Income Tax Appellate Tribunal - Bangalore
Deputy Commissioner Of Income Tax ... vs M/S Ttk Prestige Ltd , Bangalore on 3 August, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER
ITA Nos.1552/Bang/2017, 2228 & 2229/Bang/2016
Assessment years : 2013-14, 2011-12 & 2012-13
The Deputy Commissioner of Vs. M/s. TTK Prestige Ltd.,
Income Tax, Brigade Towers,
Circle 7(1)(1), # 135, Brigade Road,
Bangalore. Bangalore - 560 025.
PAN: AAACT 6503G
APPELLANT RESPONDENT
ITA Nos. 2185 & 2186/Bang/2016
Assessment years : 2011-12 & 2012-13
M/s. TTK Prestige Ltd., Vs. The Deputy Commissioner of
Bangalore - 560 025. Income Tax,
PAN: AAACT 6503G Circle 7(1)(1), Bangalore.
APPELLANT RESPONDENT
Revenue by : Shri M. Rajashekar, Jt.CIT(DR)(ITAT), Bengaluru.
Assessee by : Sri R.B. Krishna, Advocate
Date of hearing : 04.06.2018
Date of Pronouncement : 03.08.2018
ITA Nos.1552/B/17,
2228, 2229, 2185 & 2186/B/16
Page 2 of 13
ORDER
Per N.V. Vasudevan, Judicial Member
These Cross appeals by the Revenue and Assessee against orders of CIT(A) for A.Y.2011-12, 2012-13 and 2013-14 involving some common issues were heard together. We deem it convenient to pass a consolidated order.
ITA No.2185 & 2228/Bang/2016 (For AY 2011-12) ITA No.2185/Bang/2016: (Assessee's appeal for AY 2011-12)
2. This is an appeal by the Assessee against the order dated 27.9.2016 of CIT(A)-7, Bengaluru, relating to assessment year 2011-12.
3. Ground Nos.1 and 6 raised by the Assessee are general in nature and calls for no specific adjudication. Gr.No.2 raised by the Assessee reads as follows:
"2. The disallowance of legal and professional charges is opposed to law and to facts and requires to be deleted."
4. The facts necessary for adjudication of Gr.No.2 are that the Assessee which is a company is in the business of manufacturing and marketing of pressure cooker, cookware and domestic electrical appliances. The Assessee had claimed deduction of a sum of Rs.16,79,343/- while computing income from business. The said sum was legal and professional charges paid to M/s. Talwar, Thakore Associates who were consultants appointed to conduct due diligence with regard to title to the industrial land and compliance of conditions for running industry on the land owned by M/s. Triveni Bialetti Industries Pvt.Ltd. The Assessee was considering acquisition of the said business and claimed ITA Nos.1552/B/17, 2228, 2229, 2185 & 2186/B/16 Page 3 of 13 that the said expenditure was revenue expenditure incurred wholly and exclusively in connection with the business of the Assessee and should be allowed as a deduction. The AO held that the expenditure was capital expenditure and cannot be allowed as deduction because the expenditure was incurred in connection with acquisition of capital asset which will give enduring benefit to the Assessee.
5. On appeal by the Assessee, the CIT(A) held that the expenditure was not capital expenditure but was a revenue expenditure. He however held that the payment in question was for rendering professional services and therefore the Assessee ought to have deducted tax at source as envisaged u/s.194J of the Income Tax Act, 1961 (Act). Since tax at source had not been deducted, the sum was liable to be disallowed u/s.40(a)(ia) of the Act, which lays down that where tax is deductible at source on any payment which is claimed as deduction in computing total income and where tax is not deducted and paid to the credit of the Central Government, the payment which is claimed as expenditure in computing total income will not be allowed as deduction. The CIT(A) thus confirmed the order of the AO, but for the reason given above.
6. Aggrieved by the order of the CIT(A), the Assessee has raised Gr.No.2 before the Tribunal.
7. The learned counsel for the Assessee submitted that the Assessee had deducted tax at source and had made payment of the tax so deducted to the credit of the Central Government as per the due dates specified in Section 40(a)(ia) of the Act. Copies of the relevant TRACES of TDS Centralized processing cell are placed at pages-3 to 6 of the Assessee's paper book. We are of the view that it would be just and appropriate to set ITA Nos.1552/B/17, 2228, 2229, 2185 & 2186/B/16 Page 4 of 13 aside the order of the CIT(A) and remand for verification by the AO the claim of the Assessee that it had complied with the provisions of sec.40(a)(ia) of the Act. If tax had been deducted and paid as claimed, then the addition made is directed to be deleted.
8. Gr.No.3 raised by the Assessee reads as follows:
"3. Disallowance u/s. 14A is erroneous as no interest paid can be attributable to the income received and the A.O. has not given a finding that the claim made by the assessee is not correct."
9. The Assessee earned dividend income of Rs.66,31,925/-. The said income does not form part of the total income under the Act. In accordance with the provisions of Sec.14A of the Act which provides that any expenditure incurred in earning income which does not form part of the total income under the Act, should be excluded in arriving at the total income, the Assessee was bound to compute the disallowance of expenditure u/s.14A of the Act. The Assessee contended before the AO that it had incurred a sum of Rs.1,14,185/- as expenditure in earning the exempt income and added the said sum to the total income in the computation of total income. The AO however did not agree with the submission of the Assessee and was of the view that the expenditure to be disallowed u/s.14A of the Act has to be worked out on the basis of Rule 8D(2)(ii) & (iii) of the Income Tax Act Rules, 1962 (Rules). Accordingly, he made a disallowance of Rs.16,16,357/-, comprising of disallowance of interest expenditure of Rs.2,20,292 [under rule 8D(2)(ii) of the Rules] and a sum of Rs.15,40,250/- [under Rule 8D(2)(iii) of the Rules] as other expenses.
10. On appeal by the Assessee, the CIT(A) upheld the disallowance made by the AO, hence Gr.No.3 by the Assessee before the Tribunal.
ITA Nos.1552/B/17,2228, 2229, 2185 & 2186/B/16 Page 5 of 13
11. The learned counsel for the Assessee reiterated submissions as were made before the CIT(A) and submitted that the AO has not arrived at a satisfaction regarding the correctness or otherwise of the claim of the Assessee that there was no expenditure incurred in earning the exempt income and therefore the disallowance u/s.14A of the Act has to be held as bad in law. He relied on the decision of the Hon'ble Delhi High Court in the case of H.T. Media Ltd. Vs. Prl.CIT 399 ITR 576 (Del) in support of the above contention. He also submitted that the Assessee had sufficient own funds and no borrowed funds had been utilized for making investments which yielded exempt income. With reference to a specific query as to the basis on which the Assessee computed disallowance u/s.14A of the Act at Rs.1,14,185/-, the learned counsel submitted that no such basis was given by the Assessee. The learned counsel for the Assessee submitted that the Assessee will submit the basis of disallowance u/s.14A of the Act and for consideration of the same, the issue may be set aside to the AO.
12. We are of the view that the assessee has to make a claim (including a claim that no expenditure was incurred) with regard to expenditure incurred for earning income which is not chargeable to tax. Such a claim has to be examined by the AO and only if on an objective satisfaction arrived at by the AO that the claim made by the assessee is not correct, can the AO proceed to apply the computation mode as specified in Rule 8D(2) of the Rules. In the present case, the Assessee has not given such a basis. The learned counsel for the Assessee submitted that the issue may be set aside to the AO and the Assessee will give the basis on which it computed the disallowance u/s.14A of the Act. We therefore set aside the order of the CIT(A) on this issue and remand the issue for fresh consideration by the AO with a direction to the Assessee to furnish the basis on which it had computed the disallowance of Rs.1,14,185/- u/s.14A ITA Nos.1552/B/17, 2228, 2229, 2185 & 2186/B/16 Page 6 of 13 of the Act. The AO examine the same and decide the issue afresh in accordance with law after affording Assessee opportunity of being heard.
13. Gr.No.4 & 5 raised by the Assessee reads as follows:
"4. Interest u/s. 234B has been wrongly charged.
5. Interest u/s. 234C has been overcharged."
14. The submission of the learned counsel for the Assessee on the above grounds was as follows:
"Interest u/s. 234B Interest u/s. 234B was wrongly computed as Rs.30,62,745/- given that the total advance tax paid and TDS deducted amounted to Rs.35,13,71,626, which works out to 94.15% of the assessed tax of Rs.37,37,79,966. Whereas interest u/s. 234B is leviable only if the tax paid is less than 90% of the tax demanded. Hence it was submitted that no interest u/s. 234B was leviable.
Interest u/s. 234C Interest u/s. 234C is to be computed based on the returned income, whereas it has been computed on the assessed income resulting in excess levy of Rs.58,79,523 [Rs.68,28,742 (-) 9,49,219]."
15. We are of the view that the contentions of the assessee require examination by the AO and for this purpose, we remand the issues to the AO to consider the submission and if found true to charge interest u/s.234B and 234C of the Act, on the basis suggested by the Assessee, which is in accordance with the provisions of Sec.234B and 234C of the Act.
16. In the result, appeal being ITA No.2185/Bang/2014 is treated as allowed for statistical purpose.
ITA Nos.1552/B/17,2228, 2229, 2185 & 2186/B/16 Page 7 of 13 ITA No.2228/Bang/2016. (Revenue's appeal for AY 2011-12)
17. This is an appeal by the Revenue against the order dated 27.9.2016 of CIT(A)-7, Bengaluru, relating to AY-2011-12. The grounds of appeal raised by the Revenue relates to the deduction allowed by the CIT(A) on account of provision for warranty while computing income from business. The Assessee claimed deduction of a sum of Rs.2,89,83,572/- as provision for warranty liability on the pressure cookers and electronic items sold by it. The AO disallowed the claim for deduction for the reason that the estimation of liability based on which provision for warranty liability was made by the Assessee was not scientific. The following were the reasons given by the AO:-
3.2 In response, another note was furnished vide written submission dated 11/3/2014, wherein it was stated that warranty made every year is computed at 1% of the sale value of kitchen appliances (other than pressure cooker and cookware). It was further stated that electrical appliances range of products has been launched in the recent years. It was further stated that when new product range in the electrical appliances being launched every year, the warranty claims are expected to balloon in the ensuing years. The submissions of the assessee company in respect of allowability of provision for warranty has been examined and it is seen that the company has not been able to establish that it has followed any scientific method to estimate the warranty provision. The Hon'ble Supreme Court of India, in the case of Rotork Controls India Pvt.Ltd., (2009) 314 ITR 62, has stated that warranty provision is allowable if it has been arrived at on the basis of some scientific method which is followed consistently by the company. In the case of the company it is neither been able to establish that warranty provision has been estimated on the basis of some scientific method nor it has been able to establish that it has followed any consistency in creating the warranty provision. Moreover, it has seen that the note ITA Nos.1552/B/17, 2228, 2229, 2185 & 2186/B/16 Page 8 of 13 regarding allowability of warranty provision given on 3/3/2014 and 11/3/2014 are contradictory. In its written note vide submission dated 3/3/2014 it has stated that the provisions has been created in respect of pressure cooker sold in UK market and in respect of electrical consumer appliances. But in the note given vide written submission dated 11/3/2014 it was stated that the provisions has been computed at the rate of 1% of the sale value of kitchen appliances (other than the pressure cooker) sold by the company. Under the circumstances, the assessee company has not been able to establish that the warranty provision has been estimated on the basis of some scientific method and it has followed consistency in creating the provision. Therefore the deduction in respect of provision for warranty at Rs.2,81,51,751/-
is found to be not allowable and the same is disallowed and added to the returned income of the assessee company."
18. On appeal by the Assessee, the CIT(A) deleted the addition made by the AO by accepting the submission of the Assessee that the basis given by the Assessee for making provision on account of warranty liability was scientific. Aggrieved by the order of the CIT(A), the revenue has preferred the present appeal before the Tribunal.
19. We have heard the rival submissions. The learned DR relied on the order of the AO, the learned counsel for the Assessee relied on the order of the CIT(A). We have gone through the order of the AO and the CIT(A). The Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd. 314 ITR 62 (SC) wherein the Hon'ble Supreme Court has laid down three conditions for provision to be regarded as liability which are as follows.
"10. What is a provision? This is the question which needs to be answered. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a ITA Nos.1552/B/17, 2228, 2229, 2185 & 2186/B/16 Page 9 of 13 result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized."
20. From a perusal of the order of the CIT(A), we find that he has considered warranty expenses in AY 2013-14 and 2014-15. The past event should be the basis of making provision. The conditions laid down by the Hon'ble Supreme Court is that because of a past event the future liability is likely to be incurred and the basis of such expenditure to be incurred is a reliable scientific estimate. The Assessee is in this line of business for a very long time and he should be in a position to demonstrate that making provision of 1% of the sale as provision for anticipated liability on account of warranty claims is based on its own past experience. We therefore deem it fit and proper to set aside the order of the CIT(A) and remand for fresh consideration by the AO, the question of proper estimate of liability on account of provision for warranty based on past events. The Assessee is directed to furnish the necessary figures in this regard to justify its claim. The AO shall examine the claim in the light of the principles laid down by the Hon'ble Supreme Court in the case of Rotor Controls India Pvt.Ltd. (supra) after affording the Assessee opportunity of being heard. The appeal of the revenue is accordingly treated as allowed for statistical purpose.
21. In the result, ITA No.2228/Bang/2016 is treated as allowed for statistical purpose.
ITA Nos.1552/B/17,2228, 2229, 2185 & 2186/B/16 Page 10 of 13 ITA No.2186 & 2229/Bang/2016 (For AY 2012-13) ITA No.2186/Bang/2016: (Assessee's appeal for AY 2012-13)
22. This is an appeal by the Assessee against the order dated 21.10.2016 of CIT(A)-7, Bengaluru, relating to AY-2012-13.
23. The only ground raised by the Assessee in this appeal is with regard to disallowance of expenses under Sec.14A of the Act. The grounds of appeal of the Assessee reads thus:
"3. Disallowance u/s. 14A is erroneous as no interest paid can be attributable to the income received and the A.O. has not given a finding that the claim made by the assessee is not correct."
24. At the time of hearing, the parties agreed that the facts and circumstances under which the aforesaid grounds of appeal arise are identical to the facts and circumstances that prevailed in AY 2011-12 and the same order passed in AY 2011-12 may be followed in AY 2012-13 also.
25. Accordingly, we set aside the order of the CIT(A) on the issue of disallowance of expenses u/s.14A of the Act and remand the issue to the AO for fresh consideration on the same lines as was directed in AY 2011-12.
26. We thus allow the appeal of the Assessee being ITA No.2186/Bang/2016, for statistical purpose.
ITA Nos.1552/B/17,2228, 2229, 2185 & 2186/B/16 Page 11 of 13 ITA No.2229/Bang/2016: (Revenue's appeal for AY 2012-13)
27. The grounds of appeal of the Revenue reads as follows:
"1. The order of the learned CIT (A) is opposed to law and facts of the case.
2. Whether on the facts and in the circumstances of the case, the CIT(A) was justified in law in deleting the addition made by the AO on account of warranty provisions, ignoring the fact that all the condition as laid down by the Hon'ble Apex Court in the case of Rotork Controls India (P) Ltd vs. CIT 314 ITR 62 for claim of warranty provisions are not satisfied.
3. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
4. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above."
28. At the time of hearing the parties agreed that the facts and circumstances under which the aforesaid grounds of appeal arise are identical to the facts and circumstances that prevailed in AY 2011-12 and the same order passed in AY 2011-12 may be followed in AY 2012-13 also.
29. Accordingly, we set aside the order of the CIT(A) on the issue of disallowance of provision for warrant expenses and remand the issue to the AO for fresh consideration on the same lines as was directed in AY 2012-
13. We thus allow the appeal of the Revenue for statistical purpose.
30. In the result ITA No.2229/Bang/2016 is allowed for statistical purpose.
ITA Nos.1552/B/17,2228, 2229, 2185 & 2186/B/16 Page 12 of 13 ITA No.1552/Bang/2017: (Revenue's appeal for AY 2013-14)
31. This is an appeal by the Revenue against the order dated 8.3.2017 of the CIT(A)-7, Bengaluru, relating to AY 2013-14.
32. The grounds of appeal of the Revenue reads as follows:
"1. The order of the learned CIT (A) is opposed to law and facts of the case.
2. Whether on the facts and in the circumstances of the case, the CIT(A) was justified in law in deleting the addition made by the AO on account of warranty provisions, ignoring the fact that all the condition as laid down by the Hon'ble Apex Court in the case of Rotork Controls India (P) Ltd vs. CIT 314 ITR 62 for claim of warranty provisions are not satisfied.
3. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
4. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above."
33. At the time of hearing the parties agreed that the facts and circumstances under which the aforesaid grounds of appeal arise are identical to the facts and circumstances that prevailed in AY 2011-12 and the same order passed in AY 2011-12 may be followed in AY 2013-14 also.
34. Accordingly, we set aside the order of the CIT(A) on the issue of disallowance of provision for warrant expenses and remand the issue to the AO for fresh consideration on the same lines as was directed in AY 2011-12. We thus allow the appeal of the Revenue for statistical purpose.
ITA Nos.1552/B/17,2228, 2229, 2185 & 2186/B/16 Page 13 of 13
35. In the result ITA No.1552/Bang/2017 is allowed for statistical purpose.
36. In the result all the appeals are allowed for statistical purpose.
Pronounced in the open court on this 3rd day of August, 2018.
Sd/- Sd/-
( A.K. GARODIA ) ( N.V. VASUDEVAN)
Accountant Member Judicial Member
Bangalore,
Dated, the 3rd August, 2018.
/ Desai Smurthy /
Copy to:
1. The Revenue
2. The Assessee
3. The CIT
4. The CIT(A)
5. The DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.