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Facts
The assessee, M/s. Birlasoft Ltd., is appealing against the order of the CIT(A) for AY 2005-06. The appeal concerns issues related to the deduction of unabsorbed depreciation, exclusion of communication charges from export turnover, and disallowance of provision for warranty.
Held
The tribunal held that unabsorbed depreciation should be allowed after computing the deduction under Section 10A, aligning with the Supreme Court's decision in CIT vs. Yokogawa India Ltd. Communication charges incurred in foreign currency for technical services related to software development should not be excluded from export turnover, following Supreme Court rulings. The provision for warranty, calculated using a scientific method, should be allowed as a deduction, remanding the issue for fresh examination by the AO.
Key Issues
Whether unabsorbed depreciation can be set off against business income before Section 10A deduction, whether communication charges should be excluded from export turnover, and whether provision for warranty is allowable as a deduction.
Sections Cited
10A, 234D
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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SMT BEENA PILLAI & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SMT BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
ITA No. 739/Bang/2010 Assessment Year : 2005-06 M/s. Birlasoft Ltd. (formerly known as KPIT Technologies Ltd.) The Assistant # 35 & 36, Rajiv Commissioner Gandhi Infotech Park, of Income Tax, Phase – 1, MIDC Circle – 11(5), Hinjawadi, Bangalore. Vs. Pune – 411 057. PAN: AAACK7308N APPELLANT RESPONDENT
Assessee by : Shri Padam Chand Khincha, CA Revenue by : Shri D.K. Mishra, CIT –DR
Date of Hearing : 02-04-2024 Date of Pronouncement : 14-05-2024 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of order dated 03.03.2010 passed by the Ld.CIT(A)-1, Bangalore for A.Y. 2005-06 on the following revised grounds of appeal: “1.1 The learned Assistant Commissioner of Income tax, Circle 11(5), Bangalore has erred in passing the assessment order under section 143(3) in the manner passed by her and the learned Commissioner of Income tax (Appeals) — I, Bangalore has erred in confirming the order passed by the learned Assistant Commissioner of
Page 2 ITA No. 739/Bang/2010 Income tax, Circle 11(5), Bangalore. The orders passed by the lower income tax authorities are bad in law and liable to be quashed. 2.1 The learned Assistant Commissioner of Income tax, Circle 11(5). Bangalore has erred in not allowing set off of unabsorbed depreciation allowance of Rs. 43.27,639/- from the income remaining after claiming deduction under section 10A and the learned Commissioner of Income tax (Appeals) – I Bangalore has erred in confirming the action of the learned Assistant Commissioner of Income tax, Circle 11(5), Bangalore. 2.2 The learned Commissioner of Income tax (Appeals) – I, Bangalore has erred in (a) not appreciating that the unabsorbed depreciation allowance of Rs. 43,27,639/- was allowed to be carried forward by the Jurisdictional ITAT in appellant's own case for AY 2004-05; (b) not giving effect to the decision of the Jurisdictional ITAT in appellant's own case for AY 2004-05; (c) relying on the decision of the jurisdictional ITAT in Intellinet Technologies Ltd v ITO, which is distinguishable on both facts and law. 2.3 The lower income tax authorities have erred in not appreciating that (i) deduction under section 10A is to allowed at the stage of computing the income of the eligible undertaking, uninfluenced by the brought forward losses and unabsorbed depreciation of earlier years. (ii) special provisions granting incentives, like section 10A and section 10B should be given a beneficial interpretation. 2.4 On the facts and circumstances of the case and law applicable, unabsorbed depreciation allowance of Rs. 43,27,639/- should not to be reduced from business profits of the current year in the process of computing deduction under section 10A. 3.1 The learned Assistant Commissioner of Income tax, Circle 1 1(5), Bangalore has erred in reducing communication charges of Rs. 35,58,833/- from the figure of export turnover in the process of allowing deduction under section 10A and the learned Commissioner of Income tax (Appeals) – I, Bangalore has erred in confirming
Page 3 ITA No. 739/Bang/2010 the action of the learned Assistant Commissioner of Income tax, Circle 11(5), Bangalore. 3.2 The lower income tax authorities have erred in not appreciating that (i) the communication charges were not recovered from the customers and thus did not form part of export turnover so as to exclude the same from export turnover; (ii) the communication charges were incurred in Indian currency and not in foreign currency; (iii) at any rate and without prejudice, only expenses attributable to delivery of computer software outside India is to be reduced from export turnover and not the entire communication expenses. 3.3 On facts and in the circumstances of the case and law applicable, communication charges of Rs. 35,58,833/- should not be reduced from export turnover in computing deduction under section 10A. 3.4 At any rate and without prejudice, the quantum of reduction is very very high. 4.1 Assuming without admitting that communication charges are to be reduced from export turnover, the learned Assistant Commissioner of Income tax, Circle 11(5), Bangalore has erred in not reducing the communication charges from total turnover and the learned Commissioner of Income tax (Appeals) - I, Bangalore has erred in confirming the action of the learned Assistant Commissioner of Income tax, Circle 11(5), Bangalore. 4.2 The lower income tax authorities have erred in not appreciating that expenditure reduced from export turnover should also be reduced from total turnover in computing deduction under section 10A. 5.1 The learned Assistant Commissioner of Income tax, Circle 11(5), Bangalore has erred in disallowing provision for warranty amounting to Rs. 97,89,000/- and the learned Commissioner of Income tax (Appeals) - 1, Bangalore has erred in confirming the action of the learned Assistant Commissioner of Income tax, Circle 11(5), Bangalore. 5.2 The lower income tax authorities have erred in (i) concluding that the determination of provision for warranty is unscientific and unreasonable;
Page 4 ITA No. 739/Bang/2010
(ii) concluding that provision for warranty is an unascertained and contingent liability; (iii) relying on irrelevant and immaterial facts and observations in support of the impugned conclusions; (iv) not appreciating that provision for warranty is a real, ascertained and crystallized liability the quantification of which was made in the light of the industry practice, empirical data, past experience and on a definite basis. 5.3 On facts and in the circumstances of the case and law applicable, provision for warranty amounting to Rs. 97,89,000/- should be fully allowed as a deduction in computing the income for the year under consideration. 5.4 In any case and without prejudice, the quantum of disallowance is very very high. 6.1 Without prejudice, the lower income tax authorities have erred in not allowing deduction under section 10A in respect of the additions made in the assessment order. On the facts and in the circumstances of the case deduction under section 10A is to be granted on the additions to the total income. 7.1 The learned Assistant Commissioner of Income tax, Circle 11(5). Bangalore has erred in levying interest under section 234D and the learned Commissioner of Income tax (Appeals) — I, Bangalore has erred in confirming the action of the learned Assistant Commissioner of Income tax, Circle 1 1(5), Bangalore. On facts and circumstances of case and law applicable, interest under section 234D is not leviable. The appellant denies its liability to pay interest under section 234D. 8.1 In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the orders of the lower income tax authorities be quashed. Or in the alternative (a) unabsorbed depreciation allowance of Rs. 43,27,639/- be not considered in quantifying the amount of deduction under section 10A; (b) unabsorbed depreciation allowance of Rs. 43,27,639/- be allowed to be set off against profits of the business of the eligible undertaking after claiming deduction under section 10A;
Page 5 ITA No. 739/Bang/2010 (c) (i) communication charges of Rs. 35,58,833/- be not reduced from export turnover; or in the alternative and without prejudice (ii) communication charges reduced from export turnover be also reduced from total turnover; (d) provision for warranty amounting to Rs. 97,89,000/- be held as an allowable deduction; (e) without prejudice, deduction under section 10A be allowed in respect of the additions made in the assessment order; (e) interest levied under section 234D be deleted. The appellant prays accordingly.”
Brief facts of the case are as under: 2.1 The assessee is a Private limited company engaged in the business of development of computer software. For the assessment year under consideration, the return of income was filed on 29.10.2005 declaring a total income of Rs. 93,43,376/-. It was noted that Rs. 4,28,88,179/- was claimed as deduction under section 10A without reducing the brought forward unabsorbed depreciation allowance amounting to Rs. 43,27,639/- from profits of business of the undertaking. The brought forward unabsorbed depreciation allowance was reduced from business income computed after claiming deduction under section 10A.
2.2 The Ld.AO issued notice u/s. 143(2) on 25.09.2006. The assessment has been completed and the order u/s. 143(3) has been passed on 17.12.2007. The said order was received by the assessee on 28.12.2007. In the said order, following variations were made to the income returned. (i) set off of unabsorbed depreciation allowance against the business income has not been allowed. It has been stated that as per the order passed under section 143(3) for the
Page 6 ITA No. 739/Bang/2010 assessment year 2004-05 dated 31.10.2006, there is no unabsorbed depreciation allowance to be carried forward. The Ld.AO made a reference to the order passed by the Ld.CIT(A) for assessment year 2004-05 in which the appeal filed by the assessee was dismissed.
(ii) Communication expenses of Rs. 35,58,833/- has been excluded from export turnover in the process of computation of deduction under section 10A. The contentions of the assessee that the said expenditure was not separately charged to customers in the invoices raised by the assessee and no amount was separately receivable from customers towards such expenditure, has not been accepted. It was submitted before the Ld.AO that, if communication expenses are to be reduced from export turnover, the same is also to be reduced from total turnover. However, the Ld.AO did not consider the submissions.
(iii) Provision made for contractual and warranty obligations amounting to Rs. 97,89,000/- has not been allowed as a deduction. It was held that, provision for warranty is an unascertained liability. No reasons have been given by the Ld.AO for the impugned conclusion. Also ignored that the said disallowance has resulted in enhancement of business profits leading to increase in deduction allowable to the assessee under section 10A.
2.3 The Ld.AO thus passed the assessment order making an addition in the hands of the assessee at Rs.1,59,40,469/-.
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Aggrieved by the order of the Ld.AO, assessee preferred an appeal before the Ld.CIT(A).
3.1 The Ld.CIT(A) dismissed the appeal by upholding the additions made in the assessment order. It is submitted that the Ld.CIT(A) did not consider the decision of Hon’ble Supreme Court in case of Rotork Controls India Pvt. Ltd. vs. CIT reported in (2009) 314 ITR 62 in respect of warranty provisions. The assessee submitted that in respect of the disallowance computed u/s. 10A the Ld.CIT(A) relied on the decision of Coordinate Bench of this Tribunal in case of M/s. Intellinet Technologies India Pvt. Ltd. vs. ITO.
Aggrieved by the order of the Ld.CIT(A), assessee is in appeal before this Tribunal.
The Ld.AR submitted that Ground no. 1.1 is general in nature and therefore do not require adjudication.
He submitted that Ground nos. 2.1 – 2.4 raised by assessee are in respect of the disallowance made while computing deduction u/s. 10A.
6.1 The Ld.AR submitted that the authorities below have not appreciated the unabsorbed depreciation, allowance was to be allowed after computation of deduction u/s. 10A of the act. He
Page 8 ITA No. 739/Bang/2010 submitted that the profits of business which is eligible for deduction u/s. 10A are to be considered first.
6.2 He submitted that for A.Y. 2004-05 in assessee’s own case, this issue was considered in favour of assessee by holding that 10A deduction is to be done u/s. 28 to 44B of the act, separately which is independent of computation of profit and gains from eligible business and without factoring unabsorbed depreciation. He thus submitted that, this will result in a carry forward of unabsorbed depreciation to set off against the profits after allowing deduction u/s. 10A of the act. The Ld.AR further submitted that the decision relied by the Ld.CIT(A) of the Coordinate Bench of this Tribunal in case of Intellinet (supra) is no more a good law by virtue of the decision of Hon’ble Supreme Court in case of CIT vs. Yokogawa India Ltd. reported in (2017) 77 taxmann.com 41 wherein question no. (iv) and (v) has been answered on identical issue that reads as under: “(i) Whether Section 10A of the Act is beyond the purview of the computation mechanism of total income as defined under the Act. Consequently, is the income of a Section 10A unit required to be excluded before arriving at the gross total income of the assessee? (ii) Whether the phrase “total income” in Section 10A of the Act is akin and pari materia with the said expression as appearing in Section 2(45) of the Act? (iii) Whether even after the amendment made with effect from 1.04.2001, Section 10A of the Act continues to remain an exemption section and not a deduction section? (iv) Whether losses of other 10A units or non 10A Units can be set off against the profits of 10A units before deductions under section 10A are effected?”
Page 9 ITA No. 739/Bang/2010 6.3 The Ld.AR submitted that the authorities below misdirected themselves to hold that brought forward losses and unabsorbed depreciation allowance of earlier years should be set off against current year's profits of business, before claiming deduction under section 10A.
6.4 He pointed out that, the income which is eligible for deduction under section 10A, does not form part of total income at all, and hence, it does not enter the normal computation mechanism so as to permit reduction of brought forward business and depreciation losses.
6.5 He submitted that, the profits of business which is eligible for deduction under section 10A should be of a particular year and is, therefore, not to be influenced by business losses and unabsorbed depreciation allowance of the current year as well as previous years. The eligible undertaking for the purpose of computing deduction under section 10A is to be computed for the relevant assessment year uninfluenced by the results of the other units in that year.
6.6 The Ld.DR on the contrary supported the orders passed by the authorities below by arguing that profits of business referred to in section 10A cannot be the profits computed under the head profits and gains of business or profession. The Ld.DR placed reliance on the decision of Hon'ble Karnataka High Court in case of CIT vs. Himatasingika Seide Ltd. reported in (2006) 286 ITR 255 in support of the above submissions.
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6.7 We have perused the submissions advanced by both sides in the light of records placed before us.
6.7.1 It is noted that this issue has been squarely covered by the decision of Hon’ble Supreme Court in case of CIT vs. Yokogawa India Ltd. (supra). Hon’ble Supreme Court while considering the issues have observed and held as under: “13. The retention of Section 10A in Chapter III of the Act after the amendment made by the Finance Act, 2000 would be merely suggestive and not determinative of what is provided by the Section as amended, in contrast to what was provided by the un-amended Section. The true and correct purport and effect of the amended Section will have to be construed from the language used and not merely from the fact that it has been retained in Chapter III. The introduction of the word ‘deduction’ in Section 10A by the amendment, in the absence of any contrary material, and in view of the scope of the deductions contemplated by Section 10A as already discussed, it has to be understood that the Section embodies a clear enunciation of the legislative decision to alter its nature from one providing for exemption to one providing for deductions. 14. The difference between the two expressions ‘exemption’ and ‘deduction’, though broadly may appear to be the same e. immunity from taxation, the practical effect of it in the light of the specific provisions contained in different parts of the Act would be wholly different. The above implications cannot be more obvious than from the case of Civil Appeal Nos. 8563/2013, 8564/2013 and civil appeal arising out of SLP(C) No. 18157/2015, which have been filed by loss making eligible units and/or by non- eligible ass essees seeking the benefit of adjustment of losses against profits made by eligible units. 15. Sub-section 4 of Section 10A which provides for pro rata exemption, necessarily involving deduction of the profits arising out of domestic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head “profits and gains from business” in Chapter IV and denied the benefit of deduction. The provisions of Sub-section 6 of Section
Page 11 ITA No. 739/Bang/2010 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 2001 –02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understand by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Ac. t The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, despite the amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under Section 10A and 80HHC and 80HHE are substantially different. This is the next aspect of the case which we would now like to turn to. 16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non–eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, “The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision.” 17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the
Page 12 ITA No. 739/Bang/2010 profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression “total income of the assessee” in Section 10A as ‘total income of the undertaking’. 18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly.” 6.7.2 At the issue in dispute involved in the present appeal before us, is identical to the facts of the case of Yokogawa India Ltd. (supra), respectfully following the view by the Hon’ble Supreme Court therein, we direct the Ld.AO to grant deduction u/s 10A of the Act as per the finding of the Hon’ble Supreme Court in the case of Yokogawa India Ltd. (supra). The decision relied by the Ld.CIT(A) in case of M/s. Intellinet Technologies India Pvt. Ltd. vs. ITO is prior to the decision of Hon’ble Supreme Court in case of CIT vs. Yokogawa India Ltd. (supra) and hence do not support the case of the revenue. Accordingly, ground nos. 2.1 – 2.4 stands allowed.
Page 13 ITA No. 739/Bang/2010 7. Ground nos. 3.1 – 4.2 is on the issue of computation of export turnover for the purpose of deduction u/s. 10A.
7.1. The Ld.AO reduced the expenditure incurred in foreign currency and communication expenses outside India. It is submitted that this issue is squarely covered by the decision of Hon'ble Karnataka High Court in case of CIT v. Mphasis Ltd reported in. (2016) 74 taxmann.com 274 , CIT v. Tata Elxsi Ltd reported in (2012) 17 taxmann.com 100. 7.2 The above decisions have been affirmed by Hon'ble Supreme Court in case of CIT v. HCLTechnologies Ltd. reported in (2008) 93 taxmann.com 33 by observing as under: “17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from 'export turnover' must also be excluded from 'total turnover', since one of the components of 'total turnover' is export turnover. Any other interpretation would run counter to the legislative intent and would be impermissible. 18. XXXXXX 19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
Page 14 ITA No. 739/Bang/2010 20. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well.”
7.3. On the contrary, the Ld.DR placed reliance on orders passed by authorities below.
7.4. We note that this issue is no longer resintegra by virtue of the decisions passed by Hon'ble Supreme Court in case of CIT v. Mphasis Ltd. reported in (2020) 113 taxmann.com 74 held that since the services rendered were in respect of software development or production of computer software which are technical in nature, the said expenses incurred in foreign currency for providing technical services outside India, cannot be excluded from the export turnover.
7.5. Respectfully following the above, we direct the Ld.AO to compute the deduction u/s. 10A in accordance with the principles laid down by Hon'ble Supreme Court hereinabove. Accordingly, these grounds raised by assessee stands partly allowed.
Grounds: 5.1 to 5.4. 8.1 During the assessment proceedings, the Ld.AO observed that assessee created provision of warranty of Rs.97,89,000/-. The assessee was called upon by the Ld.AO to explain as to why the provision should not be disallowed. In response, vide submission
Page 15 ITA No. 739/Bang/2010 dated 29/11/2017, the assessee submitted that, the provision for warranty was created based on the total number of warranty obligations outstanding as of 31-3-20005. It was also submitted that, the methodology of arriving at provision and the computation of provision for warranty based on a scientific method. The Ld.AO however rejected the submissions of assessee and denied the claim by observing that the provision for warranty has been disclosed as a contingent liability under AS 29, by assessee. Aggrieved by the order of the Ld.AO, appeal filed appeal before the Ld.CIT(A). The CIT(A) upheld the order of Ld.AO. Against the order of the Ld..CIT(A), the assessee raised the issue before this Tribunal.
8.2 We have perused the submissions advanced by both sides in light of records placed before us.
8.3 Admittedly, the assessee is engaged in manufacturing and trading of computer system and components thereof. In line with the practice followed by almost all companies in this industry, the cost of providing warranty services is factored into the selling price of the product.
8.4 It is the submissions of Ld.AR that, there are a number of factors affecting the determination of warranty provision to be set aside by the company at the time of sale, which also includes fixed or standing charges for which payments are accrued and payments have been made during the year. He submitted that
Page 16 ITA No. 739/Bang/2010 the amount that is set-aside for meeting the warranty obligations of assessee is computed based on a scientific and technical estimate of the costs to be incurred in meeting these obligations over the period of the warranty. On the contrary, the Ld.DR relied on orders passed by authorities below.
8.5 We note that Hon'ble Karnataka High Court in Pr. CIT v. Lenovo India (P.) Ltd. reported in (2021) 127 taxmann.com 487, dealt with identical issue where in the Hon'ble Court held against the revenue and in favour of the assessee. The Ld.AR also relied on decision of Hon’ble Karnataka High Court in case of CIT Vs. M/s.M PAct Technology Services Pvt.Ltd in ITA No. 228/2013 dated 11/07/2018. The relevant extract of the orders passed by the Hon'ble Court in Pr. CIT v. Lenovo India (P.) Ltd.(supra) is as under : “The Tribunal has rightly relied on the decision rendered by the Supreme Court in RotorkControls India Pvt. Ltd. (supra). Similar view has been taken by a division bench of this court in IBM Ltd. (supra). Therefore, the first and second substantial questions of law are answered against the revenue and in favour of the assessee.”
8.6 We notice that the assessee had placed reliance on the decision rendered by Hon'ble Supreme Court in the case of RotorkControls India (P.) Ltd. reported in (2009) 180 Taxmann 422 . The decision rendered by Hon'ble Delhi High Court in the case of CIT v. Goetze (India) Ltd. (2010) 8 taxmann.com 303 also in on the same issue. The contention of the assessee is that it is following a scientific method for determining the amount to be provided for warranty liability. We notice that the AO has rejected
Page 17 ITA No. 739/Bang/2010 the claim without finding fault with the method adopted by the assessee to determine the quantum of provision. This is not justified. When the assessee is following a scientific method consistently which also approximately corresponds with the actual expenditure incurred subsequently, then there is no reason to disallow the provision for warranty as held by Hon'ble Supreme Court in the case of Rotork Controls India (P.) Ltd. (supra). Accordingly, following the decision rendered by the Coordinate Bench in the assessee's own case for assessment year 2011-12, we restore this issue to the file of the Ld.AO for examining it afresh. We direct the Ld.AO to compute the deduction u/s. 10A as directed hereinabove. In the result, the appeal filed by the assessee stands allowed as indicated hereinabove. Order pronounced in the open court on 14th May, 2024.
Sd/- Sd/- (LAXMI PRASAD SAHU) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 14th May, 2024. /MS /
Page 18 ITA No. 739/Bang/2010 Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order
Assistant Registrar, ITAT, Bangalore