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2022 (3) TMI 1285 - AT - Income TaxDisallowance of warranty expenses which was made on the basis of past experience and on a scientific basis - HELD THAT -The Tribunal in the orders for assessment years 1996-1997 to 2007-2008 after considering the method of providing for warranty liability by way of provision held that provision made was based on past history and was on scientific method of estimating the liabilities on account of warranty claim. In view of the co-ordinate Bench order of the Tribunal in assessee s own case which is identical to the facts of the instant case we direct the A.O. to allow the provision for warranty as an allowable deduction. Therefore ground 2 is allowed. Disallowance u/s 14A r.w.r. 8D - HELD THAT - Disallowance u/s 14A r.w.s. 8D(2)(ii) as gone through the financial find that the assessee has total investment as on 31.03.2008 at 70.45 crore. The assessee s interest free fund namely share capital and reserves and surplus is far exceeding the above investment. Therefore going by the dictum laid down by the Hon ble jurisdictional High Court in the case of CIT v. Micro Labs Limited 2016 (4) TMI 219 - KARNATAKA HIGH COURT no disallowance of interest u/s 14A r.w.r. 8D(2)(ii) is called for and we delete the same. Disallowance u/s 14A r.w.r. 8D(2)(iii) - AR took us to the various types of expenses incurred by the assessee and submitted that most of the expenses are not related to the earning of exempt income. It was submitted that the issue may be restored to the files of the A.O. to re-determine the disallowance by excluding the value of investment which did not yield exempt income while computing average value of investments as per order of ACIT v. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI - DR did not have objection to the above submission of the learned AR. Therefore we set aside the order passed by the CIT(A) as regards the disallowance u/s 14A r.w.rule 8D(2)(iii) of the I.T.Rules and restore the matter to the files of the A.O. Deduction u/s 10A - deduct telecommunication expenses incurred in foreign currency from total turnover and from export turnover - HELD THAT - Hon ble Apex Court in the case of HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT has held that when expenditure is reduced from export turnover the same should be reduced also from the total turnover while computing deduction u/s 10A - we hold that the CIT(A) is justified in directing the A.O. to reduce expenditure reduced from export turnover also from total turnover while computing deduction u/s 10A of the I.T.Act. It is ordered accordingly. Commission payment disallowed u/s 40(a)(ia) as cash discount - HELD THAT - The limited submission of the learned Standing Counsel is to remit the issue to A.O. According to the learned Standing Counsel the CIT(A) has admitted additional evidence without giving the A.O. an opportunity to examine the same. We find that no additional evidence was produced by the assessee before the CIT(A). The details of the cash discount and foreign commission were already on record before the A.O. The cash discount and foreign commission in total was 4.30 crore and break-up of the same was provided (the break-up of cash discount of 3, 24, 37, 251 and foreign commission of 1, 05, 56, 342). Providing the break-up of figure which already on record does not amount to production of additional evidence. Moreover no useful purpose would be served at this point of time to remand the matter (since we are concerned with A.Y. 2008-2009) to A.O. to examine the break-up of figure which is already available before him at the time of assessment Customs duty included in the closing stock u/s 43B - HELD THAT - As relying on ASEA BROWN BOVERI LIMITED. 2007 (4) TMI 284 - ITAT BOMBAY-E AO is directed to allow the deduction u/s 43B with respect to payments made towards entire custom duty paid in respect of goods lying in closing stock. This ground therefore succeeds.
Issues Involved:
1. Provision for warranty expenses. 2. Disallowance under section 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules, 1962. 3. Deduction of telecommunication expenses from total turnover and export turnover under section 10A. 4. Admission of additional evidence regarding commission payment disallowed under section 40(a)(ia). 5. Deduction of customs duty included in the closing stock under section 43B. Issue-wise Detailed Analysis: 1. Provision for Warranty Expenses: The assessee challenged the disallowance of ?30,07,26,000 for warranty expenses, which was based on past experience and scientific methods. The Tribunal noted that similar provisions had been allowed in previous years (1996-1997 to 2007-2008) and had attained finality. The Tribunal found no difference in the basis of provision for the relevant assessment year and directed the Assessing Officer (AO) to allow the provision for warranty as an allowable deduction, thereby allowing ground 2 of the assessee's appeal. 2. Disallowance under Section 14A read with Rule 8D: The AO had disallowed ?93,04,441 under section 14A read with Rule 8D, which was partially upheld by the CIT(A). The Tribunal analyzed the financials and found that the assessee had sufficient interest-free funds to cover the investments, referencing the jurisdictional High Court's decision in CIT v. Micro Labs Limited. Consequently, the Tribunal deleted the disallowance of ?11,30,281 under Rule 8D(2)(ii). For the disallowance under Rule 8D(2)(iii), the Tribunal directed the AO to re-determine the disallowance by excluding the value of investments that did not yield exempt income, in line with the Special Bench decision in ACIT v. Vireet Investment Pvt. Ltd. 3. Deduction of Telecommunication Expenses under Section 10A: The Revenue's appeal contested the CIT(A)'s direction to deduct telecommunication expenses incurred in foreign currency from both total turnover and export turnover. The Tribunal referenced the Supreme Court's decision in HCL Technologies Ltd., which mandated that such expenses should be reduced from both total and export turnover. Thus, the Tribunal upheld the CIT(A)'s decision. 4. Admission of Additional Evidence regarding Commission Payment: The AO had disallowed ?4.30 crore for cash discount and foreign commission due to non-deduction of TDS. The CIT(A) allowed the cash discount, stating it was not liable for TDS. The Revenue argued that the CIT(A) admitted additional evidence without giving the AO an opportunity to examine it. The Tribunal found that the details were already on record before the AO and providing a break-up did not constitute additional evidence. Hence, the Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's ground. 5. Deduction of Customs Duty under Section 43B: The CIT(A) allowed the deduction of customs duty included in the closing stock, referencing previous ITAT orders and judicial decisions. The Tribunal found no contrary argument from the Revenue and upheld the CIT(A)'s decision. Conclusion: The assessee's appeal was partly allowed, specifically for the provision for warranty expenses and partial relief under section 14A. The Revenue's appeal was dismissed in its entirety, upholding the CIT(A)'s decisions on telecommunication expenses, commission payment, and customs duty.
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