TaxTMI 
TaxTMI 
2005 (5) TMI 265
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....pital expenditure. 1.1 That the CIT(A), erred on facts and in law in holding that the assets were taken on lease on permanent basis resulting in enduring benefit to the assessee. This ground of appeal can conveniently be decided together with ground No.3 of the Grounds of appeal of the Revenue in ITA 2906/Del./2000, which reads as follows: 3. That on the facts and in the circumstances of the case, the learned CIT(A), has erred in deleting the disallowance of interest claimed as to leased assets which is capital expenditure in nature." 3. The facts and circumstances under which the aforesaid grounds of appeal arise are as follows. The assessee is a company, which is engaged in the business of manufacture of motorcycles and its accessories. The assessee had incurred an expenditure of Rs. 81,42,285 during the previous year. The details of these expenditures were as follows: Interest on leased assets Rs. 51,73,540 Civil Work on Leased Assets Rs. 19,68,745 Management Fee paid to HDFC Rs. 10,00,000 Total Rs.81,42,285 The assessee entered into a lease agreement dated 11-3-1986 with M/s. HDFC whereby the assessee took certain items of plan....
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....f the very same expenditure as capital expenditure was unwarranted. (b) That the interest paid on leased assets represented interest on amount advanced to the supplier of machinery and the payment of such interest during the intervening period, i.e., period before commencement of lease and payment of lease charges was also in the nature of interest akin to payment of interest on funds borrowed for the purpose of business. Reliance was placed on the decision of the ITAT, Delhi Bench, in ITA No. 6201/Del./92 in the case of Modi Xerox Ltd., dated 31-3-1999 wherein proposition to the above effect has been laid down. (c) That the civil work carried out by the assessee for carrying out installation of the lease assets does not result in any enduring advantage in the capital field since ownership of the asset never vests in the assessee and therefore such expenditure was of a revenue nature. Reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Alembic Chemical Works Ltd [1994] 206 ITR 170. (d) That the management fee paid to HDFC being in the nature of lease rent does not result in any enduring benefit to the assessee a....
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....ee no reason to interfere. (C) Management fees to HDFC For the same reasons as discussed for disallowing expenditure on civil work the CIT(A) held that this payment has been made to acquire a benefit of enduring nature and the fee has to be treated as capital expense and found no reason to interfere with the action of the Assessing Officer. 7. Aggrieved by the order of the CIT(A) in confirming the order of the Assessing Officer, with regard to disallowance of expenditure on Civil work on leased assets and management fee paid to HDFC, the assessee is in appeal before us. Aggrieved by the order of the CIT(A) in directing the Assessing Officer to allow the claim for deduction of expenditure on leased assets, the Revenue is in appeal before us. 8. We have heard the rival submissions. As far as assessee's ground of appeal is concerned, the learned counsel for the assessee reiterated submissions as was made before CIT(A) while the learned O.R. relied on the order of the revenue authorities. We are of the view that the order of the CIT(A) on this aspect cannot be sustained. The ownership of the assets which were installed for the purpose of assessee's business an....
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....see is allowed. 9. Regarding the ground of appeal of the Revenue, we are of the view that the order of the CIT(A) is just and proper and calls for no interference. The expenditure was of a revenue nature akin to interest on funds borrowed for the purpose of business. The borrowing was in respect of an asset, which was to be taken on lease, and the ownership of which was never contemplated as that of the assessee. There is no ground to interfere with the orders of the CIT(A). 10. One of the reason assigned by the Assessing Officer for making the impugned disallowance was the treatment given by the assessee in respect of this item of expenditure as a deferred revenue expenditure in its books of account. It is pertinent to ascertain as to whether such expenditure has been treated by the assessee as capital expenditure in its books of account. In this regard, we find that the assessee has treated the said expenditure as 'deferred revenue expenditure' considering the advantage of enduring nature that is likely to accrue to it in the sense the advantage which was going to last for a few years beyond the previous year. When any expenditure is treated as a 'deferred reven....
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....during the relevant previous year amounting to Rs. 29,76,979 and provision for the increase in actual cost on notional basis comprising of Rs. 2,84,108. The Assessing Officer disallowed the claim following orders of the earlier years on the ground that investment allowance was not admissible on the foreign exchange fluctuations on notional basis. The Assessing Officer added back the amount to the income of the appellant, without appreciating that the same had never been debited to the profit and loss account. The CIT(A), however, did not deal with the issue and instead only issued directions to the Assessing Officer, to rectify the order to the extent of the addition of the aforesaid amount made in the figure of net profit since the same had not been debited to the profit and loss account by the appellant. Though similar issue had arisen for consideration in assessee's own case for assessment year 1990-91 in ITA No. 5772/Del./95 and this Tribunal had allowed the claim of the assessee, since the CIT(A) had not decided the issue, it would be proper to set aside the order of the CIT(A) on this issue and direct the CIT(A) to consider the issue afresh after affording assessee opport....
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....ndertaking is completed or the new industrial unit commences production or operation." The assessee in the present case has neither incurred the expenditure in question before commencement of his business nor has the expenditure been incurred in connection with extension of his industrial undertaking or in connection with his setting up a new industrial unit. The order of the CIT(A) is therefore confirmed and this ground of appeal of the assessee is dismissed. 15. The 4th ground of appeal of the assessee reads as follows: "4. That the learned CIT(A), erred on facts and in law in confirming disallowance of Rs. 1,12,272 and Rs. 1,519 out of club subscription." 16. The assessee during the relevant previous year made payments to various clubs, the details of which are as follows: "(a) Membership subscription Rs. 1,12,272 (b) Corporate membership fee of Delhi Golf Club Rs. 1,519." The Assessing Officer disallowed the claim of the assessee for deduction of these expenses holding that they were non-business expenditure. On appeal by the assessee the CIT(A) held that the expenditure were personal expenses of directors and the directors entertained the....
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.... of the wife of CMD though she was not employee of the assessee-company." 19. The facts and circumstances under which both the aforesaid grounds of appeal arise are as follows. The assessee had during the previous year incurred an expenditure of Rs. 30.55 lakhs on foreign travel expenses of directors. The Assessing Officer called for the details of foreign travel expenses. On scrutiny of the details filed in this regard, the Assessing Officer noticed that the foreign travel expenses also included expenditure in connection with foreign travel of Mrs. Santosh Munjal w/o Chairman & Managing Director, Mr. Brij Mohanlal Munjal who had travelled with the CMD on 21-6-1995 to Mauritius and on 22-7-1995 to South Africa. The Assessing Officer thereafter called upon the assessee to show-cause as to why the portion of the expenditure relating to foreign travel of Mrs. Santosh Munjal be not disallowed as she was neither an employee of the assessee nor was her travel abroad necessary for the business of the assessee. In reply, the assessee stated that to strengthen the business relations and in order to promote exports the CMD had undertaken the foreign travel along with his wife and that it ....
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....r executives are, as a matter of social custom, accompanied by their wives when they visit, though for business purposes, has necessarily some social aspects also." The Hon'ble High Courts and Tribunals have expressed similar views in the following cases: (a) CIT v. Apollo Tyres Ltd. [1999] 237 ITR 706 (Ker.) (b) CIT v. Sundaram Clayton Ltd. [1999] 105 Taxman 545 (Mad.) (c) ITO v. J.K. Synthetics Ltd. [1986] 18 ITD 490 (Delhi) (d) ITO v. F.F. Ferguson & Co. [1986] 19 ITD 620 (Bom.) 22. In the present case, the visit to Mauritius at the invitation of the Confederation of Indian Industries, by the wife of the CMD along with the CMD was therefore to be considered as for business purpose and allowed as a deduction. The ground of appeal of the Revenue therefore deserves to be dismissed. As far as assessee's appeal regarding foreign travel expenses of wife of CMD to South Africa is concerned, the visit apparently is to participate in poojas carried out at South Africa. There is no reference to any meeting with any foreign business associates. There is nothing to suggest any business necessity for undertaking these visits. The visit of the....
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.... the parts and that there was no absolute transfer of the technology in favour of the assessee. That under the agreement the Japanese collaborator continues to remain the sole and exclusive owner of the know-how, technical information etc., and that the assessee was debarred from claiming any title to the said rights. That after termination of the agreement the assessee was prohibited from disclosing these information, processes and inventions during the currency and also after termination of this agreement. That even during the currency of the agreement, the assessee was obliged to keep secret and confidential information furnished by the Japanese collaborator and that the assessee was also prohibited from sub-licensing the know-how to any third party. It was contended that payment for licence to use the know-how was a revenue expenditure and reliance was placed on the decisions of the Hon'ble Supreme Court in the case of CIT v. CIBA of India Ltd. [1968] 69 ITR 692, Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377. Further reliance was also placed on the decisions of the Hon'ble Delhi High Court in the case of Shriram Refrigeration Industries Ltd. v. CIT [1981] 12....
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....e Intellectual Property Rights and by using the Technical Information." Under article 4 the licensor has agreed to provide technical information and guidance necessary for manufacture of products and parts by the licensee. Under article 17 it is clearly agreed that the know-how, technical information and any other public technical or business information shall remain the sole and exclusive property of the licensor and shall be held in trust and confidence for licensor by licensee and that the licensee shall not divulge or communicate information to any other person, that the information obtained will be kept secret and confidential. Under clause 18.5 it is specifically agreed that the licensee shall claim no title or property right whatsoever during the existence of the agreement and if the agreement is terminated the licensee shall not claim any right, title, property, interest or use whatsoever at all times after the life of the agreement as regards the use of the intellectual property rights, know-how, technical information or other information received under the agreement. 27. The above terms clearly show that the assessee was merely entitled to use the know-how for manuf....
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....ire sum as deduction in one assessment year itself. Section 35AB was introduced into the Income-tax Act by the Finance Act, 1985 with effect from 1-4-1986. The section is as under: "35AB. (1) Subject to the provisions of sub-section (2), where the assessee has paid in any previous year any lump sum consideration for acquiring any know-how for use for the purposes of his business, one-sixth of the amount so paid shall be deducted in computing the profits and gains bf the business for that previous year, and the balance amount shall be deducted in equal instalments for each of the five immediately succeeding previous years. (2) Where the know-how referred to in sub-section (1) is developed in a laboratory, university or institution referred to in sub-section (2B) of section 32A; one-third of the said lump sum consideration paid in the previous year by the assessee shall be deducted in computing in profits and gains of the business for that year, and the balance amount shall be deducted in equal instalments for each of the two immediately succeeding previous years. Explanation.- For the purposes of this section, 'know-how' means any industrial inform....
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....cer in allowing deduction under section 80HHC of the Act at Rs. 1,61,46,627 as against Rs. 1,92,50,997 claimed by the assessee. (a). By excluding interest on temporary deposit of surplus funds of business, other than bill discounting and advances to employees from business profits. (b) not treating custom duty benefit of Rs. 1,51,89,229 under advance licence scheme as a part of business profits. (c) not excluding excise duty and sales tax amounting to Rs. 143 crores and Rs. 28 crores respectively from the total turnover, for the purpose of computing deduction under section 80HHC of the Act." 31. A decision on the 8th ground of appeal will also dispose ground No.7. The facts with regard to ground No.8 are as follows. The assessee was entitled to claim deduction under section 80HHC of the Act. While computing the deduction under section 80HHC of the Act the assessee had taken into consideration interest income of Rs. 1,64,78,854 as business income. This interest earned comprised of the following. Interest on intercorporate deposits, Loans advanced to employees and Bill Discounting Charges. According to the Assessing Officer such interest income was to be....
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....with the main business and arose out of the said business only. It was also contended that the impugned investment in ICDs was assessee's current asset and was, therefore, to be considered as a business asset and any income arising out of business asset shall be considered as a business income. Reliance was placed on the following decisions:- (i) CIT v. AP Industrial Infrastructure Corpn. Ltd [1989] 175 ITR 361 (AP) (ii) CIT v. Tirupati Woollen Mills Ltd [1992] 193 ITR 252 (Cal.) (iii) CIT v. Tamil Nadu Dairy Development Corpn. Ltd. [1995] 216 ITR 535 (Mad.). 33. As far as this plea of the assessee is concerned, the CIT(A) held that since the funds which were invested in ICDs were admittedly surplus funds which were lying idle, the earning of interest on such deployment of funds shall be considered as income from other sources. He also held that there was no business compulsion or business necessity for deployment of funds in ICDs. The CIT(A), therefore, considered the interest income earned on inter corporate deposit as income from other sources. With regard to the action of the Assessing Officer in not treating the Customs Duty benefit under Adva....
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....l Bench of the ITAT in the case of Rajeev Enterprises v. Assessing Officer [2003] 261 ITR AT 34 (Jp.). Further reliance was placed on the following decisions:- (i) CIT v. Nagpur Engg. Co. Ltd. [2000] 245 ITR 806 (Born.), (ii) S. Damanjit Singh v. Asstt. CIT [2002] 121 Taxman 303 (Mag.) (Delhi - Trib.), (iii) Honda Siel Power Products Ltd. v. Dy. CIT [2001] 77 ITD 123 (Delhi), (iv) Dy. CIT v. Punjab State Electronics & Devp. Production Corpn. Ltd. [2002] 120 Taxman 119 (Mag.) (Chd. - Trib.), (v) Shiva Shankar Granties (P.) Ltd. v. ITA [2002] 81 ITD 106 (Hyd.). 35. With regard to the Excise Duty benefit received under the Advance Licensing Scheme, the Ld. Counsel relied on the decision of the Ahmedabad Bench of the Tribunal in the case of Asstt. CIT v. Pratibha Syntex Ltd. [1999] 63 TTJ (Ahd.) 409 wherein the Ahmedabad Bench of the ITAT while considering a case of claim under section 80HHC of the Act held that total benefit derived by an assessee on duty-free imports will form part of the profit by business under section 28(iiib) of the Act. The Tribunal found that under section 28(iiib) of the Act the expression 'used' was cash....
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....T and, therefore, any other reliefs given in any form to an exporter will fall within the said clause. Respectfully following the decision referred to above, we hold that the Excise Duty benefit should form part of the income from business of the assessee while computing deduction under section 80HHC of the Act. With regard to the Customs Duty and Sales-tax having been included as part of the total turnover while computing deduction under section 80HHC of the Act, the decision of the CIT(A) cannot be sustained, in view of the decision of the Hon'ble Bombay High Court in the case of Sudarshan Chemicals Industries Ltd., wherein the Hon'ble Bombay High Court has held that Excise Duty and Sales-tax should not be included in the total turnover while computing deduction under section 80HHC of the Act. In view of the above, the Excise Duty and Sales-tax is directed to be excluded from total turnover while computing deduction under section 80HHC of the Act. Ground No.8 is partly allowed. 37. In the result, the appeal filed by assessee is partly allowed. 38. Now we shall take up for consideration the appeal by the Revenue i.e., ITA No. 2906/De1./2000. The first ground of appea....
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.... On appeal by the assessee the learned CIT(A), held that the assessee had set up its business during the previous year relevant to assessment year 1986-87. On further appeal by the revenue before the ITAT, the order of the learned CIT(A), was confirmed. The revenue had contended in the said appeal before the ITAT that only 35 motor cycles had been manufactured on a trial basis as on 16-3-1985 and none of them were in saleable condition. Since commercial production of motor cycles commenced only on 27-5-1985 the expenditure cannot be allowed as deduction since business had not commenced. The ITAT however held that the business had been set up as on 16-3-1985 when trial production of 35 cycles were completed and that the expenditure incurred after such setting up of business was allowable as deduction not withstanding the fact that commercial production had not commenced. 40. Taking into consideration the findings of Tribunal for assessment year 1986-87, the Assessing Officer was of the view that the first year of production should be taken as having taken place in assessment year 1986-87 and therefore the period of 10 years referred to in section 80HH(4) ends with assessment ... ....
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....nd of the assessee in assessment year 1986-87 and was of the view that having taken a stand that production had commenced in the previous year relevant to assessment year 1986-87 the assessee was changing its stand in assessment year 1996-97 by saying that commercial production had commenced only in assessment year 1987-88 and the period of 10 years has to be reckoned from that assessment year. He held that under section 80HH there was no concept like 'commercial production'. He then made a reference to the Director's report in the annual report of the assessee for 1984-85 which was relevant to assessment year 1986-87 wherein the Directors have informed the shareholders that the flag off ceremony of trial production of CD 100 Motor Cycles took place on 13-4-1985 and the commercial production of Motor Cycles commenced on 27-5-1985. According to the Assessing Officer the assessee did not choose to make a claim for deduction under section 80HH for assessment year 1986-87 because the assessee had incurred loss. Deduction under section 80HH would be available to an assessee even if trial production commenced and because there was a loss in assessment year 1986-87, the assess....
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....enced commercial production only on 27-5-1985 the previous year relevant to assessment year 1987-88 under section 80HH could be acclaimed only in assessment year 1987-88. The learned CIT(A), relied on the decision of the Hon'ble Bombay and Madras High Courts in the case of M/s. Hindustan Antibiotics Ltd. and Southern Structurals Ltd. in this regard to come to the conclusion that the expression 'manufacture or production' used in section 80HHC has to be interpreted as 'commercial production' and not trial production. (iv) The learned CIT(A), therefore concluded that the first year of manufacture or production was previous year relevant to assessment year 1987-88 and therefore the claim of the assessee for deduction under section 80HH for the assessment year 1996-97 was the 10th year and was therefore to be allowed. 44. Aggrieved by the order of the learned CIT(A), the revenue is in appeal before us. We have heard the rival submissions. The learned DR in his submissions reiterated the stand of the Assessing Officer. The learned counsel for the assessee again reiterated submissions as were made before the learned CIT(A). As can be seen from the ground o....
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....any part thereof previously used for any purpose in any backward area is transferred to a new business in that area or in any other backward area and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (iii) of this sub-section, the condition specified therein shall be deemed to have been fulfilled. (4) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year, in which the industrial undertaking begins to manufacture or produce articles or the business of the hotel starts functioning: Provided that,- (i) in the case of an industrial undertaking which has begun to manufacture or produce articles, and (ii) in the case of the business of a hotel which has started functioning, after the 31st day of December, 1970, but before the 1st day of April, 1973, this sub-section shall have effect as if the reference to ten assessment years were a reference to ten assessment y....
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....ng March 31,1955, it showed a closing stock of crude penicillin worth Rs. 16,727. The first samples of crude penicillin which were manufactured by the assessee-company on December 14, 1954, were required to be sent to USA and UK for obtaining certificates as to their qualities. The requisite certificates were received some time in June, 1955, and the assessee-company started manufacture of sterile penicillin from August, 1955, onwards. The Income-tax Officer, inter alia, took the view that it is not correct that the assessee company's actual manufacturing operations commenced with effect from August, 1955; that for the accounting year ending March 31, 1955 (the relevant year corresponding to assessment year 1955-56), the company in its profit and loss account showed a closing stock of crude penicillin worth Rs. 16,737. He took the view that the process of manufacture must certainly have commenced in the accounting year 1954-55, as the sales were effected in the accounting year 1955-56. Further, he took the view that the beginning of the manufacturing process was certainly in the accounting year 1954-55, as the balance-sheet and profit and loss accounts for the year ending March....
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.... be interpreted regard being had to the object with which this section was enacted. Undoubtedly, the object was to encourage establishment of new industrial undertakings and such object was sought to be achieved by granting an exemption from tax to the extent of 6 per cent per annum on the capital employed in the undertaking in the manner prescribed. If the object is to give exemption from tax, that presupposes that the real object is that the profits are capable of being earned by the company. If such be the object, then until the assessee-company reaches a stage where it is in a position to decide that a final product, which could ultimately be sold in the market, could be manufactured or produced by it, it will be idle formality to say that it had started manufacture or production of articles simply because trial products are prepared with a view to verify whether they can be ultimately used in the preparation or manufacture of the final products. It is undoubtedly true that commencement of operations for manufacture of crude penicillin took place on December 14, 1954, and there was some closing stock of crude penicillin at the end of March, 1955, but even the assessee-company i....
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....relief under section 84 of the Income-tax Act, 1961. We may mention here that this section is identical to the provisions of section 15C of the old Act referred to in the decision of the Bombay High Court in the case of Hindusthan Antibiotics Ltd. The assessee was granted the relief under section 84 of the Income-tax Act up to the assessment year 1963-64. When the question of the availability of the relief to the assessee came up for consideration for the assessment year 1964-65, the Income-tax Officer took the view that the manufacture of railway wagons had begun in the calendar year 1958, relevant for the assessment year 1959-60, and that the last and final year of relief could only be 1963-64 and that, therefore, the assessee was not entitled to the relief for the assessment year 1964-65. Against this order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner who upheld the finding of the Income-tax Officer and rejected the assessee's claim for the relief. The assessee thereafter took the matter on appeal to the Appellate Tribunal. The Tribunal held that the assessee was eligible for the relief for the assessment year 1964-65 as the assess....
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....f the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year." 49. It is on the basis of this definition that the Hon'ble Bombay High Court held that for the purpose of Indian Income-tax Act, it is the setting up of the business and not the commencement of the business that is to be considered. The Hon'ble High Court further held. that when the business is established and ready to commence the business, then it cannot be said that business itself is set up but before it is ready to commence, it is not set up. It further held that there may be time gap in setting up of the business and commencement of the business and all the expenses incurred during that intervening period would be permissible deduction. It is on the basis of this principle that the deduction for revenue expenditure in assessment year 1986-87 had been allowed to the assessee in the present case. That will however have no bearing on the issue in the present assessment year which revolves around the question as to when commercial production commenced in the case of the Assessee. In view of the finding that com....
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....eturn disclosing the sales made and the return to the excise authorities in RT-12 disclosing the production of the Motor Cycles was filed first time on 27-5-1985. The copy of the sales tax return for the month of June, 1985 is at pages 69 to 75 of the assessee's paper book. Copy of the excise return for the month of March 1985 is at pages 76 to 83 of the assessee's paper book. In the light of these documents, the findings of the learned CIT(A), that commercial production began only on 27-5-1985 is correct. In view of the above, the order of CIT(A) does not call for any interference and the same is confirmed and this ground of appeal of the Revenue is dismissed. 51. Ground No.2 of the grounds of the appeal of the revenue reads as follows: "2. That on the facts and in the circumstances of the case, the learned CIT(A), has erred in deleting the disallowance of provisions for warranty without appreciating the facts that it is not an incurred expenditure." 52. The Assessee company is in the business of manufacture and sale of Motor Cycles. For every Motor Cycle sold, the assessee provides warranty to the purchaser against any manufacturing defects in certain speci....
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.... (c) That the change in method of accounting was necessary because of the prescription by the ICAI to provide for warranty for actual basis and also on account of the mandate of the law (under the Companies Act) to follow the accrual system of accounting. The assessee had explained that as against the provision made during the previous year, the assessee had actually settled a sum of Rs. 51,23,558. (d) That it had been following consistently a system of providing warranty claims, the details of which are as follows: F.y. Warranty provided (Rs.) Warranty paid (Rs.) 1995-96 28,70,415.80 51,23,557.82 1996-97 61,29,755.04 62,49,035.55 1997-98 81,86,166.41 82,75,034.43 1998-99 1,05,08,413.17 83,94,808.35 (e) That the changed method of accounting did reflect the true profits of the assessee inasmuch as all the cost of the warranty claims was included in the sales price, but the liability there against was not claimed in the profit and loss account. That the method of accounting followed by the assessee was more scientific and based on actual claims for a specific period and that the Assessing Officer has not established t....
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.... a condition cannot be allowed as a deduction unless the dependent condition is fulfilled during the previous year. In the present case, it is noticed that the assessee when it sells its motorcycles manufactured by it, it confers on the purchasers the benefit of a warranty against defects appearing within the particular period. The assessee also undertakes to provide free maintenance including replacement of parts within a particular period from the date of sale of the motorcycle. It estimated its probable liability on account of free maintenance and replacement of parts during the warranty period and claimed the same as a deduction. According to the revenue authorities, the liability was contingent upon a defect appearing and being notified within the warranty period. Till such time there is no liability in law and therefore the claim for deduction on account of estimated liability cannot be allowed. The Hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 had an occasion to consider' the claim for deduction on account of a contingent liability. The following principles were laid down by the Hon'ble Supreme Court: "If a business l....
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....ing warranties in respect of vehicles sold in that year." 56. Keeping in mind the principles laid down by the Hon'ble Supreme Court and also by the Hon'ble Privy Council, we shall now examine the facts of the present case. In the present case, the yearwise details of provision for warranty and actual payments for the subsequent year against it is as follows:- F.Y. Warranty provided (Rs.) Warranty paid (Rs.) 1995-96 28,70,415.80 51,23,557.82 1996-97 61,29,755.04 62,49,035.55 1997-98 81,86,166.41 82,75,034.43 1998-99 1,05,08,413.17 83,94,808.35 The learned CIT(A), on an analysis of the method of making the provisions for warranty has held the actual expenses are being debited every year and a similar basis for making provisions is repeated every year. The system followed by the assessee is consistent. The expenses actually incurred for the previous year and provided for is not less than the actual expenses. Since the method of accounting is scientific and results in correct determination of profits. We are of the view, that the order of the learned CIT(A), is just and proper and does not call for any interference and the same....
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....missions of the learned DR who relied on the order of the Assessing Officer. The learned counsel for the assessee relied on the order of the learned CIT(A) and the submissions made before the learned CIT(A). We have considered the rival submissions there is no dispute in the present case that the articles in question had been presented to its dealers. Merely because refrigerators are presented along with the visiting cards will not make it an advertisement. The dealer knows about the assessee and its products and there is no occasion for the assessee to advertise its products to its own dealers. The expenditure was rightly considered by the learned CIT(A), to be an incentive to the dealers to boost its sale of the company and that it was wholly and exclusively related to the business of the assessee. The following case laws support the view taken by the learned CIT(A): (i) Dy. CIT v. Bhagwandas Shobalal Jain [1997] 60 ITD 118 (Jab.) (ii) Panama Industries & Laboratories v. IAC [1991] 38 ITD 80 (Born.) (iii) Asstt. CIT v. Hindustan Marketing & Advertising Co. Ltd. [1994] 49 TTJ (Delhi) 96 (iv) Avon Cycles Ltd. v. Asstt. CIT [1997] 59 TTJ (Chd.) 75....