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2015 (12) TMI 1742
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.... amounting to INR 2,095,635 on account of non deduction of tax at source. The-Appellant prays that the reimbursement of expenses to ABSC amounting to INR 2,095,635, should be allowed while computing the taxable income. Ground 2 : Disallowance of provision for excise duty pertaining to obsolete inventory under section The Ld. CIT(A) erred in disallowing a sum of INR 1,006,000 being excise duty pertaining to obsolete inventory. The Appellant prays that the provision for excise duty of INR 1,006,000 on obsolete stock of goods be allowable as a deduction while computing the taxable income. Ground 3: Disallowance of sales commission The Ld. CIT(A) has erred in disallowing a sum of INR 2,762,000 being sales commission paid to sales agents. The Appellant prays that the sales commission of INR 2,762,000 paid to the sales agents should be allowable as a deduction while computing the taxable income. 4. The Revenue in ITA No. 2469/PN/2012 has raised the following grounds of appeal :- 1. Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in directing that software expenditure of Rs....
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.... expenses to M/s. A.B. Sandvik Coromant at Rs. 20,95,635/-. 6. Brief facts relating to the issue are that the assessee was engaged in the business of manufacturing and trading of various items and had declared gross total income of Rs. 49.36 crores comprising of business income of Rs. 48.30 crores, income from other sources of Rs. 1.06 crores. Against this, the assessee had claimed deduction under section 80HHC of the Act at Rs. 3.18 crores, under section 80HHE of the Act at Rs. 2,22,022/- and under section 80G of the Act at Rs. 38,500/-. The entire balance income of Rs. 46.15 crores was set off against brought forward business losses and brought forward depreciation and filed return of income at Rs.Nil. The Assessing Officer during the course of assessment proceedings noted that the assessee claimed to have made payment of Rs. 20,95,635/- to M/s. A.B. Sandvik Coromant (Briefly MABSC), supposedly for reimbursement of certain expenses. In the course of assessment proceedings of the said concern for the corresponding year, the Assessing Officer had examined the nature of expen ses and had informed that the nature of payment made by the assessee was in the nature of Royalty, on whi....
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....d amount should not be added as per provisions of section 145A of the Act. In response, the assessee filed an explanation which is incorporated under para 10.2 at pages 19 and 20 of the assessment order. The Assessing Officer was of the view that in view of the provisions of section 145A of the Act, the component of Excise duty relating to obsolete inventory was required to be included in the closing inventory. Against this, the deduction under section 43B for Excise duty was allowable, provided the said obsolete stock was cleared on payment of Excise duty prior to the date of filing of the return of income. The Assessing Officer however, noted that till the date of filing the return of income for the relevant year, no obsolete inventory was removed from the factory and therefore, the question of payment by the assessee for the corresponding Excise duty does not arise and hence, no deduction under section 43B of the Act was allowable to the assessee in this regard. Consequently, sum of Rs. 10,06,000/- relating to Excise duty component on closing stock of obsolete inventory was added back to the total income under section 145A of the Act. 13. The CIT(A) upheld the order of Assess....
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....tially, the Assessing Officer show caused the assessee as to why the same should not be added as per section 145A of the Act. However, the same was disallowed on the surmise that since the obsolete inventory was actually scrapped in assessment year 2006-07, the corresponding Excise duty was not eligible for deduction under section 43B of the Act. The said order of the Assessing Officer has been upheld by the CIT(A). 18. Looking at the provisions of section 43B of the Act, it is provided that notwithstanding anything contained in any other provisions of the Act, deduction otherwise allowable under the Act, in respect of any sum payable by way of tax, duty, cess or fees, by whatever name called, under any law for the time being in force or other provisions provided in other sub clauses, shall be allowed, irrespective of the previous year in which the liability to pay such sum was incurred by the assessee, according to the method of accounting regularly employed by him, only in computing the income referred to in section 28 of the Act of that previous year, in which such sum is actually paid by him. After the introduction of section 43B of the Act, it has been categorically laid do....
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....the return of income, exceeded sum of Rs. 1.86 crores. The ground of appeal No.2 raised by the assessee is thus, allowed. 21. The issue in ground of appeal No.3 is against the disallowance of sales commission paid to sales agents of Rs. 27,62,303/-. 22. During the year under consideration, the assessee had claimed commission payment of Rs. 7,19,806/- to M/s. Bombay Tools Centre, Mumbai and Rs. 20,42,497/- to Jai Balaji Sponge Ltd., Kolkata. The claim of the assessee was that the said payments were made for the services rendered by the said two concerns for award of certain contracts to the assessee and also for follow up related to release of payments. The said parties were asked to furnish supporting documentary evidence to show that they were in constant touch with the relevant clients of the assessee to ensure that the contract was awarded and also for the release of the payment. The Assessing Officer further carried the enquiries through the Department at Mumbai and Kolkata. The two parties despite several opportunities did not furnish any requisite documentary evidence to show that the services were actually rendered by them. The assessee was asked to explain as to why s....
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....t allowable in the hands of the assessee. 27. We have heard the rival contentions and perused the record. The issue raised vide ground of appeal No.3 before us is in relation to the commission payment totaling Rs. 27,62,303/-. The assessee claims to have paid sum of Rs. 7,19,806/- to M/s. Bombay Tools Centre , Mumbai and Rs. 20,42,497/- to M/s. Jai Balaji Sponge Ltd., Kolkata. The claim of the assessee was that both the parties were appointed for obtaining orders and also for following up the payments against such orders. The assessee claims to have entered into agreements with such agents. However, no supporting evidence in this regard was furnished by the assessee except the copy of agreement. In order to be eligible for claim of deduction on account of any expenditure, the onus is upon the assessee to establish that the said expenditure has been incurred for the purpose of carrying on its business activities. Merely because the expenditure has been incurred by the assessee, does not entitle the assessee to the said claim without discharging his onus. In the facts of the case, the Assessing Officer made enquiries from the respective parties through Revenue Department at Mumbai....
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....lowance of software expenses being of enduring nature, arose before the Tribunal in assessee's own case in ITA Nos. 2053 & 2054/PN/2012 in Revenue's appeal against the assessee. The Tribunal vide order dated 31.12.2014 with lead order in assessee's appeal in ITA Nos.1841 & 1842/PN/2012 along with cross appeals in ITA Nos.2053 & 2054/PN/2012 vide pars 19 to 21 considered the identical issue of allowability of expenditure incurred on applications software and allowed the claim of the assessee. The relevant findings of the Tribunal vide paras 22 and 22.1 are as under:- "22. We have considered the rival arguments made by both the sides. We find the issue stands squarely decided in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Lubrizol India Ltd. reported in 37 Taxmann.com 294 (Bom.) where it has 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 tha....
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.....2004, was made by the Assessing Officer. 38. Before the CIT(A), the claim of the assessee was that it was following this method consistently from year to year and such claim was allowed in earlier years as well as in subsequent years and it was only in this year, the addition was made in the hands of the assessee. The CIT(A) noted the internal guidelines of the assessee company vide para 22, which reads as under:- "22. I have carefully considered the facts of the case as well as reply of the appellant. In this case, it is seen that the appellant company had made provision for obsolescence of stock on the basis of internal guidelines which is broadly as under: (i) Stock items which have had no movement during the last 12 months are to be written down by 50%. (ii) Stock items which have had no movement during the last 24 months are to be written down to zero scrap value." 39. The CIT(A) thereafter, held as under:- "23. Thus, it is seen that the appellant has made provision for obsolete stock on the basis of movement of goods on the basis of it's internal circular, without actually ascertaining the market value of the stock. This type of prov....
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....ve the method followed by the assessee, we find no merit in the order of Assessing Officer in this regard. Further, even the Hon'ble Supreme Court in Rotork Controls India (P) Ltd. Vs. CIT reported in 314 ITR 62 (SC) had upheld the provision for warranty made by the said assessee in its books of account and its admissibility being on scientific basis. Following the same simili of reasoning, we uphold the order of CIT(A) in this regard and dismiss the grounds of appeal No.2 and 4 raised by the Revenue. 44. The issue in ground of appeal No.3 raised by the Revenue is against the order of CIT(A) in allowing the losses suffered by newly set up EOU against its other business income. The Revenue is also aggrieved by the order of CIT(A) in holding that the assessee was entitled to claim deduction under section 10B of the Act from the assessment year in which it commenced its business and not when the plant and machinery was put to use for the purpose of business by way of trial run during the last quarter of assessment year 2004-05. 45. The Assessing Officer during the assessment proceedings noted that during the relevant year the assessee had commenced trial production in respect of....
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.... the disallowance of loss pertaining to unit, wherein the Assessing Officer had disallowed the same to be set off from the other business income on the ground that section 10A/B of the Act are exemption sections and therefore, the loss of the undertaking will not form part of the gross total income. The CIT(A) held that in view of the provisions of section 10B of the Act as substituted by the Finance Act, 2000 w.e.f. 01.04.20 01, the deduction has to be allowed from the gross total income. Reliance in this regard was placed on the ratio laid down by the Hon'ble Bombay High Court in Hindustan Uniliver Ltd. Vs. DCIT and Anr. (2010) 38 DTR 91 (Bom) and consequently, the Assessing Officer was directed to set off the loss of Rs. 1.99 crores against the other business income. 47. The Revenue is in appeal against the order of CIT(A). 48. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer and pointed out that the Assessing Officer had denied the set off of brought forward losses, in view of the assessee's unit being eligible for exemption under section 10B of the Act. 49. The learned Authorized Representative for the assessee ....
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....r-head set off of profit and loss is recognized by the Act. 52. The Hon'ble Bombay High Court in Hindustan Unilever Ltd. Vs. DCIT & Anr. (supra) in an appeal relating to assessment year 2004-05 where reassessment proceedings were initiated under section 147/148 of the Act on several issues, considered the reason to believe recorded by the Assessing Officer with regard to set off of loss incurred by unit eligible for deduction u/s. 10B of the Act. The Assessing Officer had reopened the assessment on the surmise that since the income of the Crab Stick Unit was exempted from tax under section 10B, the loss of that unit was wrongly set off against the normal business income. The Hon'ble High Court noted that after the substitution of section 10B of the Act by the Finance Act of 2000, the provisions provided for deduction of such profit or gains as were derived by 100% EOU for the period prescribed under that section. The Hon'ble High Court thus held that the basis on which the assessment was sought to be reopened was belied by a plain reading of the provisions and the Assessing Officer was in error in proceeding on the basis that because the income was exempted, the loss....
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....ns of the Act. Accordingly, the ground of appeal No.3 raised by the Revenue is also dismissed. 55. Now, coming to the issue in ground of appeal No.5 raised by the Revenue i.e. computation of deduction under section 80HHC of the Act. 56. Briefly, in the facts of the issue raised, the assessee had written back creditors balance of Rs. 89,000/- to the Profit & Loss Account. The explanation of the assessee before the Assessing Officer was that the said creditors balance written back pertained to raw material purchases made for EOU unit. The assessee had included the aforesaid amount in the eligible profits while computing the deduction under section 80HHC of the Act. The Assessing Officer excluded 90% of the said amount as per clause (1) of explanation (baa) to section 80HHC of the Act. 57. The CIT(A), in view of the ratio laid down by the Hon'ble Supreme Court in CIT Vs. K. Ravindranathan Nair (2007) 295 ITR 228 (SC) and the decision of Hon'ble Bombay High Court in CIT Vs. M/s. Dresser Rand India Pvt. Ltd. in ITA No.2186 of 2009, dated 08.04.2010 held that while write back of the creditors was concerned, the same had to be treated as business profit and therefore, 90% of the ....