2019 (10) TMI 841 - AT - Income Tax

Tribunal grants deductions for Education Cess, warranty provision, and Administrative Service Charges

Tata AutoComp Hendrickson Suspensions Private Limited. Versus The Deputy Commissioner of Income Tax, Circle-7, Pune. & Vice-Versa

The Tribunal allowed the assessee's appeal regarding the deduction for 'Education Cess,' citing precedents that established it as an allowable ... Allowability of “Education Cess” - HELD THAT:- As in CHAMBAL FERTILISERS AND CHEMICALS LTD., PR. COMMISSIONER OF INCOME TAX, KOTA. [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] observed therein that in the CBDT circular where word “Cess” is deleted and therefore, the Tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax - we allow these additional grounds raised before us in respect of the allowability of deduction regarding “Education Cess” paid by the assessee. Disallowance of provision for warranty - HELD THAT:- The assessee’s own case for assessment year 2011-12 the Tribunal has given catetorical findings stating that the policy adopted by the company was not found erroneous by the authorities in any forum and therefore, it is wrong to infer that the assessee does not have a policy and the contractual obligation to make the payment in principle and the quantification is also not found erroneous and unscientific by the authorities. It was also observed by the Tribunal that unutilized provision is carried forward to the subsequent years by maintaining the opening and closing balances. Without bringing any evidence on record, the allegation of the Assessing Officer and the CIT(A) that the warranty expenses are not claimable was held to be incorrect. The assessee has maintained this method in principle over the years and they are not disturbed conclusively and hence, these provisions were allowed as claimed by the assessee Administrative Service Charges allowability- HELD THAT:- Admittedly, the issue arising before us is identical to the issue before the Tribunal in Tata Johnson Controls Automotive Ltd. Vs. DCIT [2016 (4) TMI 963 - ITAT PUNE] and following the same parity of reasoning, we hold that the said expenditure is to be allowed in entirety in the hands of assessee being paid in accordance with the terms of the Agreement agreed upon between the parties and for the purpose of carrying on the business of assessee more efficiently. It may be pointed out herein that the assessee had initially entered into an Agreement with TACO in 1997 and the said expenditure had been allowed in the hands of assessee from year to year. However, the assessee renewed the Agreement in 2006 and the expenditure for the first time was not allowed in the hands of assessee in assessment year 2006-07. We find no merit in the orders of authorities below in this regard and accordingly, we modify the order of CIT(A) and direct the Assessing Officer to allow the expenditure in entirety in the hands of assessee Issues Involved:1. Allowability of 'Education Cess'2. Disallowance of provision for warranty3. Deletion of disallowance of 'Administrative Service Charges'A. Allowability of 'Education Cess':The assessee raised an additional ground regarding the claim of allowability of 'Education Cess.' The Tribunal noted that the issue is covered by the decision of the Pune Bench in ITA No.1111 & 1112/PUN/2017 and CO No.23 & 24/PUN/2019 for assessment years 2013-14 & 2014-15. The Tribunal had relied on the decision of the Hon’ble High Court of Judicature for Rajasthan in the case of Chambal Fertilisers and Chemicals Ltd. Vs. JCIT, where it was held that 'Cess is not tax' and thus, is an allowable expenditure as per section 40(a)(ii) of the Act. The Ld. DR conceded that it is a covered issue in favor of the assessee. Consequently, the Tribunal allowed the additional grounds raised by the assessee regarding the allowability of deduction for 'Education Cess.'B. Disallowance of Provision for Warranty:The assessee contested the disallowance of the provision for warranty, arguing that the provision was created following a scientific method. The Tribunal referred to the decision in the assessee’s own case for the assessment year 2011-12, where it was held that the policy for warranty was not found erroneous by the authorities and that the provision was based on actual warranty claims. The Tribunal noted that the unutilized provision is carried forward to subsequent years, maintaining the opening and closing balances. The Ld. DR conceded that the issue is covered in favor of the assessee. Respectfully following the earlier decision, the Tribunal allowed the ground raised by the assessee regarding the provision for warranty.C. Deletion of Disallowance of 'Administrative Service Charges':The Revenue appealed against the deletion of disallowance of 'Administrative Service Charges.' The Tribunal referred to the case of Tata Johnson Controls Automotive Limited Vs. The Dy. Commissioner of Income Tax, where it was held that the expenditure on administrative service charges paid to Tata Autocomp Systems Ltd. (TACO) should be allowed in totality as business expenditure. The Tribunal noted that similar issues had been consistently decided in favor of the assessee by the Pune Bench and upheld by the Hon’ble Bombay High Court. The Ld. DR conceded that the issue is covered in favor of the assessee. Consequently, the Tribunal dismissed the Revenue's appeals regarding the disallowance of administrative service charges.Conclusion:In the combined result, the appeals of the assessee were allowed, and the appeals of the Revenue were dismissed. The judgment was pronounced on 18th September 2019.