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TMI Blog2013 (5) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... products. The company also produces softwares to its customers as per their specifications. Thus, the assessee has to provide performance guarantee and for the same, the clauses for warranty is provided. Thus, the sales and warranty were inextricably related to each other. The assessee company is maintaining the accounts on the mercantile system. The liability for warranty expenses is a committed liability at the very initial stage of the sales. The amount of provision based on past experience exhibits a direct nexus between the claim for provision and obligation arising under the warranty clause. Thus it can be said that it is a liability which has arisen in the relevant year though its actual quantification and discharge is deferred to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 3. In the ground no.1, the issue involved is deleting the addition of Rs.36,32,968/- made by Assessing Officer u/s 14A of the Income-tax Act, 1961. 4. While pleading on behalf of the revenue, the ld. DR submitted that during the year, the assessee company has earned dividend income of Rs.3,42,31,282/-. The ld. DR submitted that earning such huge income, the assessee must have incurred expenses on management/establishment and other office heads. Ld. DR submitted that the possibility of incurring certain expenditure under the head administrative expenses on earning of dividend income cannot be ruled out. Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seen, stipulates that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income in accordance with such method as may be prescribed . Of course, this determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een now widened under section 14A." So, even for the pre-Rule8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also submitted that the provision has been made for unascertained liability. The assessee was failed to prove the actual incurrence of liability under the warranty clauses on the basis of fixing the percentage of the turnover. In absence of such deductions, the claim of the assessee on the basis of percentage of the turnover should not have been allowed. He also relied on the order of Hon'ble Madras High Court in the case of CIT vs. Totork Controls India Limited 293 ITR 311. 9. On the other hand, the ld. AR relied on the order of the CIT (A) and pleaded that the company is doing the business of computer software development and trading of bought out product. The company develops software for the customer according to their specification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s customers as per their specifications. Thus, the assessee has to provide performance guarantee and for the same, the clauses for warranty is provided. Thus, the sales and warranty were inextricably related to each other. The working of the warranty is based on technical estimates and past experience. The assessee company is maintaining the accounts on the mercantile system. The liability for warranty expenses is a committed liability at the very initial stage of the sales. The amount of provision based on past experience exhibits a direct nexus between the claim for provision and obligation arising under the warranty clause. In view of this, it can be said that it is a liability which has arisen in the relevant year though its actual quan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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