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2020 (9) TMI 321 - AT - Income TaxDisallowance on account of SAP implementation charges - HELD THAT - Issue squarely covered in favour of the assessee inter-alia by the decision of CIT Vs. M/s. KSB Pumps Ltd. 2016 (10) TMI 548 - BOMBAY HIGH COURT wherein a similar issue was decided in favour of the assessee wherein allowing the claim of assessee for deduction on account of expenditure incurred on SAP implementation - Decided in favour of assessee. Depreciation on the expenditure incurred on SAP implementation / package - HELD THAT - As we have upheld the order of ld. CIT(Appeals) allowing the claim of the assessee of deduction on account of the entire expenditure incurred by the assessee on SAP implementation / package by treating the same of revenue in nature, depreciation on the same cannot be allowed to the assessee. - Decided against assessee. Addition of provision for warranty expenses and provision for after sales cost respectively - HELD THAT - The issues relating to assessee s claim for deduction on account of provision for warranty and provision for after sales cost thus are squarely covered in favour of the assessee by the various decisions of the Tribunal passed in assessee s own case for the earlier years 2018 (9) TMI 1990 - ITAT PUNE and respectfully following the same, we uphold the impugned order of ld. CIT(Appeals) allowing the claim of the assessee for deductions on account of provision for warranty and provision for after sales cost. - Decided against revenue.
Issues Involved:
1. Deletion of disallowance of ?4,36,66,315/- on account of SAP implementation charges. 2. Allowance of depreciation on the expenditure of ?4.36 crores incurred on SAP implementation/package. 3. Deletion of disallowance of ?27,02,616/- on account of provision for warranty expenses. 4. Deletion of disallowance of ?38,11,924/- on account of provision for after-sales cost. Issue-wise Detailed Analysis: 1. Deletion of Disallowance of ?4,36,66,315/- on Account of SAP Implementation Charges: The Revenue challenged the CIT(A)'s action in deleting the disallowance made by the Assessing Officer (AO) on account of SAP implementation charges, treating it as capital expenditure. The assessee, a company engaged in manufacturing Hi-tech Equipment, had claimed this expenditure as revenue in nature. The CIT(A) relied on various judicial precedents, including decisions by the Hon'ble Bombay High Court and Punjab & Haryana High Court, which treated similar expenditures as revenue. The CIT(A) found that the expenditure did not result in any new asset or enduring benefit and was necessary for preserving and maintaining existing assets. The Tribunal upheld the CIT(A)'s decision, citing the Hon'ble Bombay High Court's judgment in CIT Vs. M/s. KSB Pumps Ltd., which supported the treatment of such expenditures as revenue in nature. 2. Allowance of Depreciation on the Expenditure of ?4.36 Crores Incurred on SAP Implementation/Package: The AO had disallowed the entire expenditure on SAP implementation, treating it as capital in nature, and consequently did not allow depreciation, stating the SAP package was not put to use during the year. The CIT(A) directed the AO to allow depreciation, observing that the SAP package was ready to use. However, the Tribunal noted that since the entire expenditure was allowed as revenue expenditure, the question of allowing depreciation did not arise. Therefore, the Tribunal reversed the CIT(A)'s decision on this issue and allowed the Revenue's appeal. 3. Deletion of Disallowance of ?27,02,616/- on Account of Provision for Warranty Expenses: The AO disallowed the provision for warranty expenses, considering it unscientific and a contingent liability. The CIT(A) allowed the deduction, following the Tribunal's decisions in the assessee's own case for earlier years, where similar claims were consistently allowed. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered in favor of the assessee by various Tribunal decisions and the Hon'ble Apex Court's judgment in Rotork Controls India Ltd. The provision was based on a scientific method and properly calculated, thus allowable under Section 37(1) of the Income Tax Act. 4. Deletion of Disallowance of ?38,11,924/- on Account of Provision for After-Sales Cost: Similar to the provision for warranty expenses, the AO disallowed the provision for after-sales cost, treating it as contingent. The CIT(A) allowed the deduction, consistent with the Tribunal's earlier decisions in the assessee's case. The Tribunal upheld the CIT(A)'s decision, reiterating that the issue was covered by previous Tribunal rulings in favor of the assessee and aligned with the Hon'ble Apex Court's principles. The provision was made on a scientific basis and was thus deductible under Section 37(1). Conclusion: The Tribunal partly allowed the Revenue's appeal by reversing the CIT(A)'s decision on the allowance of depreciation on SAP implementation expenditure but upheld the CIT(A)'s decisions on treating the SAP implementation expenditure as revenue and allowing provisions for warranty and after-sales costs as deductible expenses. The appeal of Revenue was partly allowed.
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