9911796707
TMI Blog2019 (4) TMI 2133X X X X Extracts X X X X X X X X Extracts X X X X ..... chnology transfer fee towards CNC Surface Wheel Lathe Machine, type SWL 2000 was not paid and as a result, complete Technology transfer for this machine was not accomplished. As the complete technology was not acquired for Surface Wheel Lathe Machine, type SWL 2000 and its technology transfer lost its usefulness due to non-availability of orders in the market, the appellant company had to write off the balance amount of the technology transfer fee so paid. This was an admissible business expenditure u/s. 37(1) - Hence we allow the appeal of the assessee. Provision for warranty expenses - obligation of providing after sale service - HELD THAT:- The appellant company manufactures and sells capital goods/heavy equipment for customers. In compliance with its contractual obligation . Warranty' for replacement of spare parts and maintenance for certain specified period at free of cost are provided. Based on its past experience and technical estimate for warranty, expenses are provided in accounts. This is done while crediting Profit Loss Account for it Sales Revenue and along with this manufacturing other expenses and Warranty Expenses are charged in the accounts as expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67 lakhs respectively. The disallowance is completely against the pronouncement in the case of Dhakeshawari Cotton Mills Ltd. V CIT [ 1954 (10) TMI 12 - SUPREME COURT] wherein it has ruled that although ITO is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under section 23 (3) he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all and there must be something more than bare suspicion to support the assessment under section 23 (3). The order has also ignored the fact that the sales promotion expenses so purported to be added back already includes Rs.127.60 lakh on account of warranty period expenses which has also been added back in the order. Therefore, it tantamounts to addition of the same amount twice and hence, addition made by the Ld. AO cannot sustained in appeal. Liquidated damages, misc. Provisions and Provisions for LTA are made as per basis of accounting practice followed by company, hence addition on these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment orders passed by the Assessing Officer u/s. 143(3)/147 of the Income-Tax Act, 1961 (in short, the Act). 2. In these appeals, the assessee as well as the revenue have raised multiple grounds of appeal, but at the time of hearing the main grievance of the assessee and the revenue year-wise are concized and summarized as follows:- i) In the assessee s appeals in ITA Nos 231/Ran/2016 232/Ran/2016 for the A.Ys 2006-07 2008-09, the issue relates to re-opening of assessment u/s. 147/148 of the Act on the ground of overlooking of Leave Travel Assistance (LTA) by the DCIT in the past years. ii) In the assessee s appeal in ITA No. 233/Ran/2016 for the A.Y 2009-10, which relates to the issue of expenditure of Rs.35.01 lakhs on account of technical know-how written off and allowed u/s. 37(1) of the Act. iii) In the revenue s appeals in ITA No. 59/Ran/18 for the A.Y 2010-11, 222/Ran/16 for the A.Y 2009-10, 223/Ran/16 for the A.Y 2011-12 60/Ran/2018 for the A.Y 2013-14, common issue raised by the revenue relates to deletion of provision for warranty expenses. iv) In the revenue s appeal in ITA No. 95/Ran/17 for the A.Y 2007-08, ground no. 2 raised by the revenue relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o believe that income chargeable to tax to the amount of 32.16 lakhs in the case of M/s. H.E.C Ltd. has escaped. Therefore, the case is being reopened u/s147 of the Income Tax Act, 1961. Notice u/s.148 of the Income Tax Act, 1961 is being issued accordingly. 5. We have heard ld. DR and considered the written submissions of the appellant, which is on record and have also perused the assessment order. Before the issue is discussed and view is taken on the submission of the appellant, it would be worthwhile to examine the issue for which the assessment had to be reopened. We note that Schedule-18 of the Balance Sheet of the appellant company for the impugned issue reads as under:- EMPLOYEE'S REMUNERATION BENEFITS Workmen and Staff Welfare Expenses (includes LTA provision 32.16 lakh (prev. Years 41.37 lakhs) made on estimated basis) 305.56 From the above Schedule 18 of the Balance Sheet, we note that, the information about LTA Provision, was there in the audited books of accounts. Hence, it is not a new tangible material to re-open assessment u/s. 147/148 of the Act. Therefore, reopening of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eavy machines, equipment etc., and registered under the provisions of Indian Companies Act, 1956. The appellant company manufactures and sells capital goods/heavy equipment for customers. In compliance with its contractual obligation . Warranty' for replacement of spare parts and maintenance for certain specified period at free of cost are provided. Based on its past experience and technical estimate for warranty, expenses are provided in accounts. This is done while crediting Profit Loss Account for it Sales Revenue and along with this manufacturing other expenses and Warranty Expenses are charged in the accounts as expenses. We note that providing after sale service is an obligation under any contract of sale for the appellant company. Incurring of the liability therefore is certain. Therefore, the appellant company provides for its' After Sale Service/Warranty' obligation on accrual basis in its Profit Loss Account. The Company provides for 0.5% on Sale for liabilities under contractual obligations/warranties. This was stated at Clause 6 of the Statement of Accounting Policies of the Company forming part of the Balance Sheet and Profit Loss Account. The Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also added back the entire expenses in cases where non deduction of TDS was reported. Therefore, disallowance under this head resulted in addition of the same amount twice. 13. We note that the assessee company incurred expenditure under the head sales promotion. It is also noted that the assessee company deducted TDS and wherever TDS was not deducted the company has added back the entire expenses which is evident from Tax Audit report in Form 3CD (clause 27(a)). The details were available in the schedules to the Audit Report. It is also not correct to say that any and every expense for sales promotion would be of such nature as to require deduction of tax at source. No such enquiry has been conducted by the Ld. Assessing Officer. Sales promotion expenses include Rs.87.86 lakhs as 'freight and incidental charges' and Rs.127.60 lakhs as 'warranty period expenses'. Exhibition and publicity expenses were Rs. 1.47 lakhs and Rs. 0.67 lakhs respectively. The disallowance is completely against the pronouncement of the Apex Court in the case of Dhakeshawari Cotton Mills Ltd. V CIT 26 ITR 775 (SC) wherein it has ruled that although ITO is not fettered by technical r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en laid out or expended wholly and exclusively for the purposes of the business or profession. (d) that it should not be for a purpose which is considered to be an offence or which is prohibited by law. The word 'wholly' refers to the quantum of expenditure, while the word 'exclusively' refers to the motive, objective and purpose of the expenditure. An expenditure to which one cannot apply an empirical or subjective standard is to be judged from the point of view of a businessman and it is relevant to consider how the businessman himself treats a particular item of expenditure. It means everything that serves, to promote commerce and includes every means suitable to that end. In applying the test of commercial expediency, for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business; reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the revenue. 16. We note that in CIT V Malayam Plantations Ltd 53 ITR 140 (SC) the Hon ble Supreme Court has held that The expression for the purpose of the business is wider in scope than the expression for the purpose of earning p ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
