ASSISTANT COMMISSIONER OF INCOME-TAX vs. PREMIUM TRANSMISSION LTD., PUNE

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 :

deletion of addition made by the Assessing Officer (AO) on

account of Provision for warranty.

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.

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.,

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.

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.

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.,

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.

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.

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.

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.

Revenue are, therefore, dismissed.

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.,

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.

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.

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. *