2024 (1) TMI 1131 - AT - Income Tax

Credit of Dividend Distribution Tax u/s 115-O not granted - CIT(A) has upheld the order of the AO as per section 115O(4) of the Act the tax on distributed profits shall be treated as the final payment of tax against the dividend declared and distributed and no further credit in respect of the amount of tax paid shall be claimed by the company or any other person - HELD THAT - From the said observations of the CIT(A) it is clear that the credit is denied on the incorrect understanding of fact that the assessee is claiming credit for the Dividend Distribution Tax against regular tax payable by the assessee. During the course of assessment the ld. AR drew our attention to the tax challans and the extract from Form 26AS in order to substantiate the claim that Dividend Distribution Tax has been paid by the assessee for which the assessee is claiming credit against the Dividend Distribution Tax shown as payable in the tax computation form of the assessment order. For the year under consideration from the evidences submitted by the assessee it is clear that the assessee had paid the Dividend Distribution Tax and that the Revenue has denied the credit based on the misunderstood fact that the assessee is claiming credit for the Dividend Distribution Tax against regular tax payable. This in our considered view is factually incorrect since the assessee is seeking to adjust the Dividend Distribution Tax paid against the Dividend Distribution Tax payable computed by the AO. Thus we direct the AO to given credit to the extent of the Dividend Distribution Tax actually paid by the assessee as per the documentary evidences submitted by the assessee after giving a reasonable opportunity of being heard to the assessee. Levy of interest u/s 115P on the amount of Dividend Distribution Tax payable - AO has levied the interest u/s 115P on the Dividend Distribution Tax payable without giving credit for the Dividend Distribution Tax actually paid by the assessee - HELD THAT - As we have already directed the AO to give credit for the Dividend Distribution Tax actually paid by the assessee while adjudicating Ground No.1. Accordingly the AO is directed to examine levy of interest under section 115P which is consequential after giving credit to the Dividend Distribution Tax actually paid in accordance with law. Mismatch between form 26AS and the return of income - assessee submitted before the AO that receipts do not pertain to the assessee and therefore the same is not accounted as income and that no credit is claimed against the TDS deducted on the said amount which is wrongly shown as the receipts of the assessee - AO did not accept the submissions of the assessee stating that there seems to no reason to suspect that 10 parties altogether will wrongly credit any amount to the assessee - HELD THAT - Since the assessee has denied the transactions onus was on the Revenue to show that TDS reflected in Form 26AS is in respect of the amounts that have been received by the assessee during the relevant period. Nothing is brought on record by the revenue to this effect. As decided in the case of RBNJ Naidu 1955 (2) TMI 12 - NAGPUR HIGH COURT has held that when an assessee denies that he is in receipt of income from a particular source it is for the ITO to prove that the assessee received income and that the assessee cannot prove the negative. We see merit in the contentions of assessee cannot prove a negative. Since the Revenue did not bring anything to lead positive evidence with regard to the impugned amounts the addition is hereby deleted. Refund of Excess Dividend Distribution Tax - HELD THAT - AR fairly conceded that the issue is held against the assessee in view of the decision of the Hon ble Supreme Court in the case of AO Vs. M/s Nestle SA 2023 (10) TMI 981 - SUPREME COURT Therefore respectfully following the above decision additional ground raised by the assessee claiming refund of refund of excess DDT paid on dividend to non-residents. Provision for warranty claims denied - Reasons why provisions should not be allowed as deduction - AO held that the utilization to provision ratio of the assessee comes to only 38.5% which goes to prove that the assessee has failed to make a reliable estimation of the future obligations with respect to warranty expenses and therefore disallowed the entire amount of provision made that is debited to the P L A/c of the assessee - CIT(A) allowed assessee claim - HELD THAT - The assessee is in the business of trading and servicing medical equipments and provides standard warranty to its customers that is in the nature of basic warranty or extended warranty that may vary from 12 to 15 months. The assessee has been consistently following the practice of making provision towards the warranty and the same is claimed as a deduction. It is also noticed that at the ends of the warranty period the unutilized portion of the provision of warranty is reversed and credit to the P L A/c thereby offering the same to tax. The reason for the disallowance by the revenue is that the basis of estimation for making the provision is not reliable since the utilization is only 38.5% for the year under consideration. As decided in own case 2016 (8) TMI 1593 - ITAT MUMBAI assessee has a present obligation as a result of past event and a reliable estimate has been made towards the amount of obligation and accordingly held that the deduction under section 37 should be allowed. On the perusal of the fact we noticed that the assessee have been claiming the warranty provision as expenditure and has been reversing the excess provision periodically and offering the same to tax. It is also noticed that there are years in which the amount utilized is for than the amount of provision made and therefore we see merit in the contention that the provision cannot be disallowed on the ground of under utilization - no infirmity in the decision of the CIT(A) in allowing the provision of warranty as a deduction under section 37(1) of the Act.

Summary

Issues Involved:
1. Credit of Dividend Distribution Tax (DDT) under Section 115-O.
2. Addition due to mismatch between Form 26AS and Return of Income.
3. Levy of interest under section 115-P.
4. Provision for warranty as an allowable expenditure.
5. Additional grounds related to refund of excess DDT and deduction of education cess.

Summary:

1. Credit of Dividend Distribution Tax (DDT) under Section 115-O:
The assessee contended that the Assessing Officer (AO) did not grant credit for the Dividend Distribution Tax (DDT) paid, as reflected in Form 26AS. The CIT(A) dismissed this ground, interpreting that under Section 115O(4), no further credit for DDT paid could be claimed. However, the Tribunal noted that the AO did not adjust the DDT paid by the assessee and directed the AO to verify and grant the credit for the DDT actually paid, following the precedent set in the assessee's own case for AY 2011-12.

2. Addition due to mismatch between Form 26AS and Return of Income:
The AO added Rs. 5,13,731/- due to discrepancies between Form 26AS and the assessee's books of accounts. The assessee argued that these receipts did not belong to them and were erroneously reflected in Form 26AS. The Tribunal found merit in the assessee's contention, noting that the AO failed to provide positive evidence that the amounts were received by the assessee. Consequently, the addition was deleted.

3. Levy of interest under section 115-P:
The AO levied interest under section 115-P on the DDT payable without giving credit for the DDT actually paid. The Tribunal directed the AO to re-examine the levy of interest after granting the correct credit for the DDT paid.

4. Provision for warranty as an allowable expenditure:
The AO disallowed the provision for warranty claims amounting to Rs. 3,34,46,445/-, arguing it was an unascertained liability. The CIT(A) allowed the deduction, relying on the Supreme Court's decision in Rotork Control India Pvt. Ltd. and the Tribunal's decision in the assessee's own case for AY 2006-07. The Tribunal upheld the CIT(A)'s decision, noting that the provision was made based on a scientific method and the assessee had a consistent practice of reversing unutilized provisions.

5. Additional grounds related to refund of excess DDT and deduction of education cess:
The Tribunal admitted the additional grounds as they were pure legal issues. The assessee did not press the ground related to education cess, which was dismissed. The ground regarding the refund of excess DDT paid to non-resident shareholders was dismissed, following the Supreme Court's decision in AO Vs. M/s Nestle SA.

Conclusion:
The assessee's appeal was partly allowed, granting relief on the issues of DDT credit and mismatch addition, while the Revenue's appeal was dismissed, upholding the allowance of the warranty provision as a deductible expense.