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TMI Blog2017 (3) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee relied upon the decision of the Tribunal (ITA No.5671/Mum/2011) for Assessment Year 2008-09, order dated 02/08/2013 in its own case. 2.1. We have considered the rival submissions and perused the material available on record. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel and the order of the Tribunal dated 02/08/2013, if kept in juxtaposition and analyzed, we find that an elaborate discussion has been made by the Tribunal in the own case of the assessee. No contrary decision/facts were brought to our notice by either side and more specifically the Revenue. Hon'ble Delhi High Court in Chem Invest Ltd. vs CIT (2015) 378 ITR 33 (Del.) ; (2015) 281 CTR 447 (Del.) held that section 14A of the Act will not apply, where no exempt income is received or receivable during the relevant Assessment Year. While coming to this decision, the Hon'ble High Court followed the decision of CIT vs Holcim India P. Ltd. (2015) 57 taxman.com 28(Del.)(para-19) and another decision in Maxopp Investment Ltd. vs CIT (2012) 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as the computation of income prepared by the Assessee for the AY in question i.e. 2004-05. In the balance sheet, it is seen that the investment in quoted shares of Max India Limited is shown under the head 'quotedother than trade-long term'. An investment of approximately Rs. 2,13,38,698 over the previous year has been made in the shares of Max India Ltd. It is also seen that the investments in other investment companies to the extent of Rs. 4,61,155 is shown under the sub-head 'unquoted-trade-long term'. This figure has remained unchanged over the previous year. In the computation filed for the purposes of the income tax return, the details of investments have been shown in two broad categories of 'capital assets' and 'trading assets' and the investment in Max India Limited is under the head 'trading assets' with the investments in the investment companies shown under the head of 'capital assets'. 8. The AO appears to have proportionately disallowed, for the purposes of Section 14A of the Act, the interest attributable to the long term investment (other than trade) for the purposes of earning exempted income. Since the unsecured loan borrowed for the purpose was Rs. 6,88,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s any yield of dividend. It is so held by applying the decision of the Supreme Court in Rajendra Prasad Moody (supra) in the reverse case wherein it is that irrespective of dividend receipt, expenditure has to be allowed. Now since dividend is exempt, as a consequence thereof expenditure has to be disallowed." 11. The Special Bench of the ITAT negatived the submission of the Appellant that the language of both Sections 57 (iii) and Section 14A of the Act were materially different. The Appellant's further contention and that since the decision in Rajendra Prasad Moody (supra) was only in the context of purchase of shares in which case a deduction of expenses can be claimed under Section 57(iii) of the Act whereas in the present case the Assessee was entitled to deduction of expenses under Section 36(1)(iii) of the Act and, therefore, Section 14A cannot be applied, was also rejected. 12. The matter was then placed before the regular Bench of the ITAT which passed the impugned order on 4th January 2013 remanding the matter to the file of the AO for reconsideration of the issue afresh. The ITAT referred to the decision of this Court in Maxopp Investment Ltd. v. Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 323 ITR 518 and CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204. The second was of the Gujarat High Court in Commissioner of Income Tax-I v. Corrtech Energy (P) Ltd. [2014] 223 Taxmann 130 (Guj.) and the third of the Allahabad High Court in Commissioner of Income Tax, Kanpur v. Shivam Motors (P) Ltd. (decision dated 5th May 2014 in ITA No. 88/2014). These three decisions reiterated the position that when an Assessee had not earned any taxable income in the relevant AY in question "corresponding expenditure could not be worked out for disallowance." 16. In CIT v. Holcim India (P) Ltd. (supra), the Court further explained as under: "15. Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax. It is an undisputed po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred for making or earning such income', did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The Court explained: "What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure." 21. There is merit in the contention of Mr. Vohra that the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.652/Mum/2012) order dated 08/09/2014 held as under:- "The Assessee is aggrieved by the impugned order dated 21-11- 2011 of the ld. First appellate authority broadly confirming the disallowance of sum of Rs. 10,12,366/-, being the administrative expenses of Rs. 1,13,291/- and finance charges (interest paid) of Rs. 8,99,344/- for the money borrowed on the amount utilized for purchase of shares u/s. 14A of the Income tax Act, 1961 while computing the total income of the Assessee. 2. During hearing of this appeal, we have heard Shri J.P. Bairagra, ld. Counsel for the Assessee and Shri Asghar Zain V.P., ld. DR. The crux of the argument advanced on behalf of the Assessee is that since the Assessee company has not claimed any exempt income, therefore, there is no question of disallowance of expenditure for which reliance was placed upon the decisions in the case of M/s. Siva Industries and Holding Ltd. Vs. ACIT( Chennai Tribunal ), CIT vs. Shivam Motors Pvt. Ltd. (ITA No.88 of 2014 ) and ITA No.1717/Mad/2013 order dated 31/07/2014 in the case of ACIT vs. Mr. M. Baskaran . 2.1 On the other hand the ld. Sr. DR defended the addition by placing reliance upon the Special Bench decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the Act, the expenditure which is incurred for earning an income is not an allowable deduction. For the year in question, the finding f fact is that the Assessee has not earned any tax free income. Hence, in the absence of any tax free income the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law, hence, the deletion of disallowance of Rs. 2,03,752/- made by the AO was in order." 3.2 In a later decision dated 31/07/2014, the Chennai Bench in the case of ACIT vs. Mr. M. Baskaran also followed the aforesaid decision from Hon'ble Allahabad High Court in the case of M/s. Shivam Motors Pvt. Ltd. and also considered the Special Bench decision from Delhi Tribunal in Cheminvest Ltd. Vs. ITO (supra). The Bench also followed and discussed various other decisions including decision of Hon'ble Gujarat High Court in the case of Corrtech Energy Pvt. Ltd.(Tax Appeal No.239 of 2014 dated 24/03/2014, wherein it was held as under :- "We have given our thoughtful consideration of the facts and the decisions relied upon by ld.AR. The Hon'ble Punjab & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the assessee during the relevant Assessment Year. 3. The next ground pertains to confirming the disallowance of provision for warranty of Rs. 3,06,365/- as against correct disallowance of Rs. 34,029/-. At the outset, the ld. DR pointed out that this issue is covered against the assessee by the decision of the Tribunal for Assessment Year 2005-06 (ITA No.8725/Mum/2010). The ld. counsel for the assessee did not controvert this factual matrix. However, he contended that the Assessing Officer may be directed to quantify the correct disallowance. 3.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal for ready reference and analysis:- "ITA No.8725/Mum/2010 -AY.2005-06 2.First ground of appeal pertains to confirmation of the disallowance of provision for warranty for After Sales Service of Rs. 10,10,378/-.During the assessment proceedings AO found that the assessee had debited an amount of Rs. 19.04 lacs as warranty replacement expenses. The assessee had debited an amount of Rs. 19,04,996/- as warranty replacement expenses. On v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing, that liability would arise only when any claim was made by the purchasers and not before. He placed reliance on the judgments of Indian Molasses Co. P. Ltd (37 ITR 66),Calcutta Co. Ltd (37ITR1) Sajjan Mill Ltd (156 ITR 585). He finally held that the assessee had made a provision regarding charges payable in terms of sale which had not crystallised ,that the assessee failed to prove the actual incurrence of liability under the warranty cause, that in absence of any such details, acceptance of the claim without any basis could not be allowed, that the AO was justified in making the impugned disallowance. 2.2.Before us, Authorised Representative(AR) submitted that the assessee was incurring expenditure under the head warranty for After Sales Service, that during the year assessee had incurred warranty expenditure of Rs. 9 lacs for the year under consideration, that the assessee had made provisions for the first time, that in subsequent year necessary entries were passed in books of a/cs., that in the balance-sheet said fact was mentioned in form of a note, that sales of the assessee has increased in the year under consideration as compared to last year, that provision made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before the AO or not we can safely say that same was not made available to him. Even if it was furnished to him, in our opinion it is of no use. We find that the company has not scrutinised the 'historical trend' of warranty provisions made and compared it with the actual expenses incurred. Appellant has failed to prove that figures furnished by it are based on a 'sensible estimate'. We find that evidence of 'yearly reassessment of such estimates' were not produced. In other words appellant has not 'maintained data systematically'. assessee has claimed that gross sales had increased over the years. We find that the assessee in not only dealing in computer peripherals, but it is also engaged in the business of exporting of chemicals and dye stuff, bulk pharmaceuticals and intermediaries. It is not known whether the increase in sales was result of selling of computers or other items. DR has rightly pointed out that there is no correlation between the increased sales and warranty expenditure on warranty liability has gone down with increase in sales. In these circumstances, we are of the opinion that provision made by the assessee was for contingent liability. We have perused the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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