Income Tax Appellate Tribunal - Cochin
M/S.Apollo Tyres Ltd, Cochin vs The Dcit, Cochin on 24 July, 2017
ITA No 35/Coch/2017
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH
KOCHI
BEFORE S/SHRI ABRAHAM P GEORGE, AM & GEORGE GEORGE K, JM
ITA No 35/Coch/2017
(Asst Year 2012-13 )
M/s ApolloTyres Ltd Vs The Dy Commr of Income Tax
3rd Floor Income Tax Circle 1(1)
Areekal Mansion Kochi
Near Manorama Junction
Parampilly Nagar
Kochi 682 036
( Appellant) (Respondent)
PAN No. AAACA6990Q
Assessee By Sh Salil Kapoor/Ms Ananya
Kapoor
Revenue By Sh Shantam Bose, CIT-DR
Date of Hearing 25 May 2017
Date of pronouncement 24th July 2017
ORDER
PER ABRAHAM P GEORGE, AM;
This appeal filed by the assessee is directed against an order dated 31.3.2017 of Dy Commr of Income Tax, Corporate Range-1 Kochi on 25.1.2017, pursuant to directions of Dispute Resolution Panel (DRP) u/s 144C of the I T Act, 1961. 2 Assessee has altogether raised 19 grounds. Of these, ground nos. 1, 3, 16, 17 are general in nature and no specific adjudication is required. However, it has to be mentioned that assessee has a grievance regarding disallowance of a deduction of Rs. 4,87,20,504/- claimed by it u/s 80IA of the I T Act though allowed by DRP which, as 1 ITA No 35/Coch/2017 per its pleadings, are covered by the general grounds. Ground no.18 of the assessee on levy of interest u/s 234B, C & D of the Act is consequential in nature. Ground no.19 is against initiation of penalty proceedings u/s 271(1) c) and 271AA of the Act, are premature in nature. Out of the other effective grounds, 4 & 11 are on issues connected to Minimum Alternative Tax (MAT) and these will be dealt with separately. Other Grounds relating to corporate tax are taken first for adjudication. 3 Vide its ground no.2, assessee is aggrieved that the Assessing Officer while computing its income had started with the income of Rs.3,96,40,290/- declared by it in the original return ignoring the income of Rs. 1,67,86,870/- declared by it in a revised return. Ld AR submitted that assessee which was engaged in the business of manufacture and sale of automotive tyres, had filed two returns of income for the impugned assessment year on the same day. As per the ld AR, assessee had filed a return declaring total income of Rs.3,96,40,290/- and another return declaring total income of Rs. 1,67,86,870/- on 26th Nov 2012. Contention of the ld AR that both these returns were acknowledged by Assessing Officer in the assessment order. However,, according to him, while computing the income, ld AO had started with income shown in the original return. As per the ld AR, assessee did not raise a ground in this regard before DRP; but still the issue being clear from record and needing no specific debate has to be considered by the Tribunal. Per contra, ld DR submitted that the assessee having not raised any ground before the DRP it could not be considered at this stage. 4 We have heard the rival submissions and perused the material on record. Assessing Officer has acknowledged in the assessment order that assessee had filed 2 ITA No 35/Coch/2017 two returns on 26.11.2012, one declaring income of Rs.1,67,86,870/- and another declaring income of Rs. 3,96,40,290/-. However, out of these which one was the revised return which was the original return, is not clear from the assessment order. Further, the summarized grounds of objections before DRP placed as annexure to Paper Book no.1 of the assessee, does not show any such objections having been raised before the DRP. Nevertheless, in our opinion, for the correct computation of income, it is required to start from the income shown in the revised return of income, filed by the assessee, once it is acknowledged that such a return is on record. At the same time, it is also imperative for Assessing Officer to verify what were the differences between the declared income as per the original return and declared income as per the revised return and make enquiries as to what prompted such difference. He has to verify whether there are any items, which were missed out while doing the assessment, and if so, he has to consider it. In the interest of justice, we are of the opinion that the Assessing Officer shall ascertain the reasons for the difference in the income returned in between these two returns, and proceed in accordance with law. Ground no.2 raised by the assessee is allowed for statistical purpose.
5 Vide ground no.5, assessee is aggrieved on a disallowance of pre operative expenses of Rs. 21,67,95,249/-.
6 Ld AR for the assessee submitted that the above expenses were incurred for setting up new units at Chennai and Baroda. As per the ld AR just because such expense was shown as pre-operative in nature and capitalised as part of work-in- 3
ITA No 35/Coch/2017 progress in its books would not be a reason to disallow its claim. According to the ld AR entries in the books were not determinative for deciding the issues on taxation. Further, as per the ld AR, expense comprised of salaries, wages, bonus, travelling, conveyance, vehicle expenses, rent, power and fuel etc., which were all revenue in nature and had to be allowed. According to him, at the best what could be capitalized was only interest paid on borrowals taken for acquiring new assets. Further, according to the ld AR, this Tribunal in assessee's own case for the AYs 2010-11 and 2011-12 ( ITA Nos. 223/Coch/2015 and 189/Coch/2016 dated 10.1.2017) had considered the very same issue and decided it in favour of the assessee. Per contra, ld DR supported the orders of the income tax authorities.
7 We have heard the rival submissions and perused the material on record. We find that expenses aggregating to Rs. 26,97,79,538/- was incurred by the assessee in the previous year relevant to assessment year 2010-11, and claimed as pre-operative revenue expenditure. Assessee had argued that these were incurred for expansion of its existing business of manufacture of tyres and allowable for tax purposes. In the said year also, it was disallowed by the ld AR as pre-operative in nature. Breakup of the expenses for the previous year relevant to Asst Year 2010-11 read as under:
Particulars Amount (Rs/Million)
Raw material consumed 33.86
Salaries, wages and bonus 114.98
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ITA No 35/Coch/2017
5.97
Contribution to Provident and Other Funds
Welfare Expenses 26.12
Rent 4.10
17.27
Travelling, conveyance and vehicle
expenses
Postage, Telex Telephone and Stationery 1.57
Power and Fuel 38.21
Insurance 8.69
Miscellaneous Expenses 19.01
Total 269.78
Breakup of expenses for the impugned assessment year read as under:
Particulars Amount (Rs/Million)
Raw material consumed 78.44
Salaries, wages and bonus 71.14
4.45
Contribution to Provident and Other Funds
Welfare Expenses 13.12
Rent 2.12
11.05
Travelling, conveyance and vehicle
expenses
Postage, Telex Telephone and Stationery 0.24
Power and Fuel 17.91
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ITA No 35/Coch/2017
Insurance 6.80
Legal & Professional expenses 247
Miscellaneous Expenses 9.05
Total 216.79
8 A comparison of the expenditure, show that many of the expenditure incurred
during the relevant previous year were similar to the expenditure incurred for the previous year relevant to assessment year 2010-11. On assessee's appeal for assessment year 2010-11,this Tribunal had held as follows:
9. We have heard the rival submissions and perused the record. In the present assessment year, the facts reveal that no plant or machinery has been acquired by the appellant company for the unit under consideration and there was no construction work carried out at the plant. The expenses disallowed in the impugned order have not resulted in the acquisition of a capital asset. The appellant has averred that the business organization, the administration and the funds of both the existing as well as the new plant in Chennai are the same and controlled by common management of the appellant company. It was further submitted that common books of accounts are maintained and also the existing as well as the new unit is engaged in the manufacturing of tyres. The said factual scenario has not been disputed by the A.O. or the DRP. This clearly shows that the expenditure incurred was for expansion of an already existing business and not for setting up a new business. Section 37 provides for deduction of expenditure incurred wholly and exclusively for the purpose of business of an assessee provided that the expenditure should not be in the nature of a capital expenditure. In the present case, the expenses by its very nature are revenue expenses like salary, traveling, conveyance, provident fund, postage etc.
10. In the case of CIT Vs. Sakthi Sugars Ltd. (339 ITR 400), the Hon'ble Madras High Court held as under:-
"34. From the above decisions the test for identifying an expenditure as to whether it is a revenue expenditure or capital expenditure can be stated as under (1) If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, it would be a capital expenditure.6
ITA No 35/Coch/2017 (2) If on the other hand, it is not made for the purpose of bringing into existence any such asset or advantage but for running the business or working it with o view to produce the profits, it is o revenue expenditure. (3) For instance if the interest paid was in respect of the asset, which was acquired on an outright basis than it was intimately linked with the value of the asset. That determines the character of the expenditure and it was capital in nature.
Keeping the about tests in mind, when we examine the case on hand, the various kinds of expenditures relating to the sum of 6,84,78,570/-, the details of which have been mentioned in paragraphs 19 and 20, disclose that all those expenditures were incurred in the relevant years for the purpose of manufacture of sugar in the respective factories with a view to earn profits and therefore they are nothing but revenue expenditure only.
In other words, all expenses which were incurred by way of salaries, wages, bonus, provident fund contribution, workmen welfare expenses, power, fuel and water, manufacturing expenses, rent for office building etc., were all expenses which were incurred for the purpose of running of the business and it cannot be held to be by way of investment. In fact there was no dispute that whatever investments made for Baramba unit and Dhenkanal unit were capitalised and were never claimed by way of revenue expenditure."
11. The Hon'ble Delhi High Court in the case of CIT Vs. Priya Village Roadshows, 332 ITR 594 observed as under:-
"10. A harmonious reading of the aforesaid two judgments of this Court, namely, Triveni Engg. Works Ltd. (supra) on the one hand and Modi Industries (supra) on the other, would clearly demonstrate that one has to keep in mind the essential purpose for which such an expenditure is incurred. If the expenditure is incurred for starting new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature. In that event it would be irrelevant as to whether project really materialised or not. However, if the expenditure incurred is in respect of the same business 'which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start new unit which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure "
12. In view of the aforesaid position of law the aforesaid expenses are treated as revenue in nature and deduction is permissible under section 37 of the Act. Ground No. 3 and 3.1 are allowed."
Though it has been allowed by this Tribunal in the preceding year, whether the expenditure incurred in relevant previous year was for expansion of existing business 7 ITA No 35/Coch/2017 or stating a new business is not clear from the records. Though the ld Assessing Officer has mentioned that the expenditure was for setting up units at Chennai and Limda (Vadodara), there is no finding whether it was for expansion of existing line of business or starting a new business. No doubt, as held by the Tribunal, if it was for expansion of existing business the expenditure had to be considered as a business outgo. This aspect, in our opinion, requires a careful verification. We, therefore, set aside the order of the authorities below on this issue and remit it back to the Assessing Officer for consideration afresh. Ground no.5 is allowed for statistical purpose. 9 Vide ground no.6, assessee is aggrieved on a disallowance of Rs. 98,103/- made u/s 14A of the Act.
10 Assessee had earned dividend income of Rs. 52,880/- which was claimed by the assessee as exempt u/s 10(34) of the Act. Assessing Officer had invoked Rule 8D r.w.s 14A of the Act and arrived at a disallowance of Rs. 98,103/-. 11 Ld AR submitted that the assessee had suo-motu made a disallowance of Rs. 1,08,996/- in its own computation which was ignored by the Assessing Officer. According to him, further disallowance would result in double taxation of the same amount. Per contra, ld DR submitted that there was no such ground raised by the assessee before the DRP.
12 We have heard the rival submissions and perused the material on record. We have gone through the grounds raised by the assessee before the DRP. If assessee had suo-motu disallowed Rs. 1,08,996/- u/s 14A of the Act in its own computation then 8 ITA No 35/Coch/2017 the addition of Rs. 98,103/- made by Assessing Officer will be subsumed in it. However, whether such suo-motu disallowance was done by assessee in the original return or revised return has not been looked into by the lower authorities. Therefore, we are of the opinion that this issue also requires fresh consideration by Assessing Officer. Accordingly, we direct the Assessing Officer to look into this issue afresh and decide the same in accordance with law. Ground no.6 stands allowed for statistical purpose.
13 Vide ground no.7, assessee was aggrieved on disallowance of its claim of weighted deduction of Rs. 10,09,63,660/- u/s 35(2AB) of the Act. 14 Ld AR submitted that the assessee had claimed the above amount as weighted deduction in respect of expenditure incurred by it for its in-house R&D facility. As per ld AR, lower authorities failed to appreciate that the pre conditions required to be satisfied for application of section 35(2AB) of the Act, were fulfilled by the assessee. As per AR, lower authorities gave restrictive interpretation to the term 'in-house'. According to him, just because expenses were incurred in different locations would not mean that these were not for in-house R&D facility. Further, as per ld AR non filing of Form 3CL, could not be considered as a reason for denying the claim. According to him filing of Form 3CL was procedural. In any case, according to him, Form No. 3CL dated 28.10.2016 was submitted by the assessee through a rectification application dated 7.5.2017. Reliance was placed on the judgment of Hon'ble Gujarat High Court in the case of CIT vs Cadila Healthcare Ltd (214 taxman 672). The claim, as per ld AR, included R&D expense of Rs. 3.27 crores for clinical trial outside India, Rs. 4.92 9 ITA No 35/Coch/2017 crores being salary reimbursement of the employees of M/s Apollo Vredestein BV Netherlands & Apollo Germany and R&D expenses of Rs. 1.89 crores for testing and certification before clinical trials. According to him, similar expenses were incurred by assessee for R&D in assessment years 2010-11 & 2011-12 were initially denied by the Assessing Officer, but on assessee's objection ld DRP allowed such claims in these years. Further, as per ld AR, revenue had carried this issue before the Tribunal for these years and Tribunal had held that section 35(2AB) could not be given a restrictive interpretation and the term 'in-house' was to be given wider interpretation. 15 Per contra, ld DR submitted that for the impugned assessment year, assessee had not filed Form 3CL which was mandatory in nature along with the return. According to ld DR such form was filed only when the matter was pending before DRP. As per ld DR, the DRP had allowed the claim to the extent mentioned in Form 3CL. In any case, according to ld DR, the expenditure incurred was not for any in-house facility and was not eligible for weighted deduction.
16 We have heard the rival submissions and perused the material on record. Out of the total claim for R&D expenses, a sum of Rs. 3,27,61,904/- was for clinical trial of new tyres done at its Baroda R&D but through test tracts facilities outside India. We find that there was a similar claim made by the assessee in assessment years 2010-11 and 2011-12 also. The relevant observations made by the Tribunal in its order dated 10.1.2017(supra) at paras 17 to 21 are reproduced herein under:
"18. Ground No. 7 pertains to the disallowance of weighted deduction of Rs. 94,98,220/- claimed by the appellant under section 35(2AB) of the Act in respect of 10 ITA No 35/Coch/2017 expenditure of Rs. 1.89 crores incurred by the company on its R & D Facility. It is the case of the appellant that the expenses of Rs. 1.89 crores were incurred for testing the new tyres developed by the company at its R & D Facility at Baroda. In the absence of proper technology in India, the said tyres were sent to test tracks facilities in Germany for testing and certification. The A.O was of the view that the expenditure can only be allowed under section 35(2AB) if it is incurred on in-house research and development facility and since the expenditure in the present case was made towards trial activities outside the approved facility, the deduction was not permissible. The DRP affirmed the view taken in the draft assessment order by holding that deduction for testing of tyres outside India is not permissible and the explanation to section 35(2AB) is limited to the drug trial only.
19. The Ld. AR submits that the AO and DRP have misunderstood the scope of section 35(2AB) and the law only requires that the expenditure should have been incurred on in-house R & D Facility. He further submits that the clinical trial of tyres is related to tyres produced as a result of R & D activities in the in- house facility of assessee at Baroda and therefore, the deduction u/s 35(2AB) is permissible. The Ld. DR has relied upon the orders passed by the DRP and the AO.
20. We have heard the submissions and perused the records and the judgments relied upon. Section 35(2AB) provides for weighted deduction of expenditure on scientific research by a company in the business of manufacture or production of any article or thing provided that the expenditure incurred is on in-house research and development facility of the assessee, which is approved by the prescribed authority. The only question that is to be determined is whether the expenditure incurred was on in- house R & D facility. The approved R& D facility of the appellant company is in Baroda. The tyres produced as a result of R & D activities in the said facility are tested in Germany. The said fact is not disputed by the AO that the tyres which are tested in Germany upon which the expenditure'is incurred by the appellant company relate to the tyres produced by the R & D facility of the appellant company in India. The intention of legislature is not to oust such expenditures made by an assessee and the same is evident from the explanation to section 35(2AB) which provides that expenditure on scientific research in relation to drugs shall include expenditure incurred on clinical drug trial. In the case of CIT Vs. Cadila Healthcare Ltd. (2013) 31 taxmann.com 300, the Hon'ble Gujarat High Court held as under:-
"D. Whether the Appellate Tribunal has substantially erred in holding that the expenses incurred outside the approved R&D facility would also get weighted deduction based on the word under "on the house" interpreting contradictorily to the finding of coordinate bench in Concept Pharmaceuticals Ltd. Vs. ACIT(ITAT, Mum) reported at 43 "16. The whole idea thus appears to be to give encouragement to scientific research. By the very nature of things, clinical trials may not always be possible to be conducted in closed laboratory or in similar in-house facility provided by the assessee and approved by the prescribed authority. Before a pharmaceutical drug could be put in the market, the regulatory authorities would insist on strict tests and research on all possible aspects, such as possible reactions, effect of 11 ITA No 35/Coch/2017 the drug and so on. Extensive clinical trials, therefore, would be an intrinsic part of development of any such new pharmaceutical drug. It cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company. If we give such restricted meaning to the term expenditure incurred on in-house research and development facility, we would on one hand be completely diluting the deduction envisaged under sub-section (2AB( of section 35 and on the other, making the explanation noted above quite meaningless. We have noticed that for the purpose of the said clause in relation to drug and pharmaceuticals, the expenditure on scientific research has to include the expenditure incurred on clinical trials in obtaining approvals from any regulatory authority or in filing an application for grant of patent. The activities of obtaining approval of the authority and filing of an application for patent necessarily shall have to be outside the in-house research facility. Thus the restricted meaning suggested by the Revenue would completely make the explanation quite meaningless. For the scientific research in relation to drugs and pharmaceuticals made for its own peculiar requirements, the Legislature appears to have added such an explanation."
21. It is pertinent to mention here that section 35(2AB) was introduced as an incentive for encouraging research and development in the industrial sector and therefore, has to be liberally construed in view of the decision of Hon'ble Supreme Court in Bajaj Tempo Ltd. Vs. CIT, 62 Taxman 480. The AO and the DRP have misdirected themselves in not appreciating the true intent and purport of section 35(2AB) of the Act. Having not disputed the fact that these tests are part of R & D activities conducted by the appellant in Baroda, the disallowance in the present facts is not permissible. We therefore, hold that the appellant is entitled for deduction under section 35(2AB) of the Act. Ground No. 7 and 7.1 are allowed.
By virtue of the above order of the Tribunal, the claim for weighted deduction for clinical trial expenditure is allowance. However, we are of the opinion that the amount which is eligible for such weighted deduction have to be computed considering Form 3CLand if the figures in Form 3CL is at variance with the claim the Assessing Officer has to carefully check whether each of the item included in such claim is coming within the purview of section 35(2AB) of the Act. Issue is remitted back to the Assessing Officer for this purpose.
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ITA No 35/Coch/2017 17 Second part of the R&D expenses of Rs. 4,92,42,256/- were incurred by assessee by way of reimbursement of salary of employees of Apollo Netherland and Germany who were in charge of assessee R&D facilities in India. We find that similar disallowance were proposed by Assessing Officer for assessment years 2010-11 & 2011-12 but was deleted by DRP on assessee's objection. Department's appeal on this issue was also dismissed by the Tribunal in its order dated 10.1.2017 in ITA No.223/Coch/2015 and 189/Coch/2016. Relevant portion of the decision in the said order is reproduced hereunder:
"51. Ground No. 3 relates to the deletion of disallowance of Rs. 3,89,04,976/- being the salary paid by the assessee to its employee working for Apollo Tyres, Germany under section 35(2AB). The assessee company in the relevant A.Y. has claimed deduction under section 35(2AB) in respect of the following expenses:
i. Amount of Rs. 3.89 crores paid to Apollo Tyres, Germany representing R & D expenditure incurred by them ii. Amount of Rs. 1.89 crore towards clinical trial activities incurred for testing of tyres outside the approved facility.
52. In the present appeal we are concerned with the amount of Rs. 3.89 crores. The assessee submitted during the course of assessment proceedings that the said amount represents reimbursement of salary and other costs as incurred towards employees. It was further submitted that one of the employee, Mr. Peter Becker is employed on the rolls of Apollo Tyres, Germany, a subsidiary of Apollo Tyre Limited but he is overall in-
charge of the R & D activities of the company in India and devotes substantial time to the R & D activities carried out by the company at is R & D Unit at Limda, Baroda. It was argued that the salary paid to Mr. Peter Becker in respect of the services rendered by him in respect of company's R & D Unit at Limda, Baroda, is reimbursed by Apollo Tyres Ltd to its subsidiary Apollo Gmbh, Germany and debited in the books of the assessee company and as such is an allowable expenditure u/s 35(2AB) of the Income Tax Act. The A.O. was of the view that deduction under section 35(2AB) is limited to the expenditure on scientific research on in house research and development facility and therefore the amount paid to the employee in Germany would not attract the benefit of the extra weighted deducted of 50% claimed under that provision. The DRP, however, deleted the addition and held that the salary paid to Sh. Peter Becker was entitled for deduction under section 35(2AB) of the Act.
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53. The Ld. DR has relied upon the draft assessment order to canvas his submissions that the deletion of disallowance was not in accordance with law. The Ld. AR on the other hand has reiterated the submissions made by the assessee before the DRP. We have heard the rival submissions. We are not in agreement with the view of the department. Admittedly, in the present case the nature of the expenditure for R & D is not disputed by the department. The Department has further not disputed the fact that the said employee of the assessee company is overall in-charge of the R & D activities at Baroda. The mere fact that the said employee was paid by Apollo Tyres Germany and thereafter, reimbursed by the assessee company would not ipso facto lead to a conclusion that the expense on R & D is made outside India. The deduction is therefore within the parameters of Section 35(2AB) of the Act. In view thereof, ground no. 3 raised by the department is dismissed."
Assessing Officer while making the disallowance of the claim u/s 35(2AB) in the impugned assessment year had specifically noted that the facts were similar to the earlier year. As per Assessing Officer the issue in the earlier year was also remuneration paid to Mr Peter Becker for research facility and payment made in earlier year outside India for in-house facility. Since coordinate bench had dealt with these issues in the earlier year and held that claim was within the parameters of section 35(2AB) of the Act, we are of the opinion that claim of weighted deduction could not have been prima-facie denied . However, verification has to be done with figures reported in Form 3CL. Assessee should be able to provide a reasonable justification or variation between its claim and what has been mentioned in Form 3CL. For this limited purpose we remit this issue back to the Assessing Officer.
18 Third part of the claim u/s 35(2AB) is on an expense of Rs. 1,89,59,500/- incurred for outside certification for testing and clinical trials. We are of the opinion that nature of this expenditure, whether it falls in category of the expenses considered 14 ITA No 35/Coch/2017 by the coordinate Bench of the Tribunal in department's appeal for assessment year 2010-11 has to be verified. It is also required for the Assessing Officer to have a careful look on For 3CL. This part of the claim is also remitted back to the ld Assessing Officer for consideration afresh.
19 Before parting with the issue of claim of weighted deduction under section 35(2AB) of the Act, we have to take note of the differentiating factor on the claim for weighted deduction from that of the preceding year. This is the failure of the assessee to produce Form 3CL issued by DSIR quantifying the eligible deduction before the Assessing Officer during the course of the assessment proceedings. It has not been disputed that the assessee had filed Form 3CL along with a rectification petition dated 7.5.2016. Ld DR has submitted that DRP had considered Form 3CL and allowed the claim to that extent. Relevance of the figures in Form 3CL was an issue which came up before the Ahmedabad Bench of the Tribunal in the case of CIT vs Torrent Pharmaceuticals Ltd (2009) 28 CCH 0783). Para 10 of this decision is reproduced hereunder:
"10. In view of the above facts and circumstances, we are of the view that it is only the expenditure which will only be allowed, whereas the assessee vide the copy of the letter reproduced hereinabove has very clearly explained as to how the entire expenditure claimed by the assessee is allowable. Thus there was no justification in harping upon the figure contained in Form No.3CL as is done by the Assessing Officer. The provisions of the Act it does not contain any specific conditions for the allowance of expenditure to the effect that it will be restricted that contained in Form No.3CL. Needless to point out that such allowable expenditure etc. is reported by the DSIR to DG (Income-tax Exemption), Kolkata without giving an opportunity of being heard to the assessee wherever he quantifies the expenditure which is less than that claimed by the assessee. We further find that the assessee has included a sum of Rs. 51.26 lakhs as eligible expenditure being Revenue expenditure relating to building and another sum of Rs.133.92 lakhs being revenue expenditure other than building, which was considered 15 ITA No 35/Coch/2017 as revenue by the assessing officer himself. These items clearly are within the purview of allowable u/s 35(2AB) of the Act as weighted deduction. The security expenses are also directly related to in-house research as proper security is required to avoid leakage and only in-house staff will have assessed to building. Accordingly, this expenditure are for preserving the research which is completed and its clinical trial is pending. As regards to the environmental issue, the assessee-company has set up an affluent plant and as is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation have been done for the perseverance of environment and this is directly related to R & 0 facilities. As regards to salary paid to Dr. C.Dutt amounting to Rs.58.54 lakhs, he is in-charge of R & D Centre at Bhatt. He is the person through whom all co-ordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid. Accordingly, the assessee has rightly paid the entire expenditure of Rs.133.92 lakhs and building repairs Rs.37.55 lakh as on which weighted deduction u/s.35(2AB) of the Act is allowable. In view of the above discussion, we allow the claim of the assessee and this issue of the Revenue's appeal is dismissed and that of the assessee's CO is allowed."
Mumbai Bench of this Tribunal in the case of DCIT vs Famy Care Ltd (2015) 67 SOT 85 also took a view that an assessee could not be denied deduction u/s 35(2AB) of the Act purely on the ground that prescribed authority did not furnish form 3CL in time to the department. No doubt, the figures as quantified in Form 3CL, may not be sacrosanct. However, once Form 3CL is received by the Department; we cannot say that it has to be given a go-bye. It can be a useful tool in determining the legitimacy of the claim of the assessee. This is the reason why we are remitting the issue of quantification of the claim of weighted deduction, back to the file of the ld Assessing Officer for consideration afresh. In the result, ground no 7 is allowed for statistical purpose. 20 Vide its ground no.8 assessee is aggrieved that there was an addition of Rs. 50,26,767/- for mis-match in the claim of TDS.
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ITA No 35/Coch/2017 21 Ld AR submitted that out of the total amount of Rs. 50,26,767/- a sum of Rs. 32,68,459/- was booked as income in the subsequent assessment year and taxes were paid. Further, as per ld AR, similar issue had come up before the coordinate Bench in assessee's own case for assessment year 2010-11 and 2011-12 in ITA No. 223/Coch/2015 and 189/Coch/2015 and it was decided in favour of the assessee. Per contra, ld DR supported the order of the authorities below.
22 We have heard the rival submission and perused the material on record. Addition in question is on account of difference in reconciliation of tax deducted at source as reflected in Form 26AS. As per ld AR, a sum of Rs. 32,68,459/- out of this has been booked as income in the subsequent year and taxes paid. Tribunal in assessee's own case for assessment year 2010-11 and 2011-12 had deleted the addition.
"32. Ground No. 11 relates to the addition of Rs. 27,96,245/- to the total income of the appellant on the basis of amount reflected in Form 26AS. It was submitted during the course of assessment proceedings that an amount of Rs. 19,75,315/- out of the aforesaid amount of Rs. 27,96,245/- has been offered to tax in the subsequent A.Y. 2011-12. Rejecting the said submission of the appellant, the A.O and the DRP were of the view that the income is to be taxed in A.Y. 2010-11 only.
33. We have heard the rival submissions and perused the record of the case. Admittedly, the amount of Rs. 19,75,315/- is offered to tax in A.Y. 2011-12. Taxing the same amount in the relevant A.Y. 2010-11 would lead to double addition and incorrect determination of tax liability. In view thereof, we delete the addition to the extent of Rs. 19,75,315/- from A.Y. 2010-11. Ground No. 11 is partly allowed."
Accordingly, we delete the addition to the extent of Rs. 32,68,459/- out of the total addition of Rs. 50,26,767/- . Ground no.8 is treated as partly allowed. 23 Vide its ground no.9 assessee is aggrieved by a disallowance of provision of Rs. 1,11,08,106/- for commission on which TDS was not deducted at source. 17
ITA No 35/Coch/2017 24 Ld AR submitted that similar provision was disallowed by the Assessing Officer in preceding assessment year also and assessee's appeal before this Tribunal on this issue was unsuccessful. Facts and circumstances for the impugned assessment year also being similar; we are of the opinion that provision for commission on which TDS was not deducted was rightly disallowed by the lower authorities. We do not find any error in the orders of the lower authorities. Ground no.9 is stand dismissed. 25 Vide its ground no.10 assessee is aggrieved on the disallowance of its claim of Rs. 6,75,51,128/- and Rs. 6,15,86,868/- u/s 80IA of the Act. 26 Assessee had in the return of income claimed a deduction of Rs. 4,87,02,504/- u/s 80IA of the Act in respect of a Gas Turbine Power Generation Units at Limda Plant. Assessing Officer was of the opinion that this claim could not be allowed since the unit could not be considered as an independent undertaking. However, assessee during the course of the assessment proceeding, through a letter dated 18.2.2016 made a fresh claim for deduction u/s 80IA in respect of two Windmills set up at Baroda. This claim was different from its claim made in the return of income for the Gas Turbine Power Generation unit. First of the fresh claim was for a windmill acquired by it from M/s Enercon which commenced operations in March 2007, and the second was for a windmill acquired by it from M/s Suzlon, which commenced operations in March 2008. As per the assessee, it was eligible for such deduction. The claim for Enercon windmills 18 ITA No 35/Coch/2017 was Rs. 6,47,51,128/- and for Suzlon windmills was Rs. 6,15,86,868/-. Assessee also furnished the audit report in Form 10CCB before the Assessing Officer. However, it seems, the above submissions and the audit report were not considered by Assessing Officer. In other words, the Assessing Officer did not consider the fresh claims u/s 80IA of the Act made through the letter mentioned above.
27 Before the DRP the assessee did raise a specific ground on this. However, the DRP ruled that its powers were limited to resolving issues arising from additions made on the returned income/loss and it could not consider any fresh claims. 28 Now before us the ld AR assailing the orders of the lower authorities. Submitted that the claim of deduction ought not have been disallowed. As per AR, DRP had given an erroneous ruling that it could deal only with variances in income or loss returned and proposed in the draft assessment order. As per ld AR, DRP wrongly interpreted the judgment of the Hon'ble Apex Court in the case of Goetze India Ltd vs CIT reported in 284 ITR 323. According to him, this judgment of the Hon'ble Apex Court had no application in the facts and circumstances of the case. Further, as per the ld AR, this Tribunal in assessee's own case for assessment year 2010-11 and 2011-12 had held that a fresh/additional claim u/s 80IA could be preferred by the assessee before the appellate authority.
29 Per contra, ld DR supported the orders of the authorities below. 19
ITA No 35/Coch/2017 30 We have heard rival submissions and perused the material. For the impugned assessment year assessee was denied the claim u/s 80IA of the Act for the sole reason that it had preferred such a claim only through a letter filed during the assessment proceedings. For preceding assessment tears 2010-11 and 2011-12also assessee had made similar claims on the same windmills, through a letter filed during the course of the assessment proceedings, which was not considered by the lower authorities. This Tribunal in assessee's appeal in ITA No.223/Coch/15 and 189/Coch/2016 vide its order dated 10.1.2017 held as under:
45. The appellant has raised an additional ground claiming deduction under section 80IA of the Act in respect of the profit derived from the windmill undertaking. The said claim was not made by the appellant in its income tax return, assessment proceedings or before the CIT(A). The appellant has submitted the copy of declaration and audited accounts of the power generation windmill undertaking to make out a case under section 80IA of the Act. Though the claim is made for first time before this Tribunal, we feel it appropriate to direct the AO to determine the issue on merits as it is necessary to determine the correct tax liability of an assessee. The said view is clearly expressed in the judgment passed by the Hon'ble Supreme Court in NTPC Ltd. Vs. CIT, 229 ITR 383.
The observations made by the Hon'ble Bombay High Court in the case of CIT Vs. Pruthvi Brokers & Shareholders, 349 ITR 336 are relevant at the stage and the same are extracted herein below:-
........ "13 The appellate authorities, therefore, have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The first part viz. "if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made..." clearly relate to cases where the ground was available when the return was filed and the assessment order was made but "were not in existence". Grounds which were not in existence when the return was filed or when the assessment order was made fall within the second category viz. where "the ground became available on account of change of circumstances or law."
46. In the aforesaid judgment it is clearly expressed that an assessee apart from raising an additional ground can raise an additional claim before the appellate forum. In view thereof, the AO is directed to examine the matter on merits after considering the evidence produced by the appellant with regard to the claim of deduction under section 80IA. The additional ground is allowed for statistical purposes. These appeals of the assessee in ITA No. 223/Coch/2015 is partly allowed for statistical purposes.20
ITA No 35/Coch/2017 Following the above decision, for the impugned assessment year also we direct the Assessing Officer to examine the claim afresh in accordance with law. Ground no.10 is allowed for statistical purpose.
31 While dealing with the claim for deduction u/s 801A, it will be appropriate to deal with one other issue raised by the assessee which is on denial of its claim of deduction of Rs 4,87,02,504/- u/s 80IA in respect of Gas Turbine Power Generation Units at Limda Plant, which was preferred in the return of income itself. Though the claim was allowed by DRP while passing the final assessment order, the ld Assessing Officer did not give the benefit to the assessee. Findings of the DRP on this issue are reproduced hereunder:
"15.2 We have considered the matter. The Hon'ble Cochin Tribunal in ITA No.429/Coch/2006 for A.Y 2005-06 after carefully discussing the fact of the assessee's case, the decision of the Hon'ble Supreme Court in case of Textile Machinery Corporation Ltd; Board Circular F No. 178/28/2001, dtd 3.10.2001; Mumbai Tribunal decision in case of West Coast Paper Mills vs ACIT (supra) held that the Power Generation units were undertaking as per section 80IA of the Act and further captive consumption of power generated would not disqualify the assessee from claiming deduction u/s 80IA of the Act. In our view, it is seen that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in its own case for A.Y 2005-06. In this light of this, Assessing Officer is directed to delete the addition made. This objection is accepted."
However, the Assessing Officer, despite DRP's directions disallowed the claim on a premise that Gas Turbine Power Generation Units at Limda Plant was not an independent undertaking. In our opinion, Assessing Officer was bound to follow the 21 ITA No 35/Coch/2017 directions of the DRP and could not reach any independent conclusion/disallowance, ignoring the directions of DRP. . We therefore, direct the Assessing Officer to allow the claim as per DRP's ruling. Related grounds are allowed.
32 Vide its ground nos 12 to 15, assessee is aggrieved on a transfer pricing adjustment of Rs. 1,57,61,985/-. TP adjustment was made for three items; one for reimbursement of expenses, second for corporate guarantee and third was on IT enabled services.
33 Ld AR, at the outset submitted that he was not pressing the ground against TP adjustments of Rs. 14 lakhs on reimbursement of expenses. With regard to the adjustment done for corporate guarantee, ld AR submitted that corporate guarantee was not an international transaction and sought support from the following decisions of the various Benches of the Tribunal
- Siro Clinpharm P Ltd vs DCIT (IT No. 2876/Mum/2014)
- Bharti Airtel Ltd vs Add CIT (ITA No. 5816/Del/2012)
- Redington (India) Ltd Vs JCIT - 49 Taxman.com.146 (Chennai)
- Marico Ltd v ACT (ITA No. 8713 and 8858/Mum/2011(70 Taxman.com214)
-Micro Ink Ltd v ACIT (ITA No. 2873/Ahd/10)
-Manugraph India Ltd v DCIT (ITA No.2631/Mum/2015) 34 As per ld AR, assessee had given corporate guarantee to its Associated Enterprises (AEs) for a five year term loan obtained from Standard Chartered Bank. According to him, there was no benefit for the assessee. Viz-a-viz adjustment of Rs. 25 lakhs on IT enabled services , it was submitted that facts were similar to an adjustment done by the TPO for the preceding Assessment Year. As per ld AR, this 22 ITA No 35/Coch/2017 Tribunal on assessee's appeal for those years had remanded the issue back to the Assessing Officer for selecting comparables which were having functional similarity to the assessee and to exclude dis- similar comparables. Per contra, ld DR submitted that TPO had correctly applied the TNM method for determining the arms length price of IT enabled services rendered to its AE. Viz-a-vs corporate guarantee as per ld DR it was nothing but an international transaction and susceptible to TP adjustment. 35 We have heard the rival submissions and perused the material on record. It is an admitted position that some of the comparables selected by assessee in its study were excluded by TPO whereas certain comparables which were not in the list of the assessee were included. In preceding assessment years 2010-11 and 2011-12 also there was a similar adjustment done by TPO for arm length pricing both for corporate guarantee and for IT enabled services. When the issue reached before this Tribunal, it was held as under:
"75. Ground No. 8.2 pertain to the transfer pricing addition of Rs. 66,79,712/- in respect of the corporate guarantee provided by the appellant on behalf of its AEs. The appellant in the relevant A.Y has given a corporate guarantee to its AE in respect of a five year term loan obtained by the AE from Standard Chartered Bank. The total quantum of loan is 19,01,480,000/-. The TPO made an addition of a corporate guarantee fee at the rate of 0.75% and made the adjustment of Rs. 42,60,896/-. The TPO was of the view that an economic benefit has been provided as a corporate guarantee by the appellant. It rejected the submissions of the appellant that the AE was not benefited by the guarantee.
76. The Ld. AR submits that no real benefit had transpired to the AE as the overall debt position of the AE remained the same. He further submitted that after the corporate guarantee was extended, the interest rate liability for the AE had increased. The Ld. DR on the other hand has relied upon the order passed by the TPO and DRP to advance his submissions.
77. The perusal of the order passed by the TPO as well as the DRP shows that the matter has not been examined in a proper perspective. The DRP while disposing of the 23 ITA No 35/Coch/2017 objections of the Ld. AR did not deal with the effect of the increased interest rates and the overall debt position of the AE after the corporate guarantee was given. The said issue is required to be examined afresh in terms of the aforesaid objections raised by the appellant. The issue is restored to the file of AO with the above directions. The ground no. 8.2 is allowed for statistical purposes.
78. Ground No. 8.3 pertains to the transfer pricing addition of Rs. 12,50,380/- to the income of the appellant by holding that international transactions pertaining to provision of corporate IT service do not satisfy the ALP principle. During the year under consideration, the appellant had rendered software development services to its AEs namely AVBV and ATSA. The appellant adopted the TNMM method to bench mark its transactions with AE. The TPO substituted his own comparables and determined the adjustment at Rs. 12,50,380/-. The DRP rejected the objections raised by the appellant in the rectification order.
79. The Ld. AR submits that the comparable companies rejected by the TPO are without any reason and though the companies are functionally comparable, the comparables have been excluded. It is seen from the chart prepared by the AR and the functional profile produced thereof of the comparable companies, the companies which are functionally similar to that of the appellant have been excluded. For example in the case of Mindtree Ltd., the said company has been excluded only because it has under
gone merger. Similarly in the case of R Systems International Ltd. and Helios & Metheson Information Technology Ltd., though the companies are functionally comparable, the same have been excluded only for the reason that they follow different accounting year ending in December. The exclusion made on this basis is not permissible and is not accordance with law. Similarly, while choosing his own comparables, the TPO has ticked up companies having functions of high end IT services, IT consulting, product companies, business intelligence companies etc. The companies which are functionally dissimilar to that of the assessee have to be excluded from the comparable list.
80. As the issue requires reconsideration, we remit the same to the file of AO to properly apply the comparables in accordance with the objections raised by the appellant in the present appeal. Ground No. 8.3 is allowed for statistical purposes."
36 For the impugned assessment year also we deem it appropriate to remit the issues relating Transfer Pricing adjustment, if any, required on corporate guarantee and IT enabled services back to the file of the TPO/Assessing Officer for consideration afresh, in line with the directions given by this Tribunal for the preceding assessment year, reproduced above. Ground nos 12 to 15 are partly allowed for statistical purpose. 24
ITA No 35/Coch/2017 37 Now we take up grounds 4 & 11 through which assessee assail the additions made by Assessing Officer while computing the minimum alternative tax u/s 115JB of the Act.
38 Book profit for the purpose of 115JB was computed by Assessing Officer as under:
Book profit as computed by the 257,50,61,465/-
assessee
Add
Additional deprecation disallowed. 38,65,25,852/-
Capital expenditure disallowed 21,67,95,249/-
Proposed dividend 2,52,01,000/-
Provision for salary 34,22,20,000/-
Provision for wealth tax 1,50,00,000/-
Provision for sales related obligations 99,08,80,000/-
Total book profits for MAT 455,,16,83,566/-
MAT@ 18.5% 84,20,61,460/-
Ld AR submitted that out of the above additions, deprecation of Rs. 38,65,25,852/- which was disallowed in the draft assessment order was allowed by DRP and the Assessing Officer had given effect to such directions correctly and therefore, he had no grievance. Viz--a-viz, disallowance of capital expenditure of Rs. 21,67,95,249/-, proposed dividend of Rs. 2,52,01,000/-, and provision for salary Rs. 34,22,20,000/-, ld AR submitted that there was no charge of these amounts in the P&L account. Further, as per ld AR, proposed dividend was not a part of P&L account but offered only in P&L appropriation account. According to him, unless there was a debit in the P&L account there could be no addition while computing MAT. Ld AR submitted that similar items 25 ITA No 35/Coch/2017 were considered for addition while computing MAT for preceding assessment year also. As per ld AR in the said year, on assessee's objection, DRP had given a finding that no such addition could be made. Ld AR submitted that for the assessment year 2011-12, the department had not filed any appeal against such directions of DRP. Further, as per the ld AR, similar addition proposed in subsequent year 2013-14 were dropped in the final assessment. Thus, according to him, by applying principles of consistency, no such addition could have been made in the impugned year as well. Ld DR, on the other hand supported the orders of the authorities below.
39 We have heard the rival submissions and perused the material on record. As for additional depreciation of Rs. 38,65,25,852/-, DRP had deleted such addition and Assessing Officer had passed the final assessment order. Therefore, assessee can have no grievance in this regard. As for two other items of expenses, namely capital expenditure of Rs. 21,67,95,249/- and provision for salary of Rs. 34,22,20,000/-, we find that the ld Assessing Officer had proceeded to add these while computing the income liable for MAT, without any discussion. Claim of the assessee is that there were no debits for these amounts in the P&L account. DRP also did not consider the issue on merits. As for the proposed dividend of Rs. 2,52,01,000/-, claim of the assessee is that such proposed dividend was part of P&L appropriation account and not P&L account and computation of MAT profit started only from the book profit as per P&L account. Contention of the revenue is that book profit that is to be considered for MAT is the net profit as per P&L account after appropriations. Since none of the lower authorities have 26 ITA No 35/Coch/2017 considered the issue on merits, we are of the opinion that a verification at the end of the ld Assessing Officer is required. All these three items have to be considered afresh by ld Assessing Officer, after taking into account objections raised by the assessee. 40 Making his submissions on the disallowance of Rs. 1,50,00,000/- made while computing MAT, ld AR submitted that that this sum provision for wealth tax. As per the ld AR Explanation (1) to section 115JB only referred to Income Tax. As per the ld AR, definition of income tax given in Explanation 2 did not include wealth tax. Thus, according to ld AR, wealth tax provision could not be added while computing MAT Reliance was placed on the decision of the Special Bench in the case of JCIT vs Usha Martine Industries Ltd reported in 104 ITD 249 (Kolkata) and that of Hon'ble Bombay High Court in the case of CIT vs Echjay Forgings P Ltd reported in 251 ITR 15. Per contra, ld DR supported the orders of the authorities below. 41 We have heard the rival submissions. What we find is that the Assessing Officer had added back the provision of Rs. 1,50,00,000/- for wealth tax, without any discussion as to why he added such amount. In the circumstances, we are of the opinion that such disallowance also requires a fresh look. We set aside the orders of the lower authorities on this issue also and remit it back to the Assessing Officer for consideration afresh in accordance with law. We therefore set aside the orders of the lower authorities with regard to the treatment of above items while computing MAT tax 27 ITA No 35/Coch/2017 and remit it back to the ld Assessing Officer for consideration afresh in accordance with law.
42 Submitting his argument on the last of the addition, made for MAT computation which is a provision of Rs. 99,08,80,000/- for sales related objections, ld AR stated that it was a crystallized and scientifically computed provision. Submissions of the ld AR was that the provision of Rs. 99,08,80,000/- was an ascertained contractual obligation. Ld AR was also brought to our attention to pages 68 & 92 of the annual report. According to him, provision consisted of annual special incentive, dealer programme expenses, business development incentive and warranty claims provision. Ld AR also pointed out that addition of similar provision made in assessment year 2011-12 was deleted by DRP and department never appealed against it. As per ld AR, even in the subsequent assessment year 2013-14, no such additions were proposed or done by the Assessing Officer while computing MAT. Reliance was placed on the judgments of the Hon'ble Apex Court in the case of Bharat Earth Movers vs CIT (245 ITR 428), Rotork Controls India P Ltd vs CIT (314 ITR 62) and Radhasomi Satsang vs CIT (193 ITR 321). Per contra, ld DR submitted that there was no scientific basis on which the assessee had made the provisions.
43 We have heard the rival submissions and perused the material on record. As already stated by us, Assessing Officer while computing MAT had made additions to the book profit without discussing the reasons as to why he made such additions. Claim of 28 ITA No 35/Coch/2017 the assessee is that the sum of Rs. 99,08,80,000/- was arrived on a scientific basis and could not have been considered as an unascertained liability. There is also one contention that no such disallowance was made while computing the income under the normal provision of the Act. At this juncture , it is apposite to reproduce the observations of the Hon'ble Apex Court with regard to provision for sale related obligations as appearing in para 14 of the judgment in the case of Rotork Control India P Ltd (supra):
" 14. In this case, we are concerned with product warranties. To give an example of product warranties, a company dealing in computers gives a warranty for a period of 36 months from the date of supply. The said company considers following options :
(a) account for warranty expense in the year in which it is incurred ; (b) it makes a provision for warranty only when the customer makes a claim ; and (c) it provides for warranty at 2 per cent. of turnover of the company based on past experience (historical trend). The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is prohibited both under the Companies Act as well as by the Accounting Standards which require accrual concept to be followed. In the present case, the Department is insisting on the first option which, as stated above, is erroneous as it rules out the accrual concept. The second option is also inappropriate since it does not reflect the expected warranty costs in respect of revenue already recognized (accrued). In other words, it is not based on the matching concept. Under the matching concept, if revenue is recognized the cost incurred to earn that revenue including warranty costs has to be fully provided for.
When valve actuators are sold and the warranty costs are an integral part of that sale price then the appellant has to provide for such warranty costs in its account for the relevant year, otherwise the matching concept fails. In such a case the second option is also inappropriate. Under the circumstances, the third option is the most appropriate because it fulfils accrual concept as well as the matching concept. For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing the relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently. Thus, the decision on the warranty provision should be based on past experience of the company. A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilised at the end of the period prescribed in the warranty. Therefore, the company should scrutinise the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at the year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require 29 ITA No 35/Coch/2017 assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an outflow of resources. A reliable estimate of the obligation was also possible. Therefore, the appellant has incurred a liability, on the facts and circumstances of this case, during the relevant assessment year which was entitled to deduction under section 37 of the 1961 Act. Therefore, all the three conditions for recognising a liability for the purposes of provisioning stands satisfied in this case. It is important to note that there are four important aspects of provisioning. They are provisioning which relates to the present obligation, it arises out of obligating events, it involves outflow of resources and, lastly, it involves reliable estimation of obligation. Keeping in mind all the four aspects, we are of the view that the High Court should not to have interfered with the decision of the Tribunal in this case."
44 We find that neither the Assessing Officer nor the ld DRP had applied their mind to the nature of the provision of Rs. 99,08,80,000. Contention of the ld AR is that no disallowance was made while computing the income under the normal provision of the Act. This may have been an error committed by the Assessing Officer and, in our opinion, it will not stop the Assessing Officer from making an addition for MAT working, if this was an unascertained liability. No doubt, revenue is having other course open to it, if it is of the opinion that the allowance was erroneously given while computing the income under the normal provision of the Act. Considering the facts and circumstances, we are of the opinion that this issue also requires a fresh visit by the Assessing Officer. We, therefore, set aside the orders of the authorities below and remit the issue relating to MAT back to the Assessing Officer for consideration afresh. 30
ITA No 35/Coch/2017 45 In the result, the appeal filed by the assessee is partly allowed for statistical purpose.
Order pronounced in the open Court on this 24th day of July 2017.
Sd/- Sd/-
(GEORGE GEORGE K) (ABRAHAM P GEORGE)
Judicial Member Accountant Member
Cochin: Dated 24th July 2017
Raj*
Copy to:
1. Appellant -
2. Respondent -
3. CIT(A)
4. CIT,
5. DR
6. Guard File
By order
Assistant Registrar
ITAT, COCHIN
31