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2019 (6) TMI 428 - AT - Income TaxDisallowance of provision for leave encashment u/s 43B(f) - HELD THAT - A decided in M/S. S.R. BATLIBOI CO 2012 (3) TMI 585 - ITAT KOLKATA s et aside the orders of the authorities below on this point and restore the matter back to the file of the AO with the direction that he will readjudicate this issue as per decision of the Hon ble Apex Court in the case of M/s. Exide Industries Ltd. 2009 (5) TMI 894 - SC ORDER Disallowance on account of software expenses - nature of expenses - revenue or capital expenditure - HELD THAT - It is observed that the payment was made for maintenance/hosting services and there was no acquisition of right in software as spelt out in Para 7(a) of Software Maintenance Support Agreement dated 1stJuly 2009. We find that the AO has misunderstood the facts of the case. The payment made by the assessee has not resulted in any enduring benefit and are only for annual maintenance and support services. The same services has been availed by the assessee in future years also which suggests that the same were availed on annual basis and was not a one-time payment. Hence we do not find any possible reason to treat the expense as capital expenditure since the payment is made only for maintenance and support services necessary for using the application efficiently. - Decided against revenue Disallowance of commission expenses - allowable business expenses or not? - HELD THAT - A.O. has made various allegations and the assessee has submitted rebuttal to each such allegation during the appellate proceedings. It is observed that the A.O. has not brought any corroborative evidence in support of his allegation except making only such allegation. On perusal of statement by third parties no adverse inference could be drawn. In absence of any evidence of payments being not genuine we do not find any justification in the action of the A.O. in treating the impugned commission payments as not being expended wholly and exclusively for the purpose of business. In view of the facts narrated above we note that the addition made on account of commission payments rightly deleted by ld CIT(A) - Decided against revenue. Addition of warranty expenses - unrecovered warranty cost - HELD THAT - We note that pursuant to the agreement entered into between the Caterpillar and the assessee the assessee is entitled to claim reimbursement of warranty expenses from Caterpillar claimed by its custom. The assessee incurred total warranty cost claimed as reimbursement from Caterpillar out of which warrant only claim of 15, 17, 74, 140/- was accepted by the Caterpillar. Balance warranty claim of 82, 02, 019/- was denied by the Caterpillar and was not reimbursed to the assessee. The assessee in its books of accounts has not debited the full amount of warranty expenses but what has been debited is only the unrecovered warranty cost of 82, 02, 019/-. In this regard we find no merits in the contention of the AO that the assessee has violated the principle of accounting by only recording the expense without any credit. Since the unrecovered warranty cost represented business expense of the assessee the same was debited to Profit and Loss Account and in view of the above since the expenditure is incurred for business purpose warranty expenses should be allowed. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of provision for leave encashment. 2. Disallowance of software expenses being capital in nature. 3. Disallowance of commission expenses. 4. Disallowance of warranty expenses. Issue-wise Detailed Analysis: 1. Disallowance of Provision for Leave Encashment: The appeals by the assessee for the assessment years 2011-12 and 2012-13 focused on whether the CIT(A) erred in confirming the disallowance made by the Assessing Officer regarding the provision for leave encashment. The amounts in question were ?70,06,297 for A.Y. 2011-12 and ?1,73,21,918 for A.Y. 2012-13. The counsel for the assessee argued that Clause (f) of Section 43B of the Income Tax Act, which allows leave encashment on a payment basis, is arbitrary and contrary to the Supreme Court's decision in Bharat Earth Movers as upheld by the jurisdictional High Court in Exide Industries Ltd. The Tribunal noted that similar issues had been previously addressed, and consistent with prior decisions, the matter was restored to the file of the Assessing Officer for adjudication based on the Supreme Court's decision in Exide Industries Ltd. Thus, the appeals were allowed for statistical purposes. 2. Disallowance of Software Expenses Being Capital in Nature: The Revenue's appeal for the assessment years 2011-12 and 2012-13 included the issue of whether the CIT(A) erred in deleting the disallowance of ?83,67,730 on account of software expenses. The assessee had entered into agreements for software maintenance and support services with Accenture, which included annual fees for using the software and related services. The Assessing Officer had treated these expenses as capital in nature, allowing depreciation and disallowing the rest. However, the CIT(A) found that these payments were for maintenance and support services rather than acquiring any rights in the software. The Tribunal upheld the CIT(A)'s decision, noting that the payments did not result in any enduring benefit and were for annual services, thus dismissing the Revenue's appeal on this ground. 3. Disallowance of Commission Expenses: The Revenue's appeal also contested the CIT(A)'s deletion of the disallowance of ?1,10,58,743 on account of commission expenses. The assessee had paid commissions to various parties for securing sales orders. The Assessing Officer disallowed these expenses, arguing that the nature of the consultancy services was not adequately explained, and the genuineness of the payments was not substantiated. The CIT(A) found that the payments were indeed for securing sales orders and were supported by agreements and invoices. The Tribunal agreed with the CIT(A), noting that the Assessing Officer had not provided corroborative evidence against the genuineness of the payments. Therefore, the Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal on this issue. 4. Disallowance of Warranty Expenses: The final issue in the Revenue's appeal was the disallowance of ?82,02,019 in warranty expenses. The assessee, a dealer of Caterpillar, incurred warranty costs that were partially reimbursed by Caterpillar. The unrecovered amount was debited to the Profit and Loss account. The Assessing Officer disallowed this expense, claiming that the assessee had violated accounting principles. The CIT(A) found that the unrecovered warranty cost represented a legitimate business expense and allowed the deduction. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were incurred for business purposes and were correctly debited. Thus, the Tribunal dismissed the Revenue's appeal on this ground. Conclusion: In summary, the Tribunal allowed the assessee's appeals for statistical purposes regarding the provision for leave encashment and dismissed the Revenue's appeals on the disallowance of software expenses, commission expenses, and warranty expenses. The orders of the CIT(A) were upheld on all contested issues.
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