2013 (3) TMI 532 - AT - Income Tax

Tribunal decisions: Disallowances overturned, provisions allowed, deletions upheld.

The Tribunal partly allowed the appeals, remitting certain issues back for fresh adjudication and upholding decisions on other matters. Disallowances of ... Disallowance of advances written off of Rs 100,000/-. - Held that :- we are of the view that the assessee’s claim of loss of Rs 1,00,000/- arising on account of write-off of the advances given to M/s Vitara Chemicals Ltd. is allowable as a business loss under section 28 of the Act. - Decided in favor of assessee. Repairs of factory building - Revenue or capital in nature - Held that:- the assessee is right in contending that under the above circumstances, no enduring benefit results on account of such expenditure inasmuch as an existing shed has been merely strengthened and therefore, the expenses are only for regular repairs. - the expense is liable to be treated as revenue expenditure - Decided in favor of assessee. Deduction u/s 80HHC of the I.T. Act - Held that:- On the aspect of application of clause (1) of the Explanation (baa) of section 80-HHC to ‘Service Charges’ and also other receipts in question, we set aside the order of the Commissioner of Income-tax (Appeals) and remit the matter back to his file to be adjudicated afresh in line with the directions of our co-ordinate Bench and the judgments of the Hon’ble Bombay High Court in the case of Pfizer Ltd. [2010 (6) TMI 433 - Bombay High Court] and Dresser Rand India P Ltd. [2010 (4) TMI 153 - BOMBAY HIGH COURT]. - Decided in favor of assessee. Deleting the addition of commission - Held that:- the practice of paying commission to dealers/agents, stand established - the appellants have been able to substantiate their claim of commission payment. The appellants had submitted detailed justification for the payments. A majority of the payees selected randomly by the AO had confirmed the receipt of commission payment. The AO has not raised any serious questions regarding the veracity of the information received from these parties. - Decided against the revenue. Depreciation on software expenses U/s 32(1)(ii) or deduction u/s 37 as revenue expenditure - Held that:- We do not find any infirmity in the findings of the Commissioner of Income-tax (Appeals) on this aspect. The instant issue stands squarely covered in favour of the assessee and against the Revenue by the judgements in (i) CIT v Varinder Agro Chemicals Ltd. [2008 (10) TMI 100 - PUNJAB AND HARYANA HIGH COURT]; (ii) CIT v Sundaram Clayton Ltd. [2008 (6) TMI 327 - MADRAS HIGH COURT] - Decided against the revenue. Deleting the disallowance U/s 36(1)(va) and 43B of the I.T. Act, 1961 - Held that:- We have carefully considered the submissions of the parties. We find that the assessee has made the payment within the grace period under the Provident Fund Act and therefore, the payment could be regarded as having made within due date as per provisions of section 36(1)(va) of the Act. - Decided in favor of assessee. Not treating the provision for Warranty as contingent liability (Not on any scientific basis) - Held that:- In the instant assessment year, it emerges from the assessee’s submissions before the Commissioner of Income-tax (Appeals) and which have not been controverted that the warranty provision in this year comes to 0.37% of the net sales. In this background, the claim of the assessee during the year can be accepted as reasonable in view of the precedent and the same deserves to be allowed. - Decided against the revenue. Allowing the expenses on account of CST liability - Held that:- In our considered opinion, the Commissioner of Income-tax (Appeals) made no mistake in deleting the impugned disallowance. The assessee has established that the liability on account of CST even though pertained to earlier period, has in-fact crystallized during the previous year relevant to the assessment year under consideration and is thus allowable as a deduction in this year. Deleting the addition of on account of stock written off - Held that:- It is further pointed out that such policy of identifying and making a provision for diminution of value of obsolete stock was accepted by the department in the past and no disallowance was made till the instant assessment year. - Decided against the revenue. Not excluding foreign exchange gain, miscellaneous receipts from eligible business profits for the purpose of calculating deduction u/s 80HHC - Held that:- We set aside the order of the Commissioner of Income-tax (Appeals) and remit the matter back to his file to be adjudicated afresh in line with the judgment of the Hon’ble Bombay High Court in the case of Pfizer Ltd. [2010 (6) TMI 433 - Bombay High Court] and Dresser Rand India P Ltd. [2010 (4) TMI 153 - BOMBAY HIGH COURT]. - Partly decided in favor of revenue by remanding the matter back. Issues Involved:1. Disallowance under section 14A of the Income-tax Act, 1961.2. Disallowance of advances written off.3. Disallowance of repairs to factory building.4. Exclusion of certain receipts from profit of business for deduction under section 80HHC.5. Deletion of addition on account of commission payments.6. Deletion of disallowance of software expenses.7. Deletion of disallowance due to late payment of employee's and employer's contribution to Provident Fund.8. Deletion of disallowance of provision for warranty.9. Allowance of CST liability pertaining to an earlier year.10. Deletion of addition on account of stocks written off.11. Exclusion of foreign exchange gain and miscellaneous receipts from eligible business profits for deduction under section 80HHC.Detailed Analysis:1. Disallowance under section 14A:- The assessee did not press Ground No.1 of the appeal, hence it was dismissed for non-prosecution.2. Disallowance of advances written off:- The AO disallowed Rs 100,000/- as advances written off, considering it capital in nature.- The CIT(A) upheld the disallowance.- The Tribunal allowed the assessee's claim, referencing a similar decision in the previous year, recognizing it as a business loss under section 28 or alternatively as a bad debt under section 36(1)(vii) read with section 36(2)(a).3. Disallowance of repairs to factory building:- The AO disallowed Rs 2,72,628/- considering it capital expenditure.- The CIT(A) upheld the disallowance.- The Tribunal allowed the claim, concluding that the expenditure was for regular repairs and did not result in enduring benefit, thus treating it as revenue expenditure.4. Exclusion of certain receipts from profit of business for deduction under section 80HHC:- The CIT(A) excluded 90% of certain receipts from the profit of business for the purpose of deduction under section 80HHC.- The Tribunal remitted the matter back to the CIT(A) for fresh adjudication in line with the judgments of the Hon'ble Bombay High Court in the case of Pfizer Ltd. and Dresser Rand India P Ltd.5. Deletion of addition on account of commission payments:- The AO disallowed Rs 2,20,84,664/- in commission payments due to lack of evidence of services rendered.- The CIT(A) deleted the addition, finding the payments substantiated and made through cheques.- The Tribunal upheld the CIT(A)'s decision, noting the consistent practice of commission payments and adequate verification.6. Deletion of disallowance of software expenses:- The AO treated software expenses of Rs 11,08,961/- as capital expenditure.- The CIT(A) allowed the expenses as revenue expenditure.- The Tribunal upheld the CIT(A)'s decision, referencing judgments that supported treating such expenses as revenue in nature.7. Deletion of disallowance due to late payment of employee's and employer's contribution to Provident Fund:- The AO disallowed Rs 21,91,994/- for late payment.- The CIT(A) deleted the disallowance, considering payments made within the grace period.- The Tribunal upheld the CIT(A)'s decision.8. Deletion of disallowance of provision for warranty:- The AO disallowed Rs 86,14,839/- as contingent liability.- The CIT(A) deleted the disallowance, applying the Supreme Court's decision in Rotork Controls India (P) Ltd.- The Tribunal upheld the CIT(A)'s decision, finding the provision reasonable.9. Allowance of CST liability pertaining to an earlier year:- The AO disallowed Rs 10,50,000/- as it pertained to an earlier year.- The CIT(A) allowed the deduction, stating the liability crystallized during the relevant year.- The Tribunal upheld the CIT(A)'s decision.10. Deletion of addition on account of stocks written off:- The AO disallowed Rs 2,17,38,129/- for lack of evidence.- The CIT(A) deleted the addition, considering the write-off based on a scientific review.- The Tribunal upheld the CIT(A)'s decision.11. Exclusion of foreign exchange gain and miscellaneous receipts from eligible business profits for deduction under section 80HHC:- The CIT(A) did not exclude such receipts from eligible business profits.- The Tribunal remitted the matter back to the CIT(A) for fresh adjudication in line with relevant judgments.Conclusion:- The Tribunal partly allowed the appeals of both the assessee and the Revenue, remitting certain issues back to the CIT(A) for fresh adjudication and upholding the CIT(A)'s decisions on other matters.