TaxTMI 
TaxTMI 
2016 (1) TMI 1372
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....ce of Rs. 42,94,336/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40(a)(ia) on account of non-deduction of tax at source from the payment of royalty and consultancy fees made to a Japanese Entity. 4. The assessee in the present case is a Company, which is mainly engaged in the business of manufacture and sale of Batteries. The return of income for the year under consideration, i.e. A.Y. 2003-04 was filed by it originally on 28.11.2003 declaring total income of Rs. 75,59,82,050/-. Thereafter the revised return was filed by the assessee on 30.10.2004 declaring total income of Rs. 58,20,27,180/-. In the Tax Audit Report filed along with the return, a sum of Rs. 42,94,336/- paid by the assessee to a Japanese Entity on account of royalty and consultancy fees was shown to be an item disallowable under section 40(a)(i) for non-deduction tax at source. In the computation of total income, no such disallowance under section 40(a)(ia) was offered by the assessee. In this regard, reliance was placed by the assesee on the non-discriminatory clause as contained in para 3 of Article 24 of the Indo-Japanese Tax Treaty. The stand of the assessee was that since....
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....eals) on account of provision made by the assessee for warranty. 8. The Batteries manufactured and sold by the assessee through its Dealers carry certain guaranteed life and in case of any failure during such guaranteed period, the Batteries are replaced free of cost. Keeping in view the period of guarantee/warranty and based on the past experience, a provision for warranty of Rs. 17.65 crores was made by the assessee for the year under consideration. It was claimed that the said provision was made as per the Accounting Standard AS-29 prescribed by the Institute of Chartered Accountants of India. The Assessing Officer, however, rejected this claim of the assessee-Company on the ground that a provision made for warranty being a notional and contingent liability was not allowable as per the mercantile system of accounting followed by the assessee. On appeal, the ld. CIT(Appeals) upheld the order of the Assessing Officer on this issue by observing that the provision for warranty being in the nature of an uncertain liability was rightly disallowed by the Assessing Officer. 9. We have heard the arguments of both the sides and also perused the relevant material available on record. As ....
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....s account for the year under consideration. According to the Assessing Officer, the said amount was pertaining to the earlier years and the assessee, therefore, was not entitled to claim the same in the year under consideration. 13. On appeal, the ld. CIT(Appeals) found merit in the contention of the assessee raised on this issue that the arrears of electricity charges for the earlier years having been paid by the assessee in the year under consideration on the basis of Hon'ble High Court's order, the liability on this account, which was not a contractual liability, had crystallized in the year under consideration. He, however, found that the aspect as to whether the amount in question was paid by the assessee as per the order of the Hon'ble High Court required verification and accordingly a direction was given by him to the Assessing Officer to verify this aspect and allowed the claim of the assessee accordingly. 14. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Although the ld. Counsel for the assessee has invited our attention to the relevant documentary evidence placed in the paper book to show that the....
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....damages was allowed by the Assessing Officer as well the ld. CIT(Appeals) in principle but the portion of the same was treated as excessive and unreasonable and disallowed on ad hoc basis, which is against the principle laid down by the Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Limited -vs.- CIT reported in 26 ITR 775. He also submitted that the liquidated damages is in the nature of normal business expenditure required to be incurred by any manufacturer like the assessee-company and the Assessing Officer himself allowed such expenditure in the earlier years as well as in the subsequent years. He contended that the total sales of the assessee for the year under consideration were Rs. 194.39 crores and the liquidated damages claimed by the assessee at Rs. 2.99 crores being only 1.27% of such sales, the same cannot be treated as excessive or unreasonable. He also contended that the liquidated damages are in the nature of bad debts and the same, therefore, are allowable alternatively under section 36(1)(vii) having written off by the assessee in the books of account as per the ratio laid down by the Hon'ble Supreme Court in the case of TRF Limited -vs.- CIT r....
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....the liquidated damages claimed were not furnished by the assessee, as rightly contended by the ld. D.R., to substantiate its claim for deduction. However, the fact remains that there was under recovery of receivables by the assessee from the concerned customers and the party- wise details of under-recovery having been furnished by the assessee, we are of the view that there was no justification on the part of the authorities below to consider the claim of the assessee for liquidated damages as excessive or unreasonable without bringing any material on record in support. As rightly contended by the ld. Counsel for the assessee, the liquidated damages is a regular feature of any manufacturer like the assessee-Company and the Assessing Officer himself having allowed the claim for liquidated damages not in the earlier years and subsequent years but even partly in the year under consideration, the disallowance made by him for the remaining part without there being anything to support and substantiate the same, in our opinion, is not sustainable. We, therefore, delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue and allow Groun....
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....t the upgradation of ERP is nothing but replacement of ERP package as the earlier version of ERP becomes completely useless after upgradation. We are unable to agree with the contention of the ld. D.R. In our opinion, there is a difference between upgradation of ERP Software and purchase of ERP Software, inasmuch as the benefit of upgradation is only incremental, which is to the extent of additional features provided in the new version, while the same in the case of acquisition of new ERP package is full and completely new. Even this benefit is reflected in the price charge, inasmuch as the price charged for upgradation is only marginal equivalent to the incremental benefit available in the new version while it is full in case of acquisition of new ERP package. The upgradation of ERP, in our opinion, therefore, cannot be equated with replacement as contended by the ld. D.R. and the advantage being only incremental to the extent of the additional features in the new version, the same cannot be treated as the replacement of the entire ERP package so as to treat the expenditure incurred on upgradation as capital expenditure. Moreover, the use of any ERP package in the case of ma....
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....le Supreme Court vide its judgment dated 08.09.2008 stayed the judgment of the Hon'ble Calcutta High Court until further orders. 27. At the time of hearing before us, the ld. Counsel for the assessee has contended that even though the decision of the Hon'ble Calcutta High Court holding Clause (f) of Section 43D as ultra virus is stayed by the Hon'ble Supreme Court while admitting the SLP filed by the Revenue, the same has not been reversed and this Tribunal, therefore, is bound to follow the same being a binding precedent. He has also contended that the decision of the Hon'ble Calcutta High Court was stayed by the Hon'ble Apex Court vide its judgment dated 08.09.2008 until further orders and there being another Interim Order passed by the Hon'ble Supreme Court on 08.05.2009, the stay granted earlier stands automatically vacated. A copy of the said interim order dated 08.05.2009 is placed on record before us, the contents of which are extracted below:- "Pending hearing and final disposal of the Civil Appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is conce....
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....elating to the disallowance made under section 40(a)(ia) on account of payment made by the assesese to a Japanese party towards royalty and technical fees, it is observed that the issue is similar to the one involved in Ground No. 1 of the assessee's appeal for A.Y. 2003-04, which has been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2003-04, we delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue and allow Ground No. 2 of the assessee's appeal for A.Y. 2004-05. 34. As regards Ground Nos. 3, 4 & 5 of the assessee's appeal for A.Y. 2004-05, it is observed that the issues involved therein relating to the disallowance made on account of assessee's claim for deduction of ERP upgradation and implementation expenses are similar to the issues involved in Ground No. 5(c) and Ground No. 6 of the assessee's appeal for A.Y. 2003-04, which have been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2003-04, we decide these issues in favour of the assessee and delete the disallowance made on account of ERP upgradation and implementation expenses. Groun....
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....on'ble Bombay High Court in the case of CIT -vs.- K.K. Doshi & Company reported in 245 ITR 849 and CIT -vs.- Kantilal Chhotelal reported in 246 ITR 429. The ld. D.R., on the other hand, relied on the orders of the authorities below in support of the Revenue's case on this issue. 39. We have considered the rival submissions and also perused the relevant material available on record. Going by the nature of the amount in question received by the assessee on account of technical know-how fees as explained by the ld. Counsel for the assessee, we are of the view that the same is different from the nature of receipts as covered by Explanation (baa) to Section 80HHC(4B) such as Duty Draw Back, sale of license, commission, brokerage, interest, rent, etc. and, therefore, the reliance of the authorities below on the said Explanation to exclude the said amount to the extent of 90% from the profits of the business for the purpose of computing deduction admissible to the assessee is clearly misplaced. On the other hand, the said amount having direct link with the export of the assessee as explained by the ld. Counsel for the assessee, we are of the view that the same cannot be excluded from the....
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....s based on an actuarial valuation. This additional contribution paid by the assessee to Pension Fund was held to be an allowable deduction by the Tribunal for the following reasons given in Paragraphs No. 8 to 10 of its order:- "8. We find that Section 36(1)(iv), which deals with the deductions on account of contribution to a recognised provident fund or an approved superannuation fund, provides as follows: "36. Other deductions.-(l) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) to (iii) (iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the ....
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.... are neither towards the ordinary annual contribution nor towards the initial contribution. This payment has been necessitated due to shortfall discovered in the course of actuarial valuation of the fund, and is in the nature of a one time exceptional payment to ensure that the superannuation fund is able to discharge its obligation. Its neither an annual contribution, nor an ordinary contribution. Limitations placed under rule 87 relevant for 'ordinary annual contribution', as have been invoked in this case, cannot be pressed into service in such a case. In our considered view, the disallowance under section 36(1)(iv) read with Rule 87 do not come into play in the case of a payment to make good the shortfall, on the basis of actuarial valuation, in the superannuation fund. In this view of the matter, the very foundation of the impugned disallowance did not have legally sustainable basis; the amount was deductible, in principle. Under section 36(1)(iv) and the restriction on deductibility, as set out in the said section as also in Rule 87, did not apply in this case. The conclusions arrived at by the CIT(A), though for the reasons other than the reasons adopted by the CIT(A....