2012 (11) TMI 935 - AT - Income Tax

Disallowance of warranty provision - The disallowance was made on the ground that the expenditure has not crystallized and hence provisions for performance guaranty amounted contingent liability. - held that - Deduction allowed. Addition u/s 68 - one-timepayment paid by the customer for initial start up of the contract - held that - As such, the Assessing Officer s decision of holding it as revenue receipt was not arrived at after examining the relevant documents and agreements in this regard. The orders of both the Assessing Officer and learned CIT(A) in this regard do not speak of the basic facts as to the nature of arrangement/agreement between the assessee and client and relevant facts regarding payment of Rs. 8 lakhs in this regard. - matter remanded back. Liability of exchange loss alleged that expenditure has not crystallized Held that - Foreign exchange loss is on the revenue items assessee submits that this issue is covered in favour of the assessee by the decision of Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT ) matter remanded to AO Claim of interest u/s. 244A on the refund of taxes due Held that - First appellate authority has not dealt with this issue matter remanded to AO

Summary

Issues involved:
1. Disallowance of warranty provision
2. Reversal of warranty provision made in earlier years
3. Addition to total income under section 28
4. Disallowance of certain expenses as personal in nature
5. Disallowance of business development expenditure
6. Disallowance of 1/3rd of expenditure on repairs and maintenance
7. Addition on account of exchange loss
8. Interest payable under section 244A

Issue 1: Disallowance of warranty provision
The appeal challenged the confirmation of the addition on account of disallowance of warranty provision, arguing that the provision was treated as a contingent liability. The Tribunal referred to a previous decision in the assessee's favor for an earlier assessment year, allowing the claim based on the crystallization of expenditure. Consequently, the Tribunal allowed this ground in favor of the assessee.

Issue 2: Reversal of warranty provision made in earlier years
This issue was considered consequential to the first issue. The Tribunal decided against the assessee, aligning with the decision made for the current year.

Issue 3: Addition to total income under section 28
The Tribunal set aside this issue for fresh adjudication by the Assessing Officer, following a similar decision made for the assessment year 2002-03. The Tribunal emphasized the importance of examining relevant documents and agreements to determine the nature of the receipt in question.

Issue 4: Disallowance of certain expenses as personal in nature
The Tribunal allowed the claim of the assessee, overturning the disallowance of expenses considered personal in nature. It referred to previous decisions where such disallowances were deemed unjustified.

Issue 5: Disallowance of business development expenditure
The Tribunal set aside the disallowance of business development expenditure for fresh adjudication, emphasizing that such expenses could not be classified as deferred revenue expenditure.

Issue 6: Disallowance of 1/3rd of expenditure on repairs and maintenance
The Tribunal set aside this issue for further consideration by the Assessing Officer, consistent with the approach taken for other related grounds.

Issue 7: Addition on account of exchange loss
The Tribunal set aside the matter for fresh adjudication by the Assessing Officer, directing a re-examination of the claim in light of relevant legal precedents.

Issue 8: Interest payable under section 244A
The Tribunal sent back this issue to the Assessing Officer for disposal in accordance with the law, aligning with the decisions made for other issues.

In conclusion, the appeal was allowed in part, with various issues being either decided in favor of the assessee or set aside for further examination by the Assessing Officer. The Tribunal's decisions were based on legal precedents, the nature of expenses, and the need for a thorough assessment of relevant documents and agreements.