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TMI Blog2013 (3) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. (a) The ld CIT(A) erred in confirming the disallowance of advances written off of Rs 100,000/-. (b) He erred in observing that the appellant did not contest the fact that the amount was capital in nature and was not allowable as a bad debt. 3. The ld CIT(A) erred in confirming the disallowance of Rs 272,628/- being repairs to factory building. 4. The ld CIT(A) erred in confirming the exclusion of 90% of following receipts from profit of business for the purpose of deduction u/s 80HHC of the I.T. Act, 1961: Nature of receipt Amount in Rs. Service charges 40,025,643 Sale of Manuals 615 Technical fees received from Revathi CP 1,500,000 Training charges 75,900 Professional fees received from Bhagwati Foundries 1,771,000 3. Before us, at the outset, the learned Counsel for the assessee did not press Ground No.1 of the appeal and, therefore, the same stands dismissed for non-prosecution. 4. The Assessing Officer disallowed an amount of Rs 1,00,000/- being advances written-off under the head "Miscellaneous expenses", which is the subject matter of dispute in Ground No. 2. The said amount represented an Inter-Corporate Deposit given to one M/s Vitara Chemicals Ltd. w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to tax as business income. In this regard we have seen the assessment orders in assessee's case for AY 1999-2000 and 1998-99, wherein the interest income has been offered as business income and tax accordingly. In view of the above, we are of the view that the findings of the CIT(A) that assessee was engaged in the business of making ICDs has to be upheld. It is further seen that the company M/s Vitara Chemicals Ltd. became a sick company. The assessee filed a criminal complaint u/s 138 of the Negotiable Instrument Act against M/s Vitara Chemicals Ltd., but the same did not bare any result. M/s Vitara Chemicals was declared as sick company under the Sick Industries Special Provisions Act. In the above circumstances, we are of the view that the claim of the assessee that it had incurred a business loss to the extent of Rs 48.00 lacs u/s 28 of the Act has to be accepted. Even otherwise as laid down by the Hon'ble Delhi Bench of the ITAT in the case of Poysha Oxygen Pvt. Ltd. v. ACIT (2008) 19 SOT 711 (Del) moneys lent y way of ICDs was a loan transaction and represents money lent in the ordinary course of business of money lending and, therefore, allowable as deduction u/s 36(1)(v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of his arguments, reliance has been placed on the following judgments: (i) Standard Mills Co. Ltd. v. CIT 181 233(Bom); (ii) Addl. CIT v India United Mills Ltd 141 ITR 399(Bom). 11. On the other hand, the learned Departmental Representative, appearing for the Revenue, has pointed out that the expenditure in question was for erection of additional shed for LPG gas bank and therefore, the same has been rightly considered as a capital expenditure. 12. We have carefully perused the orders of the authorities below and also the submissions put-forth by the assessee, copies of which have been placed on record. The assertion of the assessee has been that an expenditure of Rs 2,72,628/- classified as repairs to factory building, was incurred on repair work carried out at Dapodi factory to strengthen the existing shed for LPG gas bank and additional set of gas cylinders with the purpose of better protection from rain as well as increased security. In our view, the assessee is right in contending that under the above circumstances, no enduring benefit results on account of such expenditure inasmuch as an existing shed has been merely strengthened and therefore, the expenses are only f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng "profits of the business" for the purposes of computing deduction under section 80HHC of the Act. 16. We have carefully considered the rival stands. In so far as exclusion of 'Service Charges' from "profits of the business" as per Explanation (baa) to section 80HHC is concerned, the same has been considered by our coordinate Bench in the assessee's case vide its order dated 30.11.2010 (supra) in the following words: "10. As per the Revenue, these receipts did not form part of the main activities of the assessee and therefore they is not to be included in the eligible profits of th business for the purpose of deduction u/s 80HHC of the Ac. Accordingly, CIT(A) denied the benefit of deduction to the assessee. During the proceedings before us, relying on page 1 of the paper book, Ld. Counsel argued stating that the said amount stands excluded while computing the income chargeable to tax, if that be the case, the question of reducing the 90% of the said amount while arriving at the profits of the business is patently erroneous. Further, he relied on the judgment of the Bombay High court in the case M/s Pfizer Ltd bearing ITA No 128 of 2009 for the proposition that the insurance rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d even where the customers were govt. agencies which is against the public policy? 2. Whether on the facts and circumstances of the case and in law, the ld CIT(A) was justified in allowing additional evidence on the issue of commission paid without allowing the AO to present his point of view, more so when ample opportunity was provided to the assessee company during assessment proceedings for the relevant AY and the assessee company could not fully substantiate the payment of commission vis-à-vis commercial expediency, actual service rendered and lack of substantive proof like correspondence etc. in this regard? 3. Whether on the facts and circumstances of the case and in law, the ld CIT(A) was justified in ignoring the fact that the invoice submitted by the assessee company during assessment proceedings stated the procurement of software as "Acquisition of MS Software License", thereby deleting the addition made by the AO by treating it as a capital expenditure u/s 32(1)(ii) and allowing proportionate depreciation? 4. Whether on the facts and circumstances of the case and in law, the ld CIT(A) was justified in deleting the disallowance of Rs 21,91,994/- made by the AO u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the assessee. Of these, replies from 12 parties were received. The Assessing Officer also called for detailed information regarding the names and addresses, nature of services rendered, proof of payment of commission etc. from the assessee, to which assessee submitted a detailed note. The Assessing Officer was not satisfied with the submissions of the assessee and disallowed the commission for the reason that assessee failed to produce any evidence of actual services rendered by the parties, or any correspondence between the payees and the ultimate customers. According to the Assessing Officer, there was no evidence to show that the commission payments were commensurate with the services rendered by the payee agents. He also found that commission was paid even where the customers were Government agencies. According to the Assessing Officer, there was no scope for payment of commission in Government contracts and thus, the assessee failed to discharge the onus of proving the genuineness of commission payments to the various parties. For all the above reasons, the Assessing Officer disallowed the commission payments of Rs 2,20,84,664/-. Against this action, the assessee went ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) made no mistake in deleting the addition on the basis of the material and submissions put-forth by the assessee before the lower authorities. In this regard, reference has been made to the relevant pages of the Paper book to point out the material which was placed before the lower authorities. Our attention has been drawn to the details of the commission paid indicating the name and address of the parties to whom commission is paid as well as the comparative chart of the commission paid for the earlier two years, copies of which have been placed at pages 35 to 39 of the Paper Book. The details of commission paid linking it to the sales made during the year along with the copies of agreements entered with dealers on a sample basis, etc., has also been referred to in the Paper Book which are placed at pages 42 to 181. It has further been pointed out that in the past years also in the assessee's own case for assessment years 1986- 87, 88-89, 91-92, 92-93, 03-94 and 95-96 in ITA Nos 5141, 5142/Bom/94, ITA Nos l7280 to 7282/Bom/95, 1978/Bom/97, 3315/Bom/99 & 152/Bom/2003 and ITA No 4335/Mum/04 for assessment year 2000-01, the Tribunal had an occasion to deal with similar disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the personnel. 24. All the aforesaid factual aspects of the matter have not been found to be non- existent by the either of the authorities below during the year under consideration. It is also not the case of the Revenue that the commission expenses have not been regularly incurred by the assessee as in the past years. In fact, one of the points raised by the Assessing Officer is with regard to the commission paid to dealers where the customers include Government agencies. In this regard, we find that the assessee specifically explained in its written submissions, copy of which has been placed 182-183 of the Paper Book, that generally the orders received from the Government agencies are from the remote locations, viz, Border roads organization or mining customers from remote locations. The company has its regional offices with its team of sales and service personnel who look after a large area covering 4 to 5 States and this team is supported by the network of dealers who are located close to the remote sites of the customers. In this situation, the dealer responsibility for such Government customer is to provide logistics and communication support for follow up and securing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges was not allowable as revenue expenditure and that the same amounted to a 'license' within the meaning of section 32(1)(ii) on which only depreciation was allowable. The assessee took up the matter in appeal before the Commissioner of Income-tax (Appeals). 26. Before the Commissioner of Income-tax (Appeals), the assessee stated that for the financial year 2000-01, it had incurred a sum of Rs 11,08,961/- towards acquisition of MS Office software license. According to the assessee, it had only acquired right to use the software and not software per se and that the software license acquired by the company was application software and not operating software. It was further contended that software expenses were towards acquisition of MS office license (Professional & Standard) which was not customized software and could be used only for limited purpose or for limited period. It was, therefore, claimed that the expenses incurred were fully allowable as revenue expenditure and for this, the assessee placed reliance on the decision of the Special Bench of the Tribunal in the case of Amway India Enterprises v DCIT and Sol Star International Ltd. v. ACIT 111 ITD 112. 27. After consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace period of 5 days (i.e. upto 20th of following month should be allowed) u/s 36(1)(va) have to be regarded as paid within 'due date'. Since the appellant had made the payments within the said dates, the expenditure was allowable. 23. Accordingly, this Ground of appeal is allowed, the addition made on this account is deleted." Against this decision of the Commissioner of Income-tax (Appeals), Revenue is in appeal before us. 30. Before us, the learned Departmental Representative assailed the decision of the Commissioner of Income-tax (Appeals) by placing reliance on the order of the Assessing Officer. On the other hand, the learned Counsel for the assessee, defended the order of the Commissioner of Income-tax (Appeals) and submitted that the impugned payment has been made within the grace period under the Provident Fund Act. 31. We have carefully considered the submissions of the parties. We find that the assessee has made the payment within the grace period under the Provident Fund Act and therefore, the payment could be regarded as having made within due date as per provisions of section 36(1)(va) of the Act. In this view of the matter, we affirm the decision of the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn case for the assessment year 1998-99 dated 30.11.2010 (supra) wherein the warranty claim at the rate of 0.4% of the net sales have been held to be a reasonable estimate, whereas in the instant assessment year the provision allowed by the Commissioner of Income-tax (Appeals) comes to 0.37% of the net sales of the year. It was therefore contended that the order of the Commissioner of Income-tax (Appeals) does not deserve any interference. 36. We have carefully considered the rival submissions. The dispute relates to a Provision for warranty debited to the Profit & Loss account, which was disallowed by the Assessing Officer on the ground that the same was a contingent liability and that the same was merely an estimate. In our considered opinion, having regard to the judgment of the Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd (supra), the argument of the Assessing Officer that Provision for warrant is a contingent liability does not hold good. The Provision made for after-sales warranty services in the present case is an integral part of the terms and conditions governing the contract for sale of the assessee's product and the same has also been found to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year. Further, sales tax payment falls in the ambit of sec.43B which is allowable on actual payment basis. 27. As such, this ground of appeal is allowed and the corresponding disallowance of Rs 10,50,000/- is deleted." Revenue is in appeal before us against the above decision of the Commissioner of Income-tax (Appeals). 39. Before us, the learned Departmental Representative assailed the decision of the Commissioner of Income-tax (Appeals) by placing reliance on the order of the Assessing Officer. On the other hand, the learned Counsel for the assessee defended the order of the Commissioner of Income-tax (Appeals) and submitted that the liability on account of CST even though pertaining to earlier previous year, it crystallized during the year and therefore, no interference is called for with the order of the Commissioner of Income-tax (Appeals). 40. We have carefully considered the submissions of the parties. In our considered opinion, the Commissioner of Income-tax (Appeals) made no mistake in deleting the impugned disallowance. The assessee has established that the liability on account of CST even though pertained to earlier period, has in-fact crystallized during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that write off of stock in accordance with the accounting principle and practice regularly followed by the appellant was allowable. In coming to this view, I have also taken into account the appellant's submission that the write off is based on a scientific review of inventory, that in case the written off stock or scrap thereof is sold, the same is offered for tax, that this method of stock valuation has been regularly followed ove3r the years, that disallowance of such write off would only go to reduce the opening stock for the next year and also the ratio of the judicial precedent cited by the appellants. 39. As such, this Ground of appeal is allowed and the addition on this account is deleted." Revenue is in appeal before us against the aforesaid decision of the Commissioner of Income-tax (Appeals). 43. Before us, the learned Departmental Representative has submitted that the Commissioner of Income-tax (Appeals) was not justified in deleting the addition on account of stock written off as it was a mere provision and that the Assessing Officer was justified in disregarding the said write off, inasmuch as the assessee did not justify the circumstances in which the impugned sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lued at cost or market price whichever is lower. The principle applicable with regard to obsolete stock is akin to the aforesaid theory and the assessee made no mistake in adopting such a policy to make a provision for the obsolete stock. In the present case, in our view, the Commissioner of Income tax (Appeals) made no mistake in deleting the addition. In fact, the learned Counsel for the assessee had pointed out that a similar dispute had arisen in the assessee's own case for the assessment years 1973-74 to 1975-76 and the Tribunal had upheld the stand of the assessee and for that matter a reference was made to the decision of the Tribunal, Bombay Bench in the case of IAC v. Consolidated Pneumatic Tool Co. (I) Ltd. 15 ITD 564 (Bom). It is further pointed out that such policy of identifying and making a provision for diminution of value of obsolete stock was accepted by the department in the past and no disallowance was made till the instant assessment year. In this background of the matter also, we find that the Commissioner of Income-tax (Appeals) has rightly deleted the addition and that the Ground of appeal raised by the Revenue lacks merit. Ground No. 8 of appeal is thus dism ..... X X X X Extracts X X X X X X X X Extracts X X X X
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