2002 (7) TMI 220 - AT - Income Tax

Issues Involved:
1. Deduction of provision for warranty and office expenses.
2. Disallowance under Rule 6D in respect of traveling expenses.
3. Deduction under Section 80-IA.
4. Deduction under Section 80HHC.
5. Levy of interest under Section 234B.
6. Interest under Section 244A.
7. Computation of profit under Section 115JA.
8. Payments to IGE (India) Ltd. and Faridabad Investment Co. Ltd.
9. Deduction under Section 80HHE.
10. Deduction under Section 80-O.

Summary:

1. Deduction of Provision for Warranty and Office Expenses:
The assessee claimed a deduction for provision for warranty expenses, which the AO disallowed as a contingent liability. The CIT(A) upheld this view, stating that the provision was based on estimates and not actual liabilities. The Tribunal, however, allowed the assessee's claim, stating that the provision was made on a scientific basis and was reasonable, following the principles laid down by various Tribunal decisions and the Supreme Court.

2. Disallowance under Rule 6D in Respect of Traveling Expenses:
The AO disallowed a portion of the traveling expenses claimed by the assessee under Rule 6D. The CIT(A) provided certain directions, and the Tribunal directed the disallowance to be maintained at Rs. 1,50,000, considering the details provided by the assessee.

3. Deduction under Section 80-IA:
The assessee's claim for deduction under s. 80-IA was disputed regarding the allocation of direct expenses. The Tribunal directed the AO to accept the assessee's working, which allocated expenses based on well-known principles of apportionment, as accepted in subsequent assessment years.

4. Deduction under Section 80HHC:
The assessee did not press this ground for the asst. yrs. 1996-97 and 1997-98, and the Tribunal dismissed the ground as not pressed.

5. Levy of Interest under Section 234B:
Both parties agreed that the levy of interest under s. 234B is consequential in nature, and the Tribunal directed the AO to allow the consequences to follow.

6. Interest under Section 244A:
For the asst. yr. 1993-94, the Tribunal directed the AO to allow the deduction of interest withdrawn by the Department, as claimed by the assessee, rejecting the CIT(A)'s direction to consider it as a deduction for the asst. yr. 1995-96.

7. Computation of Profit under Section 115JA:
The Tribunal directed the AO to compute the income under s. 115JA after giving effect to the Tribunal's order and providing the assessee an opportunity of being heard.

8. Payments to IGE (India) Ltd. and Faridabad Investment Co. Ltd.:
The Tribunal held that the payment of Rs. 22,50,000 towards voluntary retirement of employees was a revenue expenditure. For other payments to IGE, the Tribunal followed the Bombay Bench's decision, treating 50% as capital and 50% as revenue expenditure.

9. Deduction under Section 80HHE:
The Tribunal held that the total turnover for s. 80HHE should only include the turnover of the computer software business, not the global turnover of the assessee. The AO was directed to compute the deduction accordingly.

10. Deduction under Section 80-O:
The Tribunal held that only direct expenses incurred in earning the income should be deducted for computing the deduction under s. 80-O. The Tribunal did not expressly address the validity of the enhancement proceedings by the CIT(A) due to the assessee's success on merits.

Conclusion:
The appeals were partly allowed, with the Tribunal providing specific directions on each issue based on the merits of the case and relevant legal principles.

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