2018 (4) TMI 1696 - AT - Income Tax

Disallowance u/s.14A - HELD THAT - In view of the decision of the Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT no disallowance can be made u/s.14A where no expenditure had been incurred in relation to exempt income.

Summary

Issues:
1. Disallowance under section 14A
2. Provision for warranty expenses
3. Expenses towards issue of Foreign Currency Convertible Notes

Issue 1: Disallowance under section 14A

In the first appeal, the assessee challenged the disallowance under section 14A, arguing that no expenditure had been incurred in relation to exempt income. The Commissioner of Income-tax (Appeals) (CIT (A)) was criticized for not verifying the details and evidence submitted by the appellant. The Tribunal noted that the ground of appeal had become infructuous due to an order passed by the Assessing Officer. The appeal was dismissed as infructuous. In the second appeal, the Revenue challenged the relief granted to the assessee regarding provision for warranty expenses and expenses on the issue of Foreign Currency Convertible Notes. The Tribunal observed that similar grounds had been raised in previous years and decided in favor of the assessee based on consistency and legal precedents. The Tribunal dismissed the Revenue's appeal, citing previous decisions in favor of the assessee. The grounds of appeal raised by the Revenue were found to lack merit, and the appeal was dismissed.

Issue 2: Provision for Warranty Expenses

The Revenue contended that the provision for warranty expenses was not conclusively proved to have been spent during the previous year. However, the CIT (A) allowed the claim of provision for warranty expenses. The Tribunal, following previous decisions in the assessee's favor and the principle of consistency, dismissed the Revenue's appeal regarding the provision for warranty expenses.

Issue 3: Expenses towards Issue of Foreign Currency Convertible Notes

The Revenue argued that the expenses towards the issue of Foreign Currency Convertible Notes should be treated as capital expenditure, not revenue expense. The Tribunal considered legal precedents and factual discussions, ultimately finding no merit in the Revenue's grounds of appeal. The Tribunal referred to decisions by the Hon'ble Rajasthan High Court and the Hon'ble Supreme Court to support its decision. The appeal of the Revenue was dismissed based on legal and factual considerations.

In summary, the Tribunal addressed various issues related to disallowances under section 14A, provision for warranty expenses, and expenses towards the issue of Foreign Currency Convertible Notes. The Tribunal consistently ruled in favor of the assessee based on legal precedents, factual analysis, and the principle of consistency. The appeals by both the assessee and the Revenue were thoroughly analyzed, leading to the dismissal of the Revenue's appeal and the allowance of the assessee's appeal.