TaxTMI 
TaxTMI 
2017 (11) TMI 1069
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....partial relief and upholding the learned Assessing Officer's action in disallowing expenses amounting to Rs. 157,566/- u/s 14A in addition to Rs. 50,000/- disallowed by the appellant company in its return of income by wrongly applying Rule 8D and thereby not following decision of jurisdictional High Court in Maxopp Investment Ltd 203 Taxman 364. 2. The brief facts qua the first issue are that the assesseecompany is engaged in the business of manufacturing and trading of Electronic/Electric Equipments. During the course of assessment proceedings, the Assessing Officer noted that the assessee has claimed expenditure of Rs. 25 lakhs under the head "late delivery charges", no such expense was claimed under this head in the preceding year. The Assessing Officer in the absence of any proper reply treated the delivery charges in the nature of penalty and not related to the functioning of the business and also looking to the fact that it was not claimed in the earlier years, therefore, he disallowed the same and added to the income of the assessee. 3. Before the ld. CIT(A), assessee submitted that assessee has declared total income of Rs. 90,87,79,580/- from the business of manufact....
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....that the assessee had entered into a contract with Reliance Telecom Ltd. on 23/8/2007 which specifically provided for late delivery charges consequent to not adhering to the scheduled delivery date. The liquidated damages ranges from 1 to 10% of the basic value and it also provided performance bank guarantee of 10% of the basic purchase order valid for warranty period. The assessee has worked out this liability approximately at 2% of the total contract sale of Rs. 12.79 crores and in fact there was an actual delay in delivery of such sales and assessee did pay liability on this account at Rs. 19.47 lakhs and the differential amount has been written back. He also drew our attention to the details of late delivery charges and also bills which are appearing in the paper book from pages 32 onwards and he also drew our attention to the working of the provision for various items, copy of which is appearing at page 15 of the paper book. Thus, he submitted that estimate made by the assessee was not only proper but also quite approximate looking to the fact that assessee had to pay Rs. 19.47 lakhs towards late delivery charges. 6. On the other hand, the ld. D.R. strongly relied upon the or....
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....Movers vs. CIT reported in [2000] 245 ITR 428 (SC) 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 future date. What should be certain is the incurring of the liability and it should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. In the present case, provision has been recognized by the assessee on the basis of obligation stipulated in the contract which ranges from 1 to 10% and assessee has given a detailed working for making the provision @ 2% which also gets ratified by the actual payments in the subsequent year. Here the obligation of the assessee is a result of an event which is probably outflow of resources required to settle the obligation and based on this, a reasonable estimate has been made. Thus, it cannot be held....
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....ed that looking to the fact that assessee has made only three investments in this year and, therefore, disallowance offered by the assessee at Rs. 50,000/- of proportionate employee cost was quite reasonable and appropriate and the Assessing Officer without examining the nature of accounts and expenses debited in the profit & loss account has proceeded to apply rule 8D(2)(iii) which is not correct as per provisions of section 14A(2). He also referred to various judgments and finally relied upon the judgment of the Hon'ble Delhi High Court in the case of H.T. Media Limited vs. Pr. CIT in I.T.A. No 548 & 549/2015 dated 23/8/2017 wherein the Hon'ble High Court has held that failure of the Assessing Officer to record satisfaction with regard to the correctness of the assessee's claim cannot trigger disallowance under section 14A. Therefore, no disallowance can be made. 11. On the other hand, the ld. D.R. strongly relied upon the order of the ld. CIT(A) and submitted that the ld. CIT(A) himself has scaled down the disallowance to Rs. 1,57,666/-. 12. We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as the material referred t....