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TMI Blog2014 (9) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... payable, staff loan etc. from which the full details thereof not placed – Decided partly in favour of assessee. Amount of donation disallowed while making computation – Held that:- The assessee pointed out to the break-up of the donation – and the amount was given to the society to comply with the social responsibility towards society and was not in the nature of donation - the payments were made on account of business expediency and social responsibility, and hence allowable as deduction - the major amount of donation is to the Red Cross society, and therefore, claimed as business expenditure –revenue did not controvert the submissions of the assessee – Decided in favour of assessee. Adjustment of royalty payment being international transaction – Held that:- The CIT(A) while deleting the addition has noted that facts of the case of the assessee in this year are identical to the earlier years and rightly held that the issue regarding payment of royalty at the rate of 3.75% to the AE by the assessee, as against the royalty at the rate of 3% by other group entities, it was explained by the assessee before the AO that the royalty at 3.75% was applied after reducing various expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision – Decided in favour of revenue. Deduction for debit balance written off – Sum due from different parties allowable u/s 28 or 37 – Held that:- The Revenue authorities have disallowed the claim of the assessee for deduction for the debit balances written off which were due from different parties, on the ground that the same were not arising out of the sales made by the assessee - the loss incurred during the course of business and that the assessee has written off the amount from its accounts, as the same became irrecoverable – relying upon T.R.F. Ltd. Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] - in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable; it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee – Decided in favour of assessee. Deduction u/s 40(a)(ia) – Effect of amendment w.e.f. 1.4.2005 – Held that:- The claim of the assessee for further deduction was not before the CIT(A) or the AO, before passing their respective orders – thus, the matter is to be remitted back to the AO for considering admissibility or otherwise of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re debit balances not arising out of sales and did not fall under the purview of section 36(1)(vii) of the Act. The assessee was asked to show cause as to why the deduction claimed under the above head be not disallowed, to which, the assessee, inter alia, submitted that the advances written off were Earnest Money Deposit ( EMD for short) paid in respect of submission of tenders for supply of ACs., and since the said deposits were not received back, an amount of ₹ 14,83,037/- was written off and claimed as business loss. With regard to balance written off aggregating to ₹ 30,48,835/-, the assessee submitted the reasons like party not traceable, company s efforts to recover failed, there was a dispute with customer etc. The submissions of the assessee were not found acceptable to the AO. The AO was of the view that the assessee has not justified as to how the debt has become bad, and had also not mentioned about recovery measures taken by the assessee against the parties. He was, therefore, of the view that it could not be said that the debt has become actually bad, and therefore, the same were not allowable under section 36(1)(vii) of the Act. He further placing relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held that for claim of bad debts, the appellant just needs to write off the books of accounts. It is not necessary for the appellant to prove that debt had become bad. In view of the above, the addition made by the AO is not justified and the same is deleted. 5. Aggrieved by the order of the CIT(A), the assessee is now in appeal before us. Before us, the learned counsel for the assessee reiterated submissions made before the CIT(A). With respect to advances written off amounting to ₹ 14,83,037/-, he submitted that in the business of the assessee, it is the business practice to give advances to the parties to supply ACs, which was in the nature of earnest money in respect of tenders, and it is a necessary business custom which cannot be foregone. He further relied on the decisions in the case of CIT Vs. Abdul Razak Co., (1982) 136 ITR 825 (Guj), in the case of Commonwealth Trust (India) Ltd. Vs. CIT, (2000) 242 ITR 593 and Commissioner of Income-tax v. Triveni Engineering and Industries Ltd., 343 ITR 245. He also pointed out the list of advances placed at page no.48 and 49 of the paper book, in support of his contention that the deposits were towards EMD. With re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 46,247/- which was not added back while making computation by the assessee. Aggrieved by the action of the AO, the assessee carried the matter before the CIT(A). The CIT(A) upheld the disallowance by holding as under: 9. Donation is not diversion of income but application of income. Hence payments by way of donations are not allowable as deduction from the business income. In the case of Malayala Manorma Co. Ltd., Reported in (2006) 150 Taxmann 505 (Ker) he Hon ble Kerala High Court has held that contribution made to the trust for rehabilitation of earth quake victims was not expenditure laid out wholly, necessarily and exclusively for the purpose of business and was not allowable as deduction. In view of the above the AO was justified in disallowing the donation made of ₹ 46,247/-. The same is confirmed. 8. Aggrieved by the order of the CIT(A), the assessee is now in appeal before us. Before us, the learned AR submitted and pointed out to the break-up of the donation of ₹ 46,247/- at page no.14 of the paper book. From the details, he submitted that major amount of ₹ 42,320/- was paid to Red Cross Society and was given to the society to comply with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by holding as under: 4.. It is seen that in this case, on identical issue appeal has been decided by the CIT(A)-VIII, for A.Y.2004-05 vide appeal order No.CIT(A)-VIII/DC- 4/347/2006-07 dated 19-3-2008 following the earlier year s decision and deleted the addition made. Since the facts are similar for this year, after considering the order of the Addl.CIT, as also submissions/evidences filed and following the order of CIT(A)-VIII for A.Y.2004-05, the disallowance made for ₹ 16,64,667/- being adjustment on account of international transaction is directed to be deleted. 14. Aggrieved by the order of the CIT(A), the Revenue is now in appeal before us. Before us, at the outset, the learned AR submitted that similar disallowance was made in A.Y.2004-05 and in appeal, the Hon ble ITAT, Ahmedabad Bench in ITA No.2363/Ahd/2008 order dated 24.9.2013 has deleted the disallowance made by the AO. He placed on record copy of the aforesaid order and pointed to para 51 at page no.28 of the order. He further submitted that since the facts of the case in the year under appeal are identical to that of earlier years, the order of the CIT(A) be upheld. The learned DR, on the other han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,33,36,786/- on account of provision of obsolescence of inventory. 17. During the course of assessment proceedings, the AO noticed that the assessee has debited provisions for slow moving/obsolete stock amounting to ₹ 1,33,36,786/-. The assessee was asked to show cause as to why the same should not be disallowed being provision. The assessee, inter alia, submitted that non-moving items included the inventory, which were lying for long time in the stock, and were valued at cost or market value, whichever is less , which is as per the method of valuation regularly followed by the assessee-company. It was further submitted that the items of inventory have become obsolete and the value of stock was reduced below its cost, and therefore, considering the reduction in market value of inventory, a provision was made. The submission of the assessee was not found acceptable to the AO, as he was of the view that the provision made by the assessee was not for any ascertained liability but has made the provision for slow moving/obsolete stock and that the provision was contingent in nature. He accordingly, disallowed the claim of the assessee. 18. Aggrieved by the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e furnishing the complete particulars in this regard, if necessary, with adequate proof. Hence, in our considered opinion, no interference is called for in the order of the ld.CIT(A) on this issue, because he has taken proper care to ensure that all the details and evidences are obtained and are examined by the AO and only thereafter, deduction is to be allowed, if the assessee is able to establish before the AO that such write off in respect of provision for obsolescence of inventory claimed by the assessee is in line with the accepted method of valuation of stock, i.e. at cost or market price, whichever is lower. Hence, this ground no. 4 of the Revenue is also rejected. 21. Since the facts in the year under appeal are identical to earlier years as claimed by both the parties, we find no reason to interfere with the order of the CIT(A) on this issue, and thus, this ground of the Revenue is also dismissed. 22. The ground no.3 of the Revenue s appeal is with regard to deletion of disallowance on account of warranty expenses of ₹ 1,55,65,120/- . 23. During the course of assessment proceedings, the AO noticed that the assessee has debited sales and warranty commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ahd/2008 for A.Y.2004-05, similar issue was before the Co-ordinate Bench of ITAT, and the Co-ordinate Bench of ITAT after detailed discussion and following the decision of the Hon ble Apex Court in the case of Rotork Control India P. Ltd., (supra) set aside and restored the issue back to the file of the ld. CIT(A) to decide the same afresh. The relevant portion of the above ITAT order is reproduced below: 5. Regarding ground no.2, we find that this issue was decided by the ld.CIT(A) on this basis that this issue is covered in favour of the assessee by the decision of the Bangalore Bench of the Tribunal rendered in the case of IBM India Ltd. Vs. CIT, 290 ITR 183 (AT) (Bang). By now, this issue is also covered by the judgment of the Hon ble Apex Court rendered in the case of Rotork Controls India P. Ltd v. Commissioner of Income-tax, 314 ITR 62 (SC). As per these judgments of the Hon ble Apex Court rendered in the case of Rotork Controls India P. Ltd (supra), it was held that the provision made for incurring warranty expenses is allowable on provision basis also, if such provision is made by the assessee on some scientific basis. Before us, the assessee has not furnished details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he material brought on record by the AO. 2. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 1,85,59,435/- made by the AO on account of provision for obsolescence of inventory, without properly appreciating the facts of the case and the material brought on record by the AO. 3. The ld. CIT(A) has erred in law and on facts in disallowance of warranty expenses of ₹ 1,55,65,120/- made by the AO without properly appreciating the facts of the case and the material brought on record by the AO. 31. Both the parties before us submitted that the above three issues are similar to issues raised in the appeal of the Revenue in ITA No.182/Ahd/2011 for A.Y.2005-2006, and therefore, the above grounds may be decided accordingly. 32. After hearing the parties, we find that grounds raised in this appeal are identical to the grounds raised in the appeal of the Revenue for A.Y.2005-2006, and for the reasons recorded in the appeal of the Revenue in ITA No.182/Ahd/2011 for A.Y.2005-2006 in the foregoing paras of this order, we decide the issue accordingly. 33. In the result, the appeal of the Revenue in ITA No.1136/Ahd/2011 for A.Y.2006-2007 is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh if the bad debt is written off as irrecoverable in the accounts of the assessee. This being so in the case of assessee, we are not inclined to take a different view on this issue, and accordingly, this ground of the CO of the assessee is allowed. 38. The ground no.2 of the CO of the assessee is as under: 2. On the facts and in the circumstances of the case, this Hon ble Tribunal may be pleased o direct the AO to process and consider on merits the assessee s claim made in its letter dated 16.2.2011 addressed to the AO for claiming further deduction ₹ 1,21,39,516 in pursuance of the provisio to section 40(a)(ia) as amended retrospective with effect from 1.4.2005 by the Finance Act, 2008. 39. The assessee in its written submissions stated that as per the proviso to section 40(a)(ia) the assessee claimed deduction of ₹ 7,26,31,338/- in the return for A.Y.2006-07 for the sums of expenditure pertaining to A.Y.2005-06 on which TDS was effected and paid during the time available for A.Y.2006-07. Thus, out of disallowance effected a sum of ₹ 9,09,94,234/- during A.Y.2005-06 a sum of ₹ 7,26,31,338/- was claimed as deduction in A.Y.2006-07. It is submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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