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TMI Blog2015 (3) TMI 973X X X X Extracts X X X X X X X X Extracts X X X X ..... re not incurred by the assessee company in absence of any adverse material or evidence. At the same time, we are of the considered opinion that there was no good cause for the AO for making 50% ad hoc disallowance of the Software Services Charges claimed by the assessee as if, the AO was of the opinion that payment were not genuine that the entire expenses should have been disallowed. We are unable to see any valid reason or ground for making 50% disallowance by the AO. We cannot ignore that the ld. CIT(A) for AY 2005-06 has also allowed similar claim of the assessee and on specific query from the Bench the ld. DR was unable to guide us whether the Department further agitated the issue before the Tribunal and hence, we may safely presumed that the order of the ld. CIT(A) for AY 2005-06 has been accepted by the Department. On the rule of consistency it is a well accepted proposition that although the principle of res judicata does not apply to the taxation matter but the rule of consistency has to be followed by the Revenue Authorities and flip flop approach on the similar issue is not permissible unless and until any substantial change in the facts and circumstances of the case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal are that the assessee company is engaged in the business of computer Software Development and Trading of Bought Out Products. The assessee company filed its return of income on 31.10.2007 declaring an income of ₹ 19,03,01,880/- and the case was selected for scrutiny. During the course of assessment proceedings the AO made disallowances and additions on account of disallowance u/s 14A of the Act, provisions for warranty expenses, software services charges, gratuity u/s 40A(7) of the Act and depreciation on computer peripherals and finalize the assessment at ₹ 31,90,62,670/- as against the returned income of ₹ 19,03,01,880/-. 4. Being aggrieved by the above assessment order the assessee preferred an appeal before ld. CIT(A) which was allowed on all the counts deleting the disallowance and additions made by the AO. 5. Now, the aggrieved Revenue is before this Tribunal with the main four grounds as reproduced hereinabove. Ground No.1 6. Apropos ground no. 1 the ld. DR submitted that the ld. CIT(A) has erred on facts and in law in deleting the disallowance of provision for warranty expenses amounting to ₹ 4,00,978/- on the ground that the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranty has also to be considered as cost against the sales. Such cost for warranty is not contingent liability. The quantification of the warranty has been made on technical estimates based on past experience and the warranty clauses s contained in the agreements of sales with the customer. Ld. AR further submitted that warranty clauses imposed a liability on the company to discharge its obligation under the clauses of the agreement for the period of warranty. Thus, the liability is capable of being construed in definite terms and has 7 ITA No.2804/Del./2012 arisen on the sales effected in the accounting year. Since the assessee is maintaining books of accounts on the mercantile system basis, this liability has been accrued though it shall be discharged at a future date. Therefore, such claim has to be considered while working out the profit and gain of the business for the year under consideration. He relied on the decision of CIT (A). 10. We have heard both the sides on the issue. The assessee company is doing the business of computer software and trading of bought out products. The company also produces softwares to its customers as per their specifications. Thus, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus of substantiating the claim. The ld. DR also pointed out that during the immediate preceding year the assessee has also not furnished similar details which led out to the addition on this count. The ld. DR submitted that the impugned order may be set aside by restoring that of the AO on this issue. 11. Replying to the above, the ld. AR supporting the impugned order submitted that there was no basis for the AO for ad hoc disallowance of 50% of Software Services Charges as there is no concept of ad hoc disallowances in this regard. The ld. AR further drawn our attention towards this fact that during AY 2005-06 the AO made similar disallowance which was allowed by the ld. CIT(A) dismissing the action of the AO, vide order dated 30.9.2009 which is available on paper book page nos. 22 to 30. The ld. AR further contended that as per information gathered by the assessee the Department has not gone in appeal to the ITAT against the said order of the ld. CIT(A) which granted relief for the assessee for AY 2005-06. 12. On careful consideration of above submissions and vigilant perusal of the impugned order as well as order of the CIT(A) dated 30.9.2009 for AY 2005- 06, we note th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO is directed to delete the addition on account. 13. The only objection of the AO was that the assessee did not produce bills and vouchers related to the claimed expenditure of Software Services Charges. During the first appellate proceedings the ld. CIT(A) admitted the relevant document on the issue under rule 46A of the IT Rules 1962 and the AO also submitted remand report dated 2.2.2011 to the CIT(A). In the remand report the AO reiterated this contention that the assessee did not produce relevant documents before him during the course of assessment proceedings. 14. The ld. DR has not disputed this fact that the assessee company has paid the Software Services charges in the form of royalty amounting to ₹ 24,72,91,063/- to a Korean Company on account of Bharti Airtel Mobility through banking channels and the payments were made after due deduction of tax at source (TDS) thereon. 15. In view of aforesaid factual matrix of the case as noted by the ld. CIT(A) and not disputed by the AO, we are in agreement with the conclusion of the ld. CIT(A) that it cannot be presumed that the expenses were not incurred by the assessee company in absence of any adverse material or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has no serious objection if the matter is restored back to the file of the AO for fresh adjudication in the light of decision of the Tribunal dated 30.4.2013 for AY 2008-09 (Supra). 19. On careful consideration of above submissions, we note that the ITAT has restored the issue to the file of the AO with following observations and conclusion: 6. We have heard both the sides on this issue. Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT - [2011] 203 Taxmann 364 (Delhi) in paras 41 42 has held as under :- 41. Sub-section (2) of section 14A, as we have 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 4 ITA No.2804/Del./2012 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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment. Here, on the one hand, assessee claims that no expenditure was incurred for earning dividend income and on the other hand, disallows suo moto ₹ 1 lac towards earning such income. The Assessing Officer has to reject the claim of assessee and apportion the expenditure on reasonable and acceptable method. In our considered view, this issue required to be restored to the file of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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