Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R.S. SYAL & SHRI VIKAS AWASTHY
आदेश / ORDER
PER R.S.SYAL, VP :
These two cross appeals - one by the assessee and other
by the Revenue arise out of the order passed by the CIT(A)-
XVII, Delhi on 03-12-2013 in relation to the assessment year
2007-08.
ITA No.1355/PUN/2014 - By Revenue :
First two grounds of the Revenue’s appeal are against
deletion of addition made by the Assessing Officer (AO) on
account of Provision for warranty.
Briefly stated, the facts of the case are that the assessee is
engaged in the business of manufacturing of Auto
components. Provision of Rs.71.12 lakhs was made for
warranties. On being called upon to substantiate the
calculation of such provision, the assessee furnished year-wise
chart which has been captured on page 6 of the assessment
order. It was explained that the provision for warranties was
made consistently at 0.30% of gross sales and the period of
warranty extended from one year to 30 months. The AO
observed that as against the opening balance of provision at
3 ITA Nos.1355/PUN/2014 & 1121/Del/2014 Premium Transmission Ltd.,
Rs.50.95 lakhs, the assessee incurred actual expenses of
Rs.54.40 lakhs, meaning thereby the excess expenses were to
the tune of Rs.3.44 lakhs (Rs.54.40 – Rs.50.95). He, therefore,
held that the excess provision made during the year for a sum
of Rs.67,67,752/- (Rs.71,12,571 minus Rs.3,44,819) was liable
to be disallowed. The ld. CIT(A) deleted the addition.
We have heard both the sides and gone through the
relevant material on record. It is seen that the assessee has
been consistently making provision at the rate of 0.30% of
gross sales over the years. Creation of similar provision for
the preceding years at the same rate has been accepted by the
Department. The AO has simply gone by the figure of the
expenses actually incurred for the current year by ignoring that
there was utilization of such provision in the succeeding years.
Taking into consideration the mandate of the judgment of the
Hon’ble Supreme Court in the case of Rotork Controls India
(P) Ltd., Vs. CIT (2009) 314 ITR 62 (SC), we are of the
considered opinion that no fault can be found with the ld.
CIT(A) in deleting this addition. The impugned order is
upheld and the ground is dismissed.
4 ITA Nos.1355/PUN/2014 & 1121/Del/2014 Premium Transmission Ltd.,
The only other issue raised by the Department in its
appeal is against treating Rs.1,40,000/- as revenue
expenditure, which was considered by the AO as capital in
nature. The assessee in its Ground no. 2 is aggrieved by the
confirmation of disallowance of Rs.45,26,115/- treating
certain amounts as capital expenditure.
Facts relating to these two grounds are that the assessee
debited certain sums as repairs of buildings, plant and
machinery and others. On verification, the AO found that
some expenses out of such an amount were capital in nature.
He, therefore, held the amount of Rs.7,83,904/- for CNC
system; Rs.2,80,857/- for Stabilizer; Rs.28,40,127/- and
Rs.1,87,442/- for Computer fitting expenses; Rs.1,98,840/-
towards Machine shifting & concrete work; Rs.1,40,000/-
towards Construction of power coating room; Rs.1,33,187/-
towards Machinery foundation & erection; and Rs.4,33,785/-
for Servo stabilizer, as capital in nature. After allowing
depreciation @15%, 10% and 10% on such amounts falling in
the blocks of Machinery and plant, Building and Furniture and
fitting, the AO made total disallowance of Rs.44,06,808/-. The
5 ITA Nos.1355/PUN/2014 & 1121/Del/2014 Premium Transmission Ltd.,
ld. CIT(A) examined the nature of each expenditure as was
stated before the AO and thereafter upheld the action of the
AO in relation to CNC system - Rs.7,83,904/-; Stabilizer -
Rs.2,80,857/-; Computer fitting expenses - Rs.28,41,027/- &
Rs.1,87,442/-; and Servo stabilizer - Rs.4,33,785/-. The
remaining amounts were held to be revenue in nature. Both
the sides are in appeal on their respective stands.
We have heard both the sides and gone through the
relevant material on record. In so far as the departmental
ground is concerned, the same is confined to Construction of
power coating room. The assessee submitted before the AO
that this `expenditure represents cost of purely temporary
structure (weather shed) created to protect the machine from
likely damages of other work carried out near the machine’. It
is thus evident from the nature of expenditure given by the
assessee that the same is not in the capital field as it was
incurred on purely temporary structures. We, therefore,
countenance the view taken by the ld. CIT(A) in treating this
amount as that of revenue nature.
6 ITA Nos.1355/PUN/2014 & 1121/Del/2014 Premium Transmission Ltd.,
Coming to the grievance of the assessee, it is seen that
the first item is expenditure of Rs.7,83,904/- on CNC system.
The assessee submitted before the ld. AO that `the said system
was replaced to keep the machine in working condition’.
Obviously, when an old asset is replaced with a new asset, it
gives an advantage of enduring nature and the assumes the
character of capital expenditure. We, therefore, hold that the
ld. CIT(A) was justified in treating this amount as capital
expenditure.
The second item is `purchase’ of new Stabilizer
amounting to Rs.2,80,857/-. Purchase of an asset cannot be
characterized as a revenue expenditure. It is the case of
purchase of new asset and not that of repair of an existing
asset. We, therefore, hold that the ld. CIT(A) was right in not
accepting the assessee’s claim on this amount.
The next two items of Rs.28,40,127/- and Rs.1,87,442/-
are in respect of `Computer fitting expenses’. The assessee
submitted before the AO that this expenditure was on
‘computing peripherals, such as cabling, networking, switches,
ports, sockets, printer ribbons’ etc. A perusal of the items on
7 ITA Nos.1355/PUN/2014 & 1121/Del/2014 Premium Transmission Ltd.,
which such amount was spent, clearly deciphers the same to be
of capital nature as it is for installation of new computers and
not for repairs etc. We, therefore, uphold the impugned order
on this score.
The last item is `purchase of a new stabilizer’ amounting
to Rs.4,33,785/-. This amount again falls within the domain of
capital expenditure as it is purchase of a new asset. We,
therefore, uphold the impugned on this score as well.
The grounds taken by the assessee as well as the
Revenue are, therefore, dismissed.
The only other issue which survives in the appeal of the
assessee is against confirmation of disallowance of expenses
u/s 14A of the Act at Rs.5.19 lakh based on 0.5% of the total
investment. The AO applying the provisions of Rule 8D of
the Income-tax Rules, 1962 worked out the disallowance at
Rs.35,42,000/-. The ld. CIT(A) deleted a part of addition on
account of disallowance of interest and sustained the
disallowance at 0.5% in terms of Rule 8D(2)(iii). The
assessee is aggrieved by such sustenance.
8 ITA Nos.1355/PUN/2014 & 1121/Del/2014 Premium Transmission Ltd.,
We have heard both the sides and gone through the
relevant material on record. The assessment year under
consideration is A.Y. 2007-08. The Hon’ble Supreme Court
in CIT Vs. Essar Teleholdings Ltd. (2014) 401 ITR 435 (SC)
has held that Rule 8D is prospective and accordingly applies
only from A.Y. 2008-09. In view of this precedent, the
mandate of Rule 8D cannot be applied to A.Y. 2007-08 under
consideration. However, the disallowance u/s 14A is called
for in the present circumstances on some reasonable basis, if
not under rule 8D. The ld. AR submitted that the assessee
earned exempt income of Rs.37,320/-. He, however, could not
point out such figure as recorded in the assessment order or the
impugned order.
The Hon'ble Delhi High Court in the case Cheminvest
Ltd. vs. CIT (2015) 378 ITR 33 (Del) has held that if there is
no exempt income, there can be no question of making any
disallowance u/s 14A of the Act. Similar view has been taken
by the Hon'ble Delhi High Court in CIT vs. Holcim India P.
Ltd. (2014) 90CCH 081-Del-HC. The net effect of these
decisions is that the disallowance u/s 14A gets restricted to the
ITA Nos.1355/PUN/2014 & 1121/Del/2014 Premium Transmission Ltd.,
extent of exempt income, even if the provisions of the section
14A are attracted. In view of the above precedents, we direct
to limit the disallowance to the extent of exempt income, as
claimed by the ld. AR, after verification.
In the result, appeal of the Revenue is dismissed and that
of the assessee is partly allowed for statistical purposes.
Order pronounced in the Open Court on 29th November, 2018.
Sd/- Sd/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT
पुणे Pune; �दनांक Dated : 29th November, 2018 सतीश
आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; आयकर आयु�(अपील) / 3. The CIT (Appeals)-XVII, Delhi 4. The CIT-V, New Delhi िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “बी 5. बी बी” / बी DR ‘B’, ITAT, Pune; गाड� फाईल / Guard file. // True copy // 6.
आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
ITA Nos.1355/PUN/2014 & 1121/Del/2014 Premium Transmission Ltd.,
Date 1. Draft dictated on 28-11-18 Sr.PS 2. Draft placed before author 28-11-18 3. Draft proposed & placed before the second member 4. Draft discussed/approved by Second Member. 5. Approved Draft comes to the Sr.PS/PS 6. Kept for pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. *