Warranty provision disallowance upheld, trademark payment remanded, TDS on non-resident payments allowed following retrospective amendment rules

ITAT Chennai upheld disallowance of warranty provision as it lacked scientific basis per SC precedent in Rotork Control India case. For contract contingencies provision, tribunal directed AO to recompute addition correctly. Trademark payment issue was remanded for fresh examination after assessee provided registration documents. Regarding TDS on non-resident payments, tribunal allowed payments to German company citing retrospective amendment impossibility, and upheld CIT(A)'s deletion of Swiss company payment disallowance as reimbursement without markup doesn't constitute fees for technical services. Depreciation on goodwill and non-compete fee was allowed based on previous favorable decisions. TDS demand under sections 201(1) and 201(1A) was deleted following main assessment findings.

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Issues Involved:
1. Disallowance of provision for warranty expenses.
2. Deduction towards release/utilization for provision for warranty created during earlier years.
3. Disallowance of provision made for contract contingencies.
4. Disallowance of payment made towards use of trademark to the parent company.
5. Disallowance of payment made to non-residents under section 40(a)(i) for non-deduction of tax at source under section 195.
6. Disallowance of depreciation on goodwill.
7. Disallowance of depreciation on non-compete fee.
8. Rejection of additional depreciation in respect of additions made to plant and machinery in the second half of the assessment year.

Summary of Judgment:

1. Disallowance of Provision for Warranty Expenses:
The Tribunal upheld the CIT(A)'s decision to sustain the disallowance of the provision for warranty expenses amounting to Rs. 6,61,04,000/-. It was noted that the provision created by the assessee was not scientifically recognized considering past trends and future liabilities, thus not in line with the Supreme Court's ratio in M/s. Rotork Controls India Pvt Ltd vs CIT.

2. Deduction Towards Release/Utilization for Provision for Warranty Created During Earlier Years:
The assessee did not press this ground, and thus, it was dismissed as not pressed.

3. Disallowance of Provision Made for Contract Contingencies:
The Tribunal set aside the issue to the Assessing Officer to re-compute the addition towards the provision for contract contingencies, directing that only the net of provision minus the amount released during the year should be added.

4. Disallowance of Payment Made Towards Use of Trademark to the Parent Company:
The Tribunal remanded the issue back to the Assessing Officer for further verification, noting that the assessee provided necessary documents evidencing registration of the trademark and its business advantage.

5. Disallowance of Payment Made to Non-Residents under Section 40(a)(i) for Non-Deduction of Tax at Source under Section 195:
The Tribunal held that payments made to Kema Netherlands and Henrich George GMBH were not liable for TDS under section 195, directing the deletion of the disallowance. It also upheld the CIT(A)'s decision to delete disallowances for other payments made to non-residents, considering them as reimbursements without any markup.

6. Disallowance of Depreciation on Goodwill:
The Tribunal directed the Assessing Officer to allow depreciation on goodwill, following the decision of the ITAT in the assessee's own case for the assessment year 2007-08.

7. Disallowance of Depreciation on Non-Compete Fee:
The Tribunal directed the Assessing Officer to allow depreciation on non-compete fee, following the decision of the Jurisdictional High Court of Madras in the assessee's own case.

8. Rejection of Additional Depreciation in Respect of Additions Made to Plant and Machinery in the Second Half of the Assessment Year:
The Tribunal set aside the issue to the Assessing Officer for verification, directing to allow the remaining 50% of additional depreciation if the conditions prescribed for claiming additional depreciation were satisfied in the preceding assessment year.

Conclusion:
The appeals filed by the assessee were partly allowed for statistical purposes, and the appeals filed by the revenue were dismissed. The Tribunal directed the Assessing Officer to re-examine and verify specific issues as per the Tribunal's directions.

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