2018 (8) TMI 2100 - AT - Income Tax

TDS u/s 194J - Expenditure on rendering professional services - Non deduction of TDS - Nature of expenses - HELD THAT - Assessee had deducted tax at source and had made payment of the tax so deducted to the credit of the Central Government as per the due dates specified in Section 40(a)(ia) of the Act. Copies of the relevant TRACES of TDS Centralized processing cell - We are of the view that it would be just and appropriate to set aside the order of the CIT(A) and remand for verification by the AO the claim of the Assessee that it had complied with the provisions of sec.40(a)(ia) of the Act. If tax had been deducted and paid as claimed then the addition made is directed to be deleted. Disallowance u/s. 14A - expenditure incurred earning exempt income - whether no interest paid can be attributable to the income received and the A.O. has not given a finding that the claim made by the assessee is not correct? - HELD THAT - Assessee has to make a claim (including a claim that no expenditure was incurred) with regard to expenditure incurred for earning income which is not chargeable to tax. Such a claim has to be examined by the AO and only if on an objective satisfaction arrived at by the AO that the claim made by the assessee is not correct can the AO proceed to apply the computation mode as specified in Rule 8D(2) of the Rules. In the present case the Assessee has not given such a basis. Assessee submitted that the issue may be set aside to the AO and the Assessee will give the basis on which it computed the disallowance u/s.14A - Thus set aside the order of the CIT(A) on this issue and remand the issue for fresh consideration. Addition on account of provision for warranty while computing income from business - Assessee claimed deduction as provision for warranty liability on the pressure cookers and electronic items sold by it - AO disallowed the claim for deduction for the reason that the estimation of liability based on which provision for warranty liability was made by the Assessee was not scientific - HELD THAT - Assessee is in this line of business for a very long time and he should be in a position to demonstrate that making provision of 1% of the sale as provision for anticipated liability on account of warranty claims is based on its own past experience. We therefore deem it fit and proper to set aside the order of the CIT(A) and remand for fresh consideration by the AO the question of proper estimate of liability on account of provision for warranty based on past events. The Assessee is directed to furnish the necessary figures in this regard to justify its claim. The AO shall examine the claim in the light of the principles laid down by the Hon ble Supreme Court in the case of Rotor Controls India Pvt.Ltd. 2009 (5) TMI 16 - SUPREME COURT after affording the Assessee opportunity of being heard. The appeal of the revenue is accordingly treated as allowed for statistical purpose.

Summary

Issues Involved:
1. Disallowance of legal and professional charges.
2. Disallowance under Section 14A.
3. Computation of interest under Sections 234B and 234C.
4. Deduction on account of provision for warranty.

Detailed Analysis:

1. Disallowance of Legal and Professional Charges:
The Assessee, engaged in manufacturing and marketing of kitchen appliances, claimed a deduction of Rs.16,79,343/- as legal and professional charges paid to consultants for due diligence regarding acquisition of industrial land. The AO categorized this expenditure as capital expenditure, disallowing the deduction. However, the CIT(A) reclassified it as revenue expenditure but disallowed it under Section 40(a)(ia) due to non-deduction of tax at source. The Tribunal remanded the matter to the AO for verification of the Assessee's compliance with Section 40(a)(ia), directing deletion of the addition if compliance was confirmed.

2. Disallowance under Section 14A:
The Assessee earned Rs.66,31,925/- as dividend income, which is exempt from tax. The AO disallowed Rs.16,16,357/- under Section 14A, applying Rule 8D(2)(ii) & (iii). The CIT(A) upheld this disallowance. The Tribunal observed that the AO did not objectively assess the Assessee's claim of incurring only Rs.1,14,185/- as expenditure for earning exempt income. The matter was remanded to the AO for fresh consideration, with instructions for the Assessee to provide the basis for its computation, and for the AO to reassess the claim in accordance with law.

3. Computation of Interest under Sections 234B and 234C:
The Assessee contested the computation of interest under Sections 234B and 234C, arguing that the advance tax and TDS paid exceeded 90% of the assessed tax, and that interest under Section 234C was incorrectly computed on assessed income instead of returned income. The Tribunal remanded these issues to the AO for verification and appropriate recomputation of interest, if the Assessee's claims were found accurate.

4. Deduction on Account of Provision for Warranty:
The Assessee claimed a deduction of Rs.2,89,83,572/- for warranty liability provision. The AO disallowed this, citing lack of a scientific basis for the estimate. The CIT(A) accepted the Assessee's method as scientific and deleted the addition. The Tribunal, referencing the Supreme Court's decision in Rotork Controls India Pvt. Ltd., remanded the issue to the AO for re-evaluation based on past events and reliable estimates. The Assessee was directed to provide necessary data to justify the provision, and the AO was instructed to reassess the claim following the Supreme Court's guidelines.

Consolidated Orders for Subsequent Years (AY 2012-13 and 2013-14):
For AY 2012-13 and 2013-14, the Tribunal followed the same rationale and remanded the issues of disallowance under Section 14A and provision for warranty back to the AO for fresh consideration, consistent with the directions provided for AY 2011-12.

Conclusion:
All appeals were allowed for statistical purposes, with specific issues remanded to the AO for verification and fresh consideration in accordance with the Tribunal's directions. The Tribunal emphasized compliance with legal provisions and accurate reassessment based on objective satisfaction and reliable estimates.