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2017 (3) TMI 524 - AT - Income TaxDisallowance, u/s 14A - Held that - Identically, Hon ble Gujarat High Court in CIT vs Corretech Energy (Pvt.) Ltd. (2014 (3) TMI 856 - GUJARAT HIGH COURT) held that, where the assessee did not make any claim for exemption of any income from payment of tax disallowance, u/s 14A could not be made. Section 14A cannot be invoked where the assessee has not received any dividend income during the relevant year. Thus we decide this issue in favour of the assessee as no exempt income was earned by the assessee during the relevant Assessment Year. - decided against revenue Disallowance of provision for warranty - Held that - This issue is covered against the assessee by the decision of the Tribunal for Assessment Year 2005-06 2013 (9) TMI 4 - ITAT MUMBAI as held for claiming the allowance one has to furnish a fair, scientific and reasonable basis to the AO - company has not scrutinised the historical trend of warranty provisions made and compared it with the actual expenses incurred. Appellant has failed to prove that figures furnished by it are based on a sensible estimate - appellant has not maintained data systematically .assessee has claimed that gross sales had increased over the years. It was further held that if estimate was made on a scientific basis, same could be allowed. In the matter before us, scientific data is not available.- decided against assessee Recomputation of disallowance u/s 14A of the Act r.w.r. 8D of the Rules after excluding the long term capital investment in subsidiary/group concerns - Held that - We have considered the rival submissions and perused the material available on record. We find that while coming to a conclusion, the Ld. Commissioner of Income Tax (Appeal) has deliberated upon the factual matrix and various case laws including from Hon ble jurisdictional High Court and the Tribunal. We find no infirmity in the same. So far as, the contention of the ld. DR that the order of the Tribunal is under challenge before the Hon ble High Court, is concerned, we are of the view that order of the Hon ble High Court will be binding upon both the parties but as on date the issue is in favour of the assessee, therefore, we dismiss the appeal of the Revenue.
Issues Involved:
1. Applicability of Section 14A of the Income Tax Act, 1961. 2. Disallowance of provision for warranty. 3. Re-computation of disallowance under Section 14A read with Rule 8D. Issue-wise Detailed Analysis: 1. Applicability of Section 14A of the Income Tax Act, 1961: The primary issue was whether the provisions of Section 14A of the Income Tax Act, 1961, apply to the assessee despite no exempt income being earned during the year. The assessee argued that no expenditure was incurred to earn exempt income and relied on a previous Tribunal decision (ITA No.5671/Mum/2011) for Assessment Year 2008-09. The Revenue, while defending the addition/disallowance, did not provide contrary facts. The Tribunal considered the decision of the Hon'ble Delhi High Court in Chem Invest Ltd. vs CIT (2015) 378 ITR 33 (Del.), which held that Section 14A does not apply if no exempt income is received or receivable during the relevant Assessment Year. The Tribunal found that the assessee's case was similar and decided in favor of the assessee, following the principle that Section 14A will not apply if no exempt income is earned during the relevant year. 2. Disallowance of Provision for Warranty: The second issue was the confirmation of the disallowance of the provision for warranty amounting to ?3,06,365/- against the correct disallowance of ?34,029/-. The Revenue pointed out that this issue was already covered against the assessee by the Tribunal's decision for Assessment Year 2005-06 (ITA No.8725/Mum/2010). The Tribunal noted that the provision for warranty was disallowed because it was considered a contingent liability. The Tribunal cited the Supreme Court's decision in Rotork Controls India Pvt. Ltd. (314 ITR 62), which requires a fair, scientific, and reasonable basis for such provisions. The Tribunal upheld the disallowance but directed the Assessing Officer to quantify the correct disallowance. 3. Re-computation of Disallowance under Section 14A read with Rule 8D: The third issue involved the Revenue's appeal against the direction to recompute the disallowance under Section 14A read with Rule 8D after excluding long-term capital investment in subsidiary/group concerns. The Tribunal upheld the Ld. Commissioner of Income Tax (Appeal)'s decision, which relied on the Tribunal's decision in Garware Wall Roaps Ltd. (65 SOT 86). The Tribunal dismissed the Revenue's appeal, noting that the issue was currently in favor of the assessee, although it acknowledged that the order of the Hon'ble High Court would be binding on both parties. Conclusion: The Tribunal allowed the appeal of the assessee regarding the non-applicability of Section 14A in the absence of exempt income and upheld the disallowance of the provision for warranty, directing the correct quantification. The Tribunal dismissed the Revenue's appeal on the re-computation of disallowance under Section 14A read with Rule 8D. The Tribunal's decisions were pronounced in the open court on 13/02/2017.
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