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TMI Blog2007 (9) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... . Act. Accordingly, we answer the said substantial questions of law Nos. 14, 9, 12 and 13 framed in these Appeals in favour of the assesses against the Revenue. The assesses who were aggrieved of the assessment orders passed by the Assessing Authorities, whose orders are confirmed by the Appellate Authority have questioned the same before the ITAT in disallowing the special benefits claimed by them u/s 80A, 80IA and 80HHE of the I.T. Act for the respective assessment years mentioned in their returns by disallowing certain mounts and giving certain benefits which were the subject matter of appeals before the appellate Tribunal. The Appellate Tribunal accepting the case of the assesses has set aside that portion of the assessment orders under the aforesaid provisions of the Act by accepting the grounds urged in the appeal and placing strong reliance upon the decision of the Calcutta High Court in M.N. Dastur s [ 1997 (1) TMI 118 - ITAT BANGALORE] . No doubt, it has referred to in the impugned judgment the judgments of various other High Court in justification of its findings. aggrieved by the said impugned judgments of the Appellate Tribunal, the revenue filed these appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 14 and 6 framed in these Appeals are answered against the assesses and in favour of the Revenue. The appeal of the revenue in so far as the payment claimed by the assessee for deduction from their income under the warranty provisions, the relief is granted in favour of the assessees. Hence, the appeal of the revenue in this regard is dismissed. Thus, we have answered all the substantial question of law regarding warranty in favour of the assessee and in respect of all other substantial questions of law regarding the benefit claimed by the assesses under the provisions of Sec. 80-O 80IA, Sec. 80HHE are answered in favour of the revenue by allowing the appeals partly as indicated above. - Mr. V. GOPALA GOWDA Mr. ARALI NAGARAJ JJ. For the Appellant: Sri M.V. Sheshachala Advocate For the Respondent: Sri. N. venkataramana Sr Adv For Smt S. S Ranuradha- Adv Judgment These appeals are filed by the Revenue being aggrieved by the common judgment dt. 8/7/2002 passed by the income tax Appellate Tribunal inn ITA Nos. 438-444/2002 and separate orders in respect of I.T.A. Nos. 3047/2005 6/2004 pertaining to Assessment years 1991-92 to 1999-00 framing certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure as held by the Assessing Officer? 16. Whether the Tribunal committed an error in holding that Section 80-O deduction should be allowed on the gross income received by the assessee by ignoring the provisions of Section 80AB of the Act which contemplates granting of such a deduction on the amount of income as computed in accordance with provisions of he Act and the judgment of the Calcutta High Court reported in 243 ITR Page 10 and that of the Apex Court in 239 ITR 233? (The correct page No. 566 may be read instead of 233 in the Apex Court citation mentioned above in the substantial question) In ITA No. 3047/05: 9. Whether the Appellate Authorities were correct in holding that the warranty expenses which may be claimed subsequently for goods sold by the assessee due to nay defect should be allowed as an expenditure during the current assessment year itself by basing such a conclusion on mere conjecture and surmises and recorded a perverse finding when these expenses had not arisen in present but would arise in future i.e. when the customer made such a claim? 10. Whether the Tribunal was correct in holding that the contributions made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to answer the same in its favour urging various grounds in support of the same. Regarding substantial question Nos. 14, 9, 12 13:- 6. In support of the substantial question of law Nos. 14,9, 12 and 13 regarding warranty common in all the Appeals except ITA No. 6/2004 the learned counsel for the Revenue/appellants in the above Appeals Mr. M.V. Seshachala made submissions placing reliance upon Section 37 of the I.T Act and contended that the claim of the assesses towards the estimated liability of the warranty period in respect of the Motor vehicles is a contingent liability; therefore, the said claim of the assessees was rightly disallowed b the Assessing Officer as the same was not expended wholly or exclusively for the purpose of business. When the amount is expended wholly or exclusively by the assessees, them only said claim could have been claimed by the assessees for computing the chargeable from the profits and accounts of business. In support of the above legal contention he relied upon the decisions reported in 37 ITR 66, 65 ITTR 643, 156 ITR 585 @ 599, 240 ITR 640, 245 ITR 43, 293 ITR 311 (Mad.). 7. Its is further contended by the learned counsel that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(c) is explained, the relevant portion of the same extracted hereunder: 10(c) Accrual: Revenue and costs are accrued, that is recognised as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the periods to which they relate. (The consideration affecting the process of matching costs with revenues under the accrual assumption are not dealt with in this Statement) 9. In support of this contention he has relied upon number of decisions, some of them are Metal Box Company of India Ltd. Vs. Commissioner of Income Tax (245 ITR 428), Calcutta co. Ltd Vs. C.I.T, West Bengal Vol 37 ITR 1), C.I.T. of Inland Revenue Vs. Mitsubishi Motors New Zealand Ltd. (222 ITR 697) and various decisions of the Apex Court, Delhi High court, Punjab and Haryana High Court, Kerala High court and Madras High court which are not referred to herein as the same is repetition of the authorities in support of the aforesaid legal submissions made by the learned Sr. counsel. Elaborating his submissions he submitted that the phrase expenditure occurred in Section 37(1) of the I.T Act actually expended has to be deducted cannot be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning. if the legal submissions made on behalf of the Revenue that to grant the benefit of claim under the heading warranty , a provisions can be made in its Accounts by a assessee is impermissible in law, as the payment of amount for the purpose of warranty is contingent liability and therefore the assesses are not entitled for deduction of the amount shown under the said heading in wholly untenable in law. In support of the above contention reliance is placed by the learned counsel for the Revenue on the decision of the Madras high Court reported in 293 ITR 311 (MAD) which cannot be accepted by us as the Madras High Court in the above referred case did not examine the legal question from the view point of the Income Tax Act, the Notification issued under section 145(1)(2) of the I.T Act and the provisions of Sec. 209(1)(a)(c)(3) (a B) of the Companies Act. Therefore the reliance placed upon the said decision and the contention urged by the learned counsel for the Revenue interpreting the word expended occurred in Section 37(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. In Metal Box Company of India Vs. Their Workmen (73 I.T.R. 53) the appellant-company estimated its liability under two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting every additional year of service. The gratuity was payable on the termination of service the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this Court, the relevant of which for our purpose are extracted and reproduced as under: (i) For an assessee maintaining his accounts on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the appellant s method of accounting, viz., the mercantile method, was accepted by the Income-tax Officer and the receipts appearing in the books of account included the unpaid balance of the sale price of the plots in question, the amount of liability undertaken by the appellant to earn those receipts was to be deducted even if there had not been actual disbursement made by it during the accounting year. put in other words, the question was whether in view of the fact that the sum of ₹ 43,692-II-9 had been entered on the credit side in the books of account even though it was not money actually received on the basis that it was due and receivable, the sum of ₹ 24,809 which had been entered as debit, being the liability of the appellant undertaken by it to earn those receipts, should be deducted in determining the taxable profits and gains of the appellant. 11. The learned Sr. counsel has also relied upon various other judgment of Delhi, Punjab Haryana, Kerala and Madras High Courts regarding warranty , which are as hereunder: 1. CIT Vs. Vinitec Corporation (P) Ltd 278 ITR 337. 2. CIT Vs. Sony India (P) Ltd 160 Taxman 397. 3. CIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued Notification dt. 25/1/1996, the copy of the same is made available to us by the learned copy of the same is made available to us by the learned counsel for the assesses. In the said Notification the Accounting Standards to be followed by the assessees shall be Mercantile System of Accounting. (4) Accounting Polices adopted by as assessee should be such so as to represent a true and fir view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting polices. For this purposes, the major considerations governing the selection and application of accounting polices are the following, namely:- (i) Prudence- Provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainly and represents only a best estimate in the light of the available information. xxxxxx xxxxxx xxxxxx (6) For the purposes of paragraph (1) to (5), the expressions,- (a) Accounting Polices means the specific accounting principles and the methods of applying those principles adopted by the assessee in the preparation and presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Court in the case of ACIT Vs. ABCOM ENGINEERING and another connected Appeals reported in ITR 287 201 the substantial question (a) to (c) in the said case which are more or less similar to the aforesaid substantial questions common framed in these Appeals are answered by this Court in favour of the Revenue after interpretation of Section 80-O, 80-IA and 80-HHE r/w Section 80AB on the basis of the judgment of the Apex Court reported in 2003 243 ITR 26 (Motilal Pesticides India Pvt. Ltd. Vs. M.N. Dastur reported in 2003 243 ITR 10. The relevant substantial questions of law (a) to (c) in Abcon Engineering case similar to the aforesaid substantial question of law in these Appeals reads as hereunder: (a) Whether, on the facts in the circumstances of the case, the Tribunal ought to have followed its own decisions rendered in identical circumstances and in respect of identical claims arising under Section 80-O of the Act? (b) Whether, on the facts the Tribunal was at liberty to ignore the judgment of the jurisdictional High Court in the case of CIT V. M.N. Dastur and Co. rendered on June 4, 2001, in C.P. No. 580/1998? (c) Whether, on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments of various other High Court in justification of its findings. aggrieved by the said impugned judgments of the Appellate Tribunal, the revenue filed these appeals before this Court framing certain substantial questions of law which are extracted above in this judgment and in support of the same has urged various legal grounds and requested this Court to answer the said substantial of law in favour of the revenue. 19. Further the learned counsel contended that the order of the appellate Tribunal in Setting aside the concurrent findings of the first appellate authority with regard to disallowance of benefits claimed under Sections 80-O, 80-IA and 80HHE in the appeals is not only erroneous inn law but also suffers from error in law. In support of the aforesaid submissions, he has placed reliance upon the judgments of the Supreme Court namely Motilal Pesticides (i) Pvt. Ltd. Vs. CIT (243 ITR 26); Distributors (Baroda) Pvt. Ltd. Vs. Union of India Ors. (155 ITR 120)(SC); H.H. Sri Rama Varma Vs. CIT (205 ITR 433) and also the Full Bench decision fo Delhi High Court in the case of CIT vs. Chemical and Metallurgical Desgin Co. Ltd. (2001) 247 ITR 749 and the Division Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to answer the same against the revenue and prayed for dismissal of the appeals. The learned Senior Counsel submitted that the Division Bench judgment in the case of Abcon engineering And Systems P. Ltd s referred to supra is not applicable to the facts of the case as the expenditure incurred by the assesses and the special benefit claimed under Sec. 80-O, 81IA and 80HHE is in relation to the direct expenditure incurred for the business and in respect of which the deduction is claimed in the returns that has been accepted by the Appellate Tribunal. 24. The learned counsel Mr. M.V. Seschachala, appearing for the revenue has rightly questioned the correctness of the impugned order passed by the Appellate Tribunal placing reliance upon the order of the first appellate Authority at paragraph 18 of its order wherein he has examined the correctness of the findings with reasons recorded by the assessing authority in his order by disallowing the aforesaid expenditure amount to be deducted as claimed by the assesses holding that it is not the revenue receipt, but it is capital expenditure. The correctness of the same are examined by the first Appellate Authority in the light of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. The same has been adopted by the appellate authority. we have also carefullu examined the findings and the reasons recorded both by the Assessing Authority and the first Appellate Authority in this regard to answer the aforesaid substantial question of law keeping in view the rival legal contentions urged by the learned counsel for the parties. The first appellate authority in its order has recorded certain findings of fact in not accepting the claim of the assessee on the amounts mentioned in the returns of the assessee. In so far as the amounts of ₹ 28,30,000/-Lakhs paid to IGE for receiving access to the latter s information base etc. the first appellate authority has aptly placed reliance upon the decision of the Supreme Court in the case of Alembic Chemical Works Co. Ltd. Vs. CIT (177 ITR 377)(SC) holding that the said decision is applicable to the facts of the case in support of the concurrent finding recorded by the first appellate authority, wherein it is held that said expenditure partakes the character of a revenue nature. Therefore, it is held that the expenditure incurred and expended for the purpose of putting up infrastructure and agreement was for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment towards retrenchment is allowable in law. In support of the above conclusion of the assessing Authority whose finding is concurred with by the First Appellate Authority, reliance is placed by the learned counsel for the revenue on CIT Vs. Gemini Cashew sales Coroporation 65 ITR 643 (SC), the observations made in this case are applicable in support of the case of the revenue. Therefore we have to accept the grounds urged on behalf of the revenue that the claim of deduction made by the assessee under the above head was rightly disallowed by the assessing authority which is affirmed by the Appellate Authority. Further the assessing authority at Paragraph 3.6 of its order has disallowed ₹ 50 Lakhs paid by the M/s. Wipro GE to M/s. IGE to the latter company from desisting competition with its business by applying the decision of the Supreme Court in CIT Vs. Coal Shipment Pvt. Ltd. , 82 ITR 902 and Devidas Vithaldas and Company Vs. CIT 84 ITR 277 that payment made to ward off competition in the business to a rival competitor could constitute expenditure if the object of making that payment is to derive an advantage be eliminating the competition over some length of time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indings of fact recorded by the First Appellate Authority on the Claim of the assessee for deduction in respect of the various items referred to supra has been allowed by the Appellate Tribunal on erroneous assumption of facts and material produced by the assessee which is not only contrary to the relevant statutory provisions of the I.T Act referred to supra but also the law laid down by the Supreme court and various other High Courts in the decisions referred to in the First appellate Authority s order, wherein it has held that expenditures made by the assessee to do its business and therefore, that amount will be the capital receipt, but not revenue expenditure erroneously held by the Tribunal. In our view, the said finding of fact of the Tribunal recorded on contentious point is not only erroneous but also suffers from error in law and therefore the same is liable to the set aside. Therefore, the deductions allowed by the tribunal in the impugned judgment in respect of those items from the gross income turnover of the assessee is totally impermissible in law. 27. The reliance placed upon the decision of the Madras High Court reported in (2002) 257 ITR 60 in the case of Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of the gross income. In view of the law laid down by the Supreme court, Calcutta High Court and Delhi High Court which judgment are followed by this Court in the judgment referred to supra, we hold that following the earlier decision in Dastur Co. ltd. reported in 62 ITD 113 referred by the tribunal and allowing the claim of the assesseee on the basis of the gross income is totally untenable in law as the same is contrary to the statutory provisions of Sec. 80AB and the decisions of the Apex Court and High Courts referred to supra upon which learned counsel for the revenue has placed reliance. This aspect of the matter is carefully examined by the First appellate court while examining the correctness of the findings and the reasons recorded in the order of the Assessing officer in disallowing the claim of the assessee under Sec. 80-O, 80-IA and 80HHE of the I.T Act on the basis of the gross income and not claiming allowable deductions under the aforesaid provisions of the Act as claimed by the assesses in all the appeals except in appeal No. 6/04. 29. The learned senior counsel on behalf of the assessee in support of his contention has placed reliance upon the Divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the said amount is expended for the purpose of business of the assessee and that has to be treated as a total turnover for the purpose of claiming the deduction under the aforesaid provisions of the Act for the purpose of business of the assessee and that has to be treated as a total turnover for the purpose of claiming the deduction under the aforesaid provisions of the Act which relief has been rightly granted by the Tribunal in the learned Sr. counsel on behalf of the assessee submits that the same need to be interfered with by this Court as no substantial question of law as framed in the Appeals of the Revenue would arise in these Appeals of the Revenue would arise in these appeals for consideration of this Court. 30. The learned counsel Smt. Gayatri Sridharan appearing on behalf of M/s. K.R. Prasad for the assesssee in ITA No. 6/2004 placed reliance upon the Circular No. 281 dated 22/9/1980 and also the decision of the Apex court in the case of Cloth Traders Pvt. Ltd. Vs. Addl. CIT (1979) 118 243 (SC) referred supra in support of the concessional taxes under Sec. 80-O of the I.T. Act, the said decision is overruled by the Apex court in its later judgment in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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