TaxTMI 
TaxTMI 
2014 (12) TMI 1236
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....'}, erred in upholding the action of the Assessing Officer ('AO') in disallowing the expenditure of INR 5,392,055 pertaining to Employee Stock Purchase Scheme. The Appellant prays that the expenditure of INR 5,392,055 pertaining to Employee Stock Purchase Scheme should be allowed as a deductible expenditure." 2.1 Facts of the case, in brief, are that the AO during the course of assessment proceedings noted from the notes forming integral part of computation of income that the assessee company during the year has issued 7590 equity shares to its employees at a concessional price of Rs. 100/- each under Employee Stock Purchase Plan (ESPS) as against the prevalent market price of Rs. 850/- per share. The difference amount of Rs. 53,92,055/- has been debited by the assessee company as business expenditure. He, therefore, asked the assessee to explain and justify the claim of such debit of Rs. 53, 92,055/- to the profit and loss account. It was submitted by the assessee that the same was formulated as per guidelines of SEBI and the SEBI guidelines for debiting such expenditure is binding in nature. 2.2 However, the AO rejected such explanation of the assessee and he....
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.... has issued the shares, therefore, in view of the decision of the Bangalore Bench of the Tribunal, the deduction has to be allowed. He also submitted that the Special Bench while deciding the issue has considered the decision of the Delhi Bench of the Tribunal in the case of Ranbaxy Laboratories Ltd. (Supra). 5. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). 6. We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee in the impugned assessment year has issued 7590 equity shares to its employees at concessional price of R.100/- each under ESPS against the prevalent market price of Rs. 850/- per share. The difference amount of Rs. 53.92 lakhs has been debited by the assessee company as business expenditure. We find the Bangalore Special Bench of the Tribunal in the case of Biocon Ltd., (Supra) while deciding an identical issue has held that discount on issue of Employee Stock Option Plan (ESOP) is allowable as deducti....
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....ts to incur the expenditure. When the Assessing Officer asked the assessee for the basis of computation of provision the assessee submitted the break up stating that warranty is provided @2% of invoice value. The Assessing Officer held that the assessee company had not submitted any scientific formula for computation of provision for warranty. Accordingly relying upon the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers Vs. CIT reported in 245 ITR 428 and Indian Smelting & Refinery Co. Vs. CIT reported in 248 ITR 4, the Assessing Officer disallowed the amount treating the same as contingent liability. 8. Before CIT(A) the assessee filed submissions giving the detailed working of provision for warranty from F.Y. 2001-02 to F.Y. 2004-05 in the light of decision of Hon'ble Supreme Court in the case of Rotork Controls Pvt. Ltd. Vs. CIT reported in 314 ITR 62. It was submitted that provisions made were also similar to the amounts of expenditure incurred by the company over the warranty period. It was further submitted that the warranty provisions are never exceeding 0.50%. It was accordingly submitted that the entire provision for warranty should be treated as all....
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....he provision for warranty is given for a period starting from 1 year to 4 years and in case there is an excess provision, the same has subsequently been reversed. He gave the details of such warranty provision company-wise and drew the attention of the Bench to the reversal of the entry in case of L&T amounting to Rs. 66,05,000/- during the F.Y. 2004-05. 10.1 Referring to the decision of the Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd., (Supra) he submitted that when large number of sophisticated goods are manufactured and sold with warranty and the past records show that defects existed in some of the items, the provision made by the assessee for warranty claims on the basis of past experience is allowable as deduction u/s.37. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Voltas Ltd. Vs. DCIT reported in 61 TTJ 543 he submitted that the Tribunal in the said decision has held that provision for trade guarantees during warranty period is an allowable expenditure He also relied on the decision of the Pune Bench of the Tribunal in the case of ITO Vs. Wanson (India) Ltd., reported in 5 ITD 102 (Pune) and the decision of the Bang....
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....warranty provision, therefore, we do not find any justification in the order of the CIT(A) restricting the disallowance to Rs. 44,94,000/- which was the amount outstanding as on 31-03-2003,i.e. after a period of 12 months from the end of the accounting year. We accordingly set-aside the order of the CIT(A) on this issue and direct the Assessing Officer to delete the entire disallowance. Ground of appeal No.2 by the assessee is accordingly allowed and ground of appeal No.2 by the Revenue is accordingly dismissed. 14. Grounds of appeal No.3 by the assessee and grounds of appeal No.5 by the Revenue read as under : By Assessee : "Ground 3: Disallowance of Warranty Provision in computation of tax as per the provisions of section 115 JB of the Act The Ld. CIT(A) erred in holding that provision for warranty is excessive to the extent of INR 4,494,000 and adding the same while computing the book profits as per the provisions of section 115JB JB of the Act. The Appellant prays that no addition be made towards provision for warranty, while computing the book profits as per section 115JB of the Act." By Revenue : "5. Whether on the facts and circumstances of the case and ....
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....ever, since there is no explanation for Rs. 4,390/- being excess debit on account of professional feed paid, addition of Rs. 14.16. lakhs is reduced to Rs. 878/- (4390/5). Thus, the ground is partly allowed." 17.1 Aggrieved with such order of CIT(A) the revenue is in appeal before us. 18. After hearing both the sides, we find no infirmity in the order of the CIT(A). We find the AO while considering the nature of amalgamation expenses of Rs. 177.17 lakhs has noted that the actual expenses debited to P&L Account amounted to Rs. 106.33 lakhs and estimated expenses to be incurred subsequently is Rs. 70.84 lakhs. According to him, the expenses of Rs. 70.84 lakhs retains its character of a contingent liability or unascertained contingent liability. Further, this expenditure has not been incurred during the year. Therefore, he disallowed 1/5th of such expense being Rs. 14.16 lakhs. We find the Ld.CIT(A) while deciding the appeal found that assessee has subsequently incurred an amount of Rs. 65,84,078/- towards stamp duty on adjudication of court order and another Rs. 4,95,610/- towards professional fees. Therefore, he held that an amount of Rs. 70,84,078/- cannot be consid....
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....been held that expenses incurred to obtain the application software which has to be upgraded from time to time due to change in technology has to be allowed as revenue expenditure. The relevant observation of the Hon'ble High Court at para 3 of the order reads as under : "3. So far as question B is concerned, the Tribunal has held that the computer software expenses incurred by the respondentassessee was revenue in nature. The expenses were incurred to obtain the application software which gets upgraded from time to time due to change in technology. This licence being for limited period would have to be renewed from time to time. In the aforesaid circumstances, the Tribunal held that considering the nature of the software licence i.e. application software, the same has to be allowed as a revenue expenditure. In view of the finding of fact arrived at further by the Tribunal that the expenses have been incurred on application software which is for a limited time frame and has to be renewed from time to time, we see no reason to entertain question B as framed by the revenue." 22.1 Respectfully following the decision of the jurisdictional High Court cited (Supra), the order of th....
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.... 25.1 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 26. After hearing both the sides, we find the issue stands decided in favour of the assessee by the decision of the Hon'ble Gujarat High Court in the case of Sayaji Iron and Engineering Company Vs. CIT reported in 253 ITR 749 where it has been held that partial disallowance of expenditure for maintenance of vehicles in case of a private limited company cannot be made. Addition, if any can be made in the hands of the concerned directors as perquisites but cannot be disallowed in the hands of a limited company. In this view of the matter, we uphold the order of the CIT(A) on this issue and the ground raised by the Revenue is dismissed. ITA No.1842/PN/2012 (A.Y. 2003-04) (By Assessee) : ITA No.2054/PN/2012 (A.Y. 2003-04) ( By Revenue) : 27. Grounds of appeal No.1 by the assessee and grounds of appeal No.1 by the Revenue read as under : By Assessee : "Ground 1: Disallowance of Warranty Provision in normal tax computation The Ld. Commissioner of Income Tax (Appeals)- V, Pune {Ld. 'CIT(A)'} erred in holding that provision for warranty of INR 4,552,024 is excessive in nature and....
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....e have already decided the ground in faovur of the assessee. Therefore, this ground becomes academic in nature and therefore is not being adjudicated. 29. Grounds of appeal No.2 by the Revenue reads as under : "2. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in holding that the unutilized CENVAT credit cannot be treated as income of the assessee, when sec. 145A introduced w.e.f. 01.04.1999 mandates inclusion of tax, duty, cess etc. in the value of stock and the CENVAT credit available is equivalent to duty paid." 29.1 Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee company has availed CENVAT credit of Rs. 17,41,57,482/- out of which total utilization was Rs. 16,42,38,089/- leaving the balance credit of Rs. 99,19,393/-. The Assessing officer confronted the assessee on this issue and asked why the same should not be treated as income of the assessee company. The assessee submitted that unutilized MODVAT credit should not be added to the income of the assessee as the issue has been decided by Hon'ble Pune, Tribunal in favour of the assessee in A.Y. 1993-94....
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....ithkline Consumer Health care Ltd. reported in 110 TTJ 183. Further, the Pune Bench of the Tribunal in assessee's own case has allowed the issue of unutilized Modvat credit in favour of the assessee for A.Y. 1993-94. The Ld. Departmental Representative could not bring any distinguishable features so as to take a different view than the view taken by the Ld.CIT(A). Under these circumstances and in view of the various decisions cited by the Ld. Counsel for the assessee, we find no infirmity in the order of the CIT(A). Accordingly, ground raised by the Revenue is dismissed. 32. Grounds of appeal No.3 by the Revenue reads as under : "3a. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 1,08,59,472/- made on account of provision for discount on sale when no evidence was brought on record by the CIT(A) which would support that contingent event occurred during the year especially when sales were made during the last quarter. 3b. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 1,08,59,472/- made on account of provision for discount o....
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....5 ITR 428 (SC) wherein it was held that if a business liability has definitely arisen in the accounting year ,the deduction should be allowed although the liability may have to be quantified and discharged at a later date. The ratio of the above decision of the Supreme Court is applicable in this case too. In an another judgment of Hon'ble Supreme court in Rotork Controls India (P) Ltd Vs.CTT 314 ITR 62 it has been held that provision for warranty liability is an allowable expenditure provided it has been calculated on scientific basis. In this case the learned counsel of the appellant has submitted that against the provision of Rs. 1.09 Crores actual payment was to the tune of Rs. 1.11 Crores which justifies the provisions made in this regard. Therefore, on the facts and circumstances of the case and also relying upon the above judgments of Hon'ble Apex Court, it is held that the Assessing Officer was not justified in holding that that the liability for sales discount had not accrued during the financial year relevant to A.Y. 2003-04. Accordingly he is directed to delete the addition of Rs.l,08,59,472/-. Thus the ground is allowed." 33.1 Aggrieved with such order of the....
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....tted that invoices for import/export are booked on the spot rate i.e the rate applicable on the day of the transaction. However, when the invoices are actually received or paid as the case may be, the same is done on the basis of rate applicable on the date of payment. This leads to gain or loss on account of fluctuation of exchange rates, it was further submitted that net result of loss of Rs. 72.10 lakhs is directly related to business of the assessee and since the loss has been incurred during the previous year, the same is allowable as business loss. The A.O however, did not accept the contention of the assessee holding that purchases are to be debited at the actual cost incurred for making the purchases and .similarly the receipts should also be accounted for on the basis of actual. Accordingly he disallowed the loss on account of exchange rate fluctuation amounting to Rs. 72,10,000/-" 36. In appeal the Ld.CIT(A) deleted the addition by observing as under : "22. 1 have carefully considered the facts of the case as well as reply of the appellant In this case it is seen that the in the heading of the relevant para 7 of the Assessment order which deals with the issue mentio....