's ad hoc disallowance of 50% of the charges, and pointed out that similar disallowances in AY 2005-06 were overturned by the CIT(A). The CIT(A) admitted relevant documents under Rule 46A and verified that the payments were made to a Korean company through banking channels after deducting TDS. The Tribunal agreed with the CIT(A) that the expenses were genuine and found no justification for the AO's ad hoc disallowance, thus dismissing the Revenue's ground.

Ground No. 3: Deletion of Disallowance of Depreciation on Computer Peripherals/Accessories
The Revenue accepted that the issue was covered by the Delhi High Court's decision in CIT vs. BSES Rajdhani Powers Ltd., which supported the assessee's claim for a higher depreciation rate of 60% on computer peripherals/accessories. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

Ground No. 4: Deletion of Disallowance by Applying Provisions of Section 14A
The Revenue contended that the CIT(A) erred in deleting the disallowance under Section 14A. The assessee referred to the ITAT's decision for AY 2008-09, which restored the issue to the AO for fresh adjudication. The Tribunal noted that the AO must ascertain the correctness of the assessee's claim regarding expenditure related to income not forming part of total income, as per the Delhi High Court's decision in Maxopp Investment Ltd. vs. CIT. The Tribunal restored the issue to the AO for fresh adjudication, following the same approach as in AY 2008-09, thus allowing the Revenue's ground for statistical purposes.

Conclusion:
The Tribunal dismissed the Revenue's appeal on grounds 1, 2, and 3, and partly allowed the appeal on ground 4 for statistical purposes, directing the AO to re-examine the issue under Section 14A. The order was pronounced in the open Court on 23/03/2015.