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2017 (6) TMI 244 - AT - Income TaxDisallowance of claim for deduction being the provision for warranty quantified at 2% of the total sales in the computation of taxable total income - Held that - In our opinion, the warranty based on the actionable basis or scientific basis, it is to be allowed. This fact was not demonstrated by the assessee before the Ld.CIT(A). If the methodology followed to make such warranty provisions in the books of accounts is on notional basis, then notional provisions cannot be allowed. The assessee is duty bound to explain the basis on which it was provided in the books of accounts of the assessee. Accordingly, the issue in dispute is remitted to the file of ld. Assessing Officer for fresh consideration. Disallowance of foreign exchange fluctuation loss - Held that - In our opinion, the loss incurred by the assessee on account of foreign exchange fluctuation is arisen on depositing of export proceeds in EEFC account based on RBI guidelines. Being so, the loss on this count to be allowed as a revenue loss in view of the judgment of Supreme Court in the case of Woodward Governor India (P) Ltd. in 2009 (4) TMI 4 - SUPREME COURT . Accordingly, this ground of assessee is allowed TDS u/s 195 - Disallowance u/s.40(a)(i)- commission paid without deducting TDS - Held that - A similar issue came for consideration before this Tribunal in assessee s own case for assessment year 2008-09 as held that the non-resident agent did not provide technical services for the purposes of running of the business of the assessee in India. Therefore, the commission paid to the nonresident agents would not fall within the definition of fees for technical services and the assessee was not liable to deduct tax at source on payment of commission. - Decided in favour of assessee Addition on account of retention money - Held that - As decided in CIT vs East Coast Constructions and Ind. Ltd, 2006 (1) TMI 77 - MADRAS High Court the assessee was entitled to receive the retention money after completion of the contract. On the date of the bills, no enforceable liability had accrued or arisen. When the assessee had no right to receive the money by virtue of the contract between the parties and the assessee also had no right to enforce payment, it could not be said that the right to receive payment of the remaining 10 per cent of the value of job had accrued - Decided in favour of assessee Addition made towards forfeited trade advances - Held that - CIT(A) deleted the addition without calling for a remand report from the AO and the submissions of the assessee is not at all verified by the AO. Hence, this issue in dispute is remitted to the file of AO for fresh consideration.
Issues Involved:
1. Disallowance of provision for warranty. 2. Disallowance under Section 14A of the Income Tax Act read with Rule 8D. 3. Disallowance of foreign exchange fluctuation loss. 4. Disallowance under Section 40(a)(i) for commission paid without deducting TDS. 5. Addition of retention money. 6. Addition towards forfeited trade advances. Issue-wise Detailed Analysis: 1. Disallowance of Provision for Warranty: The Assessee's appeal (ITA No.1480/Mds./14) concerns the disallowance of ?27,62,934/- for warranty provisions. The Assessing Officer (AO) disallowed this provision, citing it as non-allowable based on a jurisdictional High Court decision. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting the provision was not based on historical trends or systematically maintained data. The Tribunal remitted the issue back to the AO for fresh consideration, emphasizing the need for the provision to be based on actionable or scientific data. 2. Disallowance under Section 14A read with Rule 8D: In the Assessee's appeal (ITA No.2403/Mds./14), grounds related to disallowance under Section 14A were not pressed by the Assessee during the hearing and were dismissed accordingly. 3. Disallowance of Foreign Exchange Fluctuation Loss: The Assessee's appeal (ITA No.2403/Mds./14) also involved the disallowance of foreign exchange fluctuation loss of ?5,09,335/-. The AO considered this loss notional, as it arose from amounts in the EEFC account. The CIT(A) upheld the AO's decision, but the Tribunal allowed the Assessee's claim, referencing the Supreme Court's judgment in the case of Woodward Governor India (P) Ltd., recognizing such losses as allowable revenue losses. 4. Disallowance under Section 40(a)(i) for Commission Paid Without Deducting TDS: The Revenue's appeal (ITA No.2385/Mds./14) involved the deletion of disallowance of ?13,65,327/- under Section 40(a)(i) for commission paid to M/s. Tricel Ltd. without TDS deduction. The CIT(A) had directed the AO to delete the addition, following a similar decision in the Assessee's case for a previous year. The Tribunal upheld the CIT(A)'s decision, citing the jurisdictional High Court's ruling in CIT Vs. Faizan Shoes Pvt Ltd., which held that such commission payments do not fall under "fees for technical services" and do not require TDS. 5. Addition of Retention Money: The Revenue's appeals (ITA No.2385/Mds./14 and ITA No.807/Mds./2013) included the deletion of additions for retention money of ?53,62,227/- and ?49,35,891/- respectively. The CIT(A) had directed the AO to delete these additions, referencing a previous decision in the Assessee's favor and the Madras High Court's ruling in CIT vs East Coast Constructions and Ind. Ltd., which held that retention money is not taxable until the right to receive it accrues. The Tribunal upheld the CIT(A)'s decisions. 6. Addition Towards Forfeited Trade Advances: In the Revenue's appeal (ITA No.807/Mds./2013), the issue of a ?50 lakh addition for forfeited trade advances was contested. The CIT(A) had deleted the addition, noting that the Assessee had already accounted for this amount as income. However, the Tribunal remitted the issue back to the AO for fresh consideration, as the AO had not verified the Assessee's submissions. Summary: - The Assessee's appeal in ITA No.1480/Mds./14 was partly allowed for statistical purposes, with the issue of warranty provision remitted back to the AO. - The Assessee's appeal in ITA No.2403/Mds./14 was partly allowed, with the foreign exchange fluctuation loss being allowed. - The Revenue's appeals in ITA No.2385/Mds./14 and ITA No.807/Mds./2013 were dismissed concerning disallowance under Section 40(a)(i) and retention money. - The issue of forfeited trade advances in ITA No.807/Mds./2013 was remitted back to the AO for fresh consideration.
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