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TMI Blog2019 (2) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... w our attention towards any cogent material or evidence to demonstrate that it was engaged in carrying out any real research activity. Under such circumstances, action of the authorities below in allowing depreciation @15%, as against 100% claimed by the assessee on the capital expenditure, is unimpeachable. This ground is not allowed. Disallowance of Warranty expenses - Held that:- For the year under consideration, when the amount of sales dipped to ₹ 3.78 crore, amount of provision increased multifold from ₹ 9 lakh to ₹ 22 lakh as against the actual expenditure incurred on repairs standing only at ₹ 11,39,474/-. This narration of facts amply proves that the creation of warranty provision was not based on any sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For The Respondent : Ms. Shabana Parveen ORDER PER R.S.SYAL, VP : These three appeals by the assessee relate to the assessment years 2007-08, 2008-09 2010-11. Since some of the issues raised in these appeals are common, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience. A.Y. 2007-08 : 2. The first ground is against disallowing Research Development capital expenditure of ₹ 1,26,100/- on the ground that no documentary evidence of any real R D activity by the assessee, was furnished. 3. Briefly stated, the facts of the case are that the assessee company is manufacturing electronic products since 1989. It claimed deduction of R D capital exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rns the issue in the instant appeal, provides for allowing the deduction for the full amount of capital expenditure. Thus, if some capital expenditure is incurred on Research Development, the same has to be allowed as deduction in full in the year of incurring. If on the other hand, the assessee fails to prove that the expenditure of capital nature was in connection with the Research and such expenditure involves creation of any asset, the said expenditure entitles the assessee to claim depreciation at the eligible rate. 5. Adverting to the facts of the instant case, we find that the assessee claimed to have incurred capital expenditure of ₹ 1,26,100/-. Despite the AOs requirement, the assessee could not produce any evidence to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred of ₹ 4.65 lakhs and ₹ 3.19 lakhs for such years. Considering the incremental increase in warranty provision, the AO disallowed ₹ 13 lakhs (Rs.22 lakhs provision for the year and ₹ 9 lakhs provision for immediately preceding year). The ld. CIT(A) did not allow any relief on this issue, against which the assessee has come up in appeal before the Tribunal. 7. We have heard both the sides and gone through the relevant material on record. The Hon ble Supreme Court in Rotork Controls India (P) Pvt. Ltd. Vs. CIT (2009) 314 ITR 62 (SC) has held that a provision made by an assessee for warranty claim on the basis of its expenditure is allowable as deduction u/s.37 of the Act. While allowing deduction on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culation but was rather an ad hoc exercise. Under such circumstances, we cannot grant deduction in respect of warranty provision. 9. Once it is held that the creation of provision cannot be allowed as deduction, it is further clarified that the reversal of provision should also not be brought to tax, if the creation of such provision was earlier not allowed as deduction. To put it simply, neither the creation of provision nor its reversal, if earlier not allowed as deduction at the time of making it, would lead to deduction or taxability of any sum but the actual expenditure incurred by the assessee on repairs on year to year basis would qualify for deduction. With these observations, we set aside the impugned order to this extent and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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