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2015 (5) TMI 150 - AT - Income TaxDisallowance of administrative expenses u/s.14A - Held that - Since the assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made. Similarly no disallowance out of administrative expenditure can be made as there is no direct nexus. As a result, this grounds is allowed. See 2011 (2) TMI 1351 - ITAT AHMEDABAD - Decided in favour of assessee. Disallowance of liquidated damages - CIT(A) deleted addition - Held that - The issue regarding liquidated damages requires a fresh look by the AO. He would allow the claim on actual basis. Wherever the other party has claimed liquidated damages against the assessee in the current year Asst.Year it should be allowed. The assessee would submit individual account and the AO will examine such accounts and take a decision as per law. See 2011 (2) TMI 1351 - ITAT AHMEDABAD. This ground is allowed but for statistical purposes. Disallowance of bad-debts - CIT(A) deleted addition - Held that - There is no case for interference in the order of ld.CIT(A). It is admitted position that assessee has actually written off the amounts. Once it is so then matter is squarely covered by the decision of Hon.Supreme Court in the case of TRF Ltd. vs. CIT (2010 (2) TMI 211 - SUPREME COURT) wherein it is held that w.e.f. 1.4.1989 in order to obtain a deduction in relation to bad debts it is not necessary for the assessee to establish that the debt in fact has become irrecoverable. It is enough if the bad debt is written off and the bad debt is irrecoverable in the account of assessee. Following the above decision of Hon.Supreme Court, we confirm the order of ld.CIT(A) and dismiss this ground of Revenue. Disallowance of provision for warranty expenses - Held that - The assessee has to submit present value of warranty expenses. It has to be properly ascertained and discounted on accrual basis. A proper calculation on this issue will be submitted to the AO who will examine the same and allow the claim as per decision of Hon.Supreme Court in Rotork Controls India (P) ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA) as above. This ground of Revenue is allowed but for statistical purposes. Disallowance of proportionate interest expenses made by the AO u/s.36(1)(iii) - CIT(A) allowed claim - Held that - .CIT(A) had given a finding on fact that there assessee had sufficient interest free fund and it had not diverted the interest bearing fund same remained unrebutted. Therefore, we do not find any reason to take a contrary view than taken by the Hon ble Coordinate Bench - Decided against revenue. Disallowance of royalty - CIT(A) allowed claim - Held that - CIT(A) has given a finding on fact that the assessee has not acquired any ownership rights. It has got the right of user only. Since, AY 1989- 90, the user charges claimed as royalty have been allowed in the assessments, the rate of user charges is 1% of the sales during the year under consideration. TDS has been made in respect of royalty payments. As it is a recurring expenditure payable on the basis of sales and the appellant has not acquired any capital asset or permanent right, the payment of royalty is allowable as business expenditure. The Revenue has not controverted this fact by placing any material on record, therefore, we do not find any infirmity in the order of the ld.CIT(A), the same is hereby upheld - Decided in favour of assessee.
Issues Involved:
1. Confirmation of disallowance of administrative expenses under Section 14A. 2. Deletion of disallowance of liquidated damages. 3. Deletion of disallowance of bad debts. 4. Deletion of disallowance of provision for warranty expenses. 5. Deletion of disallowance of interest expenses under Section 14A. 6. Deletion of disallowance of proportionate interest expenses under Section 36(1)(iii). 7. Deletion of disallowance of royalty expenses. 8. Deletion of disallowance of provision for bad advances written off. Detailed Analysis: 1. Confirmation of Disallowance of Administrative Expenses under Section 14A: The Tribunal addressed the Assessee's appeal against the confirmation of the addition of Rs. 2,69,966 as administrative expenses under Section 14A of the Act. The Tribunal noted that the issue was previously decided in favor of the Assessee by the ITAT for AY 2005-06, where it was held that no disallowance could be made without establishing a direct nexus between the expenses and the exempt income. The Tribunal followed this precedent and directed the AO to delete the addition for AY 2006-07 as well. 2. Deletion of Disallowance of Liquidated Damages: The Revenue's appeal contested the deletion of Rs. 4,09,899 as liquidated damages. The Tribunal noted that this issue was previously restored to the AO for fresh adjudication in AY 2005-06. Following this precedent, the Tribunal restored the issue to the AO for AY 2006-07 for a fresh decision. 3. Deletion of Disallowance of Bad Debts: The Revenue's appeal also challenged the deletion of Rs. 34,39,000 as bad debts. The Tribunal observed that the issue was decided in favor of the Assessee in AY 2005-06, where it was held that the write-off of bad debts was sufficient for deduction under the Act. Following this decision, the Tribunal upheld the deletion of the disallowance for AY 2006-07. 4. Deletion of Disallowance of Provision for Warranty Expenses: The Tribunal reviewed the Revenue's appeal against the deletion of Rs. 1,12,14,000 as provision for warranty expenses. The Tribunal noted that this issue was restored to the AO for fresh adjudication in AY 2005-06. Consistently, the Tribunal restored the issue to the AO for AY 2006-07 for a fresh decision. 5. Deletion of Disallowance of Interest Expenses under Section 14A: The Revenue's appeal included the deletion of Rs. 23,43,716 as interest expenses under Section 14A. The Tribunal referred to its earlier decision in AY 2005-06, which favored the Assessee, holding that no disallowance could be made without establishing a direct nexus. The Tribunal upheld the deletion of the disallowance for AY 2006-07. 6. Deletion of Disallowance of Proportionate Interest Expenses under Section 36(1)(iii): The Tribunal considered the Revenue's appeal against the deletion of Rs. 1,86,650 as proportionate interest expenses under Section 36(1)(iii). The Tribunal noted that the issue was decided in favor of the Assessee in AY 2005-06, where it was held that sufficient interest-free funds were available, and no nexus was established between the borrowed funds and the investments. The Tribunal upheld the deletion of the disallowance for AY 2006-07. 7. Deletion of Disallowance of Royalty Expenses: The Revenue's appeal contested the deletion of Rs. 49,60,500 as royalty expenses. The Tribunal referred to its earlier decision in AY 2005-06, which favored the Assessee, holding that the royalty payments were for the use of technology and trademarks, and did not create any asset or confer any permanent rights. The Tribunal upheld the deletion of the disallowance for AY 2006-07. 8. Deletion of Disallowance of Provision for Bad Advances Written Off: The Tribunal addressed the Revenue's appeal against the deletion of Rs. 17,21,313 as provision for bad advances written off. The Tribunal noted that this issue was restored to the AO for fresh adjudication in AY 2005-06. Following this precedent, the Tribunal restored the issue to the AO for AY 2006-07 for a fresh decision. Conclusion: The Tribunal allowed the Assessee's appeals for AYs 2006-07, 2007-08, and partly for AY 2008-09. The Revenue's appeals for all three years were partly allowed for statistical purposes, with several issues restored to the AO for fresh adjudication. The Tribunal consistently followed its earlier decisions and precedents in deciding the issues.
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