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TMI Blog2015 (11) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... n, we are of the opinion that the disallowance of 15% sustained by the CIT (A) was reasonable. - Decided against revenue. Disallowance of depreciation on assets given by assessee under finance lease - CIT(A) allowed the claim - Held that:- AO himself has stated in the assessment order that though assessee termed the lease as financial lease, the terms of the lease did not provide for transfer of ownership to the lessee automatically at the end of the lease. Only reason why the lease was considered to be financial in nature was that the lease period was more or less on par with the life of the assets which were leased out and the renewal of the lease was at the option of the lessee for a nominal rent. However, in our opinion none of these can substitute the clause in the lease agreement which specified that the ownership of the assets continued to be with the assessee. Insurance for the leased products were borne by the assessee. Assessee was the owner and held the title of the assets. Giving an equipment on lease by itself can be considered as a business. We are of the opinion that by virtue of the decision of Hon’ble Apex Court in I. C. D. S (2013 (1) TMI 344 - SUPREME COURT), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground number 1 grievance raised is that disallowance of expenditure incurred by the assessee on repairs, maintenance and miscellaneous expenditure was scaled down to 15%. 03. Facts apropos are that assessee manufacturing and trading computer equipment and accessories had claimed repairs and maintenance expenditure of ₹ 3,09,46,505/-, break-up of which was as under : Machinery ₹ 40,64,233 Others Rs.2,68,82,282 Rs.3,09,46,505 Assessee has also claimed miscellaneous expenditure of ₹ 1,34,54,426/-. It seems during the course of assessment proceedings, assessee was unable to produce evidence in support of the above claim. He disallowed the above claim of expenditure totalling to ₹ 4,44,00,931/-. Aggrieved, assessee moved in appeal before the CIT (A). 04. Argument of the assessee before the CIT (A) was that it had all supporting evidence for the claim of maintenance and miscellaneous expenditure. CIT (A) sought a remand report from the AO. In such remand report, AO stated that assessee had produced the ledger accounts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned above, entire amount of expenditure under this head amounting to ₹ 40,64,233/- was disallowed. As the number of items totaling to this: amount was substantial, the evidence, was verified on a test check basis. Perusal of the records also showed that in the ledger, ledger, each line entry in turn relates to a bunch of bills/invoices involving several transactions. Therefore the assessee was again asked to match the line entries in the ledger with bills / invoices on a test check basis [This pattern is applicable to the remaining expenses covered in this report also]. The entry on 14.05.2001 for ₹ 2,01,524/- under the head Supra computers/labour ch/aprOl was selected. Copies of bills / invoices in respect of this entry were filed on 14.03.2011. In its letter dated 09.03.2011, the assessee admits that it is able to furnish the copies of bills only to the extent of ₹ 1,56,122/-. During the course of the hearing, it was argued for the assessee that it is due to the efflux of time that it is not possible to furnish copies of all the bills/invoices. Thus to the extent of verification made and subject to the difference as mentioned above, the assessee s claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him with respect to other repairs also. Very same view has been taken by him with regard to the miscellaneous expenditure also. Only major lacuna that has been pointed out by the AO is that some of the bills / invoices relate to preceding assessment year. CIT (A) worked out the percentage of difference between figures shown in the ledger entries and the supporting bills and found that difference varied between 1 to 23%. He therefore considered that an addition of 15% would be sufficient to address the deficiencies pointed out by the AO. In the face of the remand report of the AO, reproduced by us above, and the quantum of variation pointed out therein, we are of the opinion that the disallowance of 15% sustained by the CIT (A) was reasonable. We do not find any reason to interfere in the order of CIT (A) in this regard. Ground 1 of the Revenue stands dismissed. 09. Vide its ground 2 grievance of the Revenue is that CIT (A) directed allowance of depreciation on assets given by assessee under finance lease. AO had denied the claim of depreciation on assets which were leased out by the assessee on financial lease. 10. Facts apropos are that assessee had given certain assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termed the lease as financial lease, the terms of the lease did not provide for transfer of ownership to the lessee automatically at the end of the lease. Only reason why the lease was considered to be financial in nature was that the lease period was more or less on par with the life of the assets which were leased out and the renewal of the lease was at the option of the lessee for a nominal rent. However, in our opinion none of these can substitute the clause in the lease agreement which specified that the ownership of the assets continued to be with the assessee. Insurance for the leased products were borne by the assessee. Assessee was the owner and held the title of the assets. Giving an equipment on lease by itself can be considered as a business. We are of the opinion that by virtue of the decision of Hon ble Apex Court in I. C. D. S (supra), assessee having capitalised the assets in ITA.1136 1134/Bang/2014 Page - 10 its books was eligible for claiming depreciation thereon. We do not find any reason to interfere. Ground.2 of the Revenue stands dismissed. 15. Vide its ground 3, grievance is that CIT (A) directed the AO to allow the warranty provisioning done by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions under which the warranty provisioning can be allowed. According to him, the first and foremost condition was that provisioning should have been done on a scientific basis. Though the assessee was reiterating that it was done on a scientific basis, it had never furnished the particulars before the AO. Therefore according to him the matter required a fresh look by the AO. 19. Per contra, Ld. AR strongly supporting the order of CIT (A) submitted that during the course of assessment proceedings, assessee had given a detailed work out of the provisioning done. According to him, the cost of spare parts and cost of labour involved in the warranty was scientifically estimated, based on historical and technical data. When assessee had furnished all scientific details, as per the Ld. AR there was no reason why the Revenue should be given another innings. 20. We have perused the orders and heard the rival contentions. Hon ble Apex Court in the judgment in the case of Rotork Controls India P. Ltd (supra) had held as under at para 13 of its judgment : 13. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... important aspects which are to be satisfied for a scientific warranty provisioning are (i) provisioning should be for present obligation, arising out of past obligating events, (ii) it should involve future outflow of resources and (iii) a reliable estimate of obligation can be made. 22. In the case before us, it is an admitted position that the warranty provisioning for the relevant previous year was much higher than that of the preceding year, though the sales of the assessee were more or less of the same scale. Assessee itself in its letter dt.12.01.2005 to the AO had stated that there was change in methodology in computing the warranty cost. Relevant part of this letter is reproduced here under : 5.4 Further, there has been a change in the methodology of computing the warranty cost, which has been explained below. In the earlier years, warranty cost ratio was computed only on the basis of the standard cost of the spare parts consumed. In the current year, the cost component has been enlarged to include other elements of cost such as warranty related labour cost, customs duty, other logistic charges, etc. Based on such total cost, the ratio of Current Year Warr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He held that Section 40(a)(i) was applicable on the payments made to nonresidents and made a disallowance of ₹ 5,26,17,446/-. In its appeal before the CIT (A) argument of the assessee was that Section 40(a)(i) was amended w.e.f.01.04.2004. As per the assessee, prior to that date the requirement for both deduction and deposit of tax deducted was not there. According to the assessee, prior to 01.04.2004 it was sufficient if the deduction was effected before the due date. CIT (A) appreciated these contentions. Relying on the judgment of Hon ble Delhi High Court in the case of CIT v. Oracle Software India Ltd [293 ITR 353], he held that assessee having deducted the tax though it had not remitted it before the date of the audit could not be subjected to the rigors of Section 40(a)(i) of the Act. 26. Now before us, Ld. DR strongly assailing the order of CIT (A) submitted that unless the deducted tax as remitted prior to the time prescribed in sub-section (1) of Section 200 of the Act, assessee could not claim deduction of the amount on which such tax was deducted, while computing its income under the head profit and gains of income or profession. 27. Ld. AR supported the or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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