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

The Tribunal allowed the assessee's appeal regarding the deduction for "Education Cess," citing precedents that established it as an allowable expenditure. The provision for warranty was also upheld in favor of the assessee based on prior decisions confirming its scientific basis and proper accounting treatment. Additionally, the disallowance of "Administrative Service Charges" was deleted, following consistent rulings in favor of the assessee. Ultimately, the assessee's appeals were allowed, and the Revenue's appeals were dismissed in the judgment pronounced on 18th September 2019.

---

---

Issues Involved:
1. Allowability of "Education Cess"
2. Disallowance of provision for warranty
3. 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.

---