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TMI Blog2017 (8) TMI 1692X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of account and the AO refused to allow it for the reason that this provision for warranty was credited without any scientific reasons - HELD THAT:- Thus, the contention of the assessee is that the provision is an ascertained liability, whereas, the revenue observed it as contingent liability. It is clear from the assessment order that the assessee could not explain the methodology and calculation of the provisions on the basis of the satisfactory aspects in the case of Rotork Controls India Ltd. [ 2009 (5) TMI 16 - SUPREME COURT ] - we are of the opinion that the matter has to be reexamined as to whether the methodology adopted for creating provision is in the light of the observations made by the Supreme Court. Therefore, we set aside the order of the CIT(A) and remit this issue to the file of the AO for re-examination after affording adequate opportunity for being heard to the assessee. Thus, the Revenue s cross appeal is treated as allowed for statistical purposes. TDS u/s 194C - Disallowances of provision of sub-contract expenses and provision of labour charges u/s. 40(a)(ia) - HELD THAT:- It is clear that the assessee had made provision for subcontract and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade for assessment years 2005-06 and 2007-08 respectively, the AO found that the assessee has invested substantial amounts in shares/mutual funds and earned dividend of Rs. 1,28,16,649/- and 4,29,59,915/- , respectively , and claimed them as exempt u/s. 10(34). The assessee has considered only Rs. 46,600/- and 92,000/- as expenditure attributable to such investments and earning of dividends in the respective assessment years. The AO invoked the provisions of section 14A r.w.r. 8D and determined the expenses attributable for earning such exempt income at Rs. 13,12,883/- and Rs. 69,00,260/-, respectively. For the ay 2005-06, the AO found that the assessee has debited Rs. 7,50,41,484/- towards provision for warranty. After considering the assessee s reply, the AO held that the assessee could not substantiate this claim with any concrete submissions except to state that the provision of warranty is an ascertained liability. Relying the decision of Madras High Court in the case of Rotork Controls India Ltd 293 ITR 311, he held that considering the nature of the liability, which is yet to crystallise but loaded with uncertainty of the event to cause a liability, there is no justificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion does not obliterate from the statutory responsibility of deducting and remitting TDS, if any. The provisions for sub-contract expenses and provision for labour charges are falling u/s.s 30 to 38 and are also liable for TDS. Since, the assessee failed to deduct the TDS on these provisions, violation u/s. 40(a)(ia) has been committed and consequently, the CIT(A) held that assessee is ineligible to claim them as deduction. However, the accepting the alternate claim of the assessee, the CIT(A) directed the AO to examine this claim and allow the necessary deduction in the financial year(s), where the assessee has actually deducted and remitted the TDS into Government account, subject to verification and assessee s furnishing of necessary evidence. Aggrieved against these orders, the assessee filed these appeals. Since, they are inter-connected, they are heard together and disposed by a common order. 4. We heard the rival contentions, gone through relevant orders and materials. The above issues are disposed as under: 4.1 On the disallowance of expenses u/s. 14A r.w.r. 8D: The AR pleaded that the Ld. CIT(A) erred in confirming the disallowance to the extent of 5% u/s. 14A(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be reexamined as to whether the methodology adopted for creating provision is in the light of the observations made by the Supreme Court. Therefore, we set aside the order of the CIT(A) and remit this issue to the file of the AO for reexamination after affording adequate opportunity for being heard to the assessee. Thus, the Revenue s cross appeal is treated as allowed for statistical purposes. 4.3 On the disallowances of provision of sub-contract expenses and provision of labour charges u/s. 40(a)(ia): We have considered the rival contentions. The assessee submitted that these amounts are provision for the sub-contract works and the labour works completed, respectively. But, the assessee is yet to receive the invoices from the said sub-contractors/sub-labours/their contractors as on 31.03.2007. In view of that the assessee made provisions for these expenses and debited in the P L Account. In the subsequent year i.e., after 01.04.2007 ,when the actual invoices were received, the provision was reversed and the amounts were directly credited to the respective sub-contractors account/respective persons account and necessary TDS was also deducted and remitted to the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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