THE COMMR OF INCOME TAX vs. M/S WIPRO LTD

—1— IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 28 DAY OF FEBRUARY 2012 PREStNT THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MR.JUSTICE RAVI MALIMATH ITA.NO.3200 OF 2005 1. The Commissioner of Income-tax Central Circle, C.R.Building, Queens Road, Bangalore. 2. The Deputy Commissioner Of Income-Tax, Central Clrcle-IV, C.R.Building, Queens Road, Bangalore. ...APPELLANTS (By •Sri Indra Kumar along with Sri E.Sanmatl Indra Kumar, Advocate)

—2— AND: M/s.Wipro Ltd Doddakannelli, Sarjapur Road, Bangalore. ...RESPON DENT (By Sri Dr.R.B.Krishna, Advocate) This ITA filed under section 260-A of I.T.Act, 1961 arising out of order dated 21 .06.2005 passed In ITA.No.882/Bang/2003, for the Assessment year 1999-00, praying to formulate the substantial questions of law stated therein, allow the appeal and set aside the order passed by the flAT, Bangalore in ITA.No. 882/Bang/2003 dated 21.06.2005 confirm the order of the Appellate Commissioner confirming the order passed by the Deputy Commissioner of Income Tax, Central Circle-IV, Bangalore. This ITA coming on for hearing this day, N.KUMAR 3., delivered the following: JUDGMENT The Revenue has preferred this appeal against the order passed by the Tribunal granting relief to the assessee. The relevant assessment year is 1999-2000. •f.

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—4— not deducted TDS. Therefore, the assessing officer disallowed the expenditure. The assessee had claimed warranty expenses as deduction. The same was also disallowed on the ground that it was only a provision to be treated as a contingent liability. The assessee had claimed a sum of Rs.2,36,04,819 as deduction of excise duty under Section 43B of the Act. It was also rejected on the ground that the working made by the assessee Is not correct. When the assessing officer allowed deduction under Section 10-A he excluded certain receipts/income not related to 10-A activity and has also allocated certain expenses not allocated to 10-A units as under liquidated damages recovered from suppliers, write back of credit balances in customer account scrap sales of newspapers, battery and expenses like corporate headquarters while computing deduction. The assessment came to be completed by the order dated 21-3-2001. Aggrieved by the said order the assessee preferred an appeal to the Commissioner of Income-Tax (Appeals). The

—5— Commissioner granted the relief on some counts and rejected on other grounds. Aggrieved by the same, the Revenue as well as the assessee preferred independent appeals before the Tribunal. The appeal preferred by the Revenue was dismissed and the appeal preferred by the assessee was allowed. Aggrieved by the said order, the Revenue has preferred two appeals against the order dismissing their appeal as well as the order partly allowing the assessee’s appeal. At the time of admitting the appeal 11 substantial questions of law have been framed. 3. The first substantial question of law which arises for consideration in this appeal is as under: 1) Whether the Tribunal was correct in holding that special import licence premium income and other miscellaneous income can also be considered as income derived from the industrial undertaking • eligible for exemption under Section 10(A) of the Act and consequently entitled to the said deduction?” 1

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—7— 5. The 4 th substantial question of law which has a direct nexus with the above is as under: “4. Whether the Appellate Authorities were correct in holding that the Assessing Officer and allocation of 50% corporate expenses to units daiming exemption under section 1OA of the Act which would reduce exemption towards similar extent?” The said question arose for consideration in the assessee’s appeal ITA No.507/2002 which was disposed off on 25 th August, 2010. This Court after referring to the bifurcation of the financials of the assessee, held that there is no justification to Interfere with the well considered order of the Tribunal. Accordingly the said question of law was answered in favour of the assessee and against the Revenue. In the Instant case, all that has been held by the Tribunal in the Impugned order Is that they have gone

—8— through the records and the submissions of both the sides on the above issue. From the submissions made by the Department they find no new point or reason which has been brought to their notice to deviate from their stand In the Tribunal’s order mentioned supra. Therefore, they agreed with the assessee’s submissions that the Issue stands covered by the decision of the Tribunal and the appellate authority relying on the said decision has decided the said issue in favour of the assessee and therefore they dismissed the appeal filed by the Revenue. Therefore, it is clear that the Tribunal did not look into the allocations under each head and they did not find out whether the allocation of 50% of the expenditure is permitted or not. Therefore the finding recorded by the Tribunal cannot be sustained. Accordingly, it Is set aside and the matter is remitted back to the Tribunal for fresh consideration in accordance with law in the light of the Judgment of this Court in ITA No.507/2002 referred to above.

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— 13 — a ator Iaç win data indicates that ecer ,nanufartwed actuators t’vc The stca s ic t i en Cu tomer prepared to buk va ye act ator wi t hout a warianty. Theiefoie, wanantv beam in t egral part of the hale price of the at r( n w w y st lat’ edt sal ce - pr U. Thece aspects ate Lnporta’ t As stated abwe, obligations arising prom past events have to be rc gniec.. 35 pr sions Thest ast e its C 0 g 13. .Thus the ;j.a rann cr”wc,o” chc’.lo Co. sir itt ia ii equ,ei part&was1’ .r suqq#’4t L”at vac,arnv S -‘d’iV i’e e 0 d I rot rig y the e’cpe’rience iro.’ca.i... 3te “7 -‘r u,j.jt —af veai are ta •15 stat al some of these found to b the ,s I 0 decis,on 3fl e based o’ the ‘last f Ca TI’t e. .. (JTjk V Id .,.• t fl,. . — ‘“1— !i:4. U & a,’ ‘‘.-“j • t r a: ‘.—.7,’

— 14 — 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 year end of future warranty expenses. Such estimates need reassessment every year. As one reaches dose 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 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 drcumstances 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 obligations was also possible. LU---

Th.refoie the apg I ed 3 habihh. on tie tacts and clicLi c ces of this Lafl. during the televant assessment year which was entitled to ‘deduction unae’ ‘ ‘f the 1%j 4ct. Tlieiefoie. all tne three conditions (01 iecognizing a kabthty for the purposes ot provisioning stands satisfied in this case. It is important to note that there are four important aspects of piovis’on’ng Thek ate provisioning which ieiates to present obligation, it arises out of obligating events. .t i.iolves outflow of resowces and lash> it inw’l es reliable estimativn of bliqat ;ing in mind all the tow aspects iew that the High Court sh faied wit 1 thc decis 0, 0 r ad,r j tia tat rita tteasce u de t 1.j 1y e qtired ti., cd u .o.’ tItc V 91 . - .1 i.. ‘r. the 3.. . o .. ‘ o’ 3 r ‘ .‘r’ 1, ‘ in not

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— 18 — 10. The last four substantial questions of law are as under: “9. Whether the Tribunal committed an error in proceeding to observe that it is necessary to deal with the facts as found from the assessment records, appeal proceedings and during the course of hearing when this issue was not a controversy either before the Appellate Commissioner or the Assessing Officer? 10. Whether the Tribunal committed an error and has extracted from assessment order, appellate order and information furnished by the assessee has come to the condusion that certain newly establish undertakings which have been daimed as separate by the assessee and accepted by the Assessing Officer after verification of the details has allowed the daim of the assessee when this was not the controversy before the Assessing officer or the Appellate Commissioner

— 19 — and would have only relevance to reopened assessments which was not the subject matter in this appeal? 11. Whether the Tribunal committed an error in noticing that on verification of details of expansion where substantial expansion has resulted in a new undertaking the same has been shown separately by the assessee and accepted by the Assessing Officer when this was not the controversy before the Assessing Officer or the Appellate Commissioner and would have only relevant to reopened assessment which was not the subject matter in this appeal? 12. Whether the Tribunal was correct in observing that there have been many instances where the existing undertakings have undertaken organic expansion by adding certain equipments, man power which have been shown as part of pre existing unit and there have been treated as part of the existing unit

— 20 — by the Assessing Officer when this was not the controversy before the Assessing officer or the Appellate Commissioner and would have only relevance to reopened assessments which was not the subject matter in this appeal?” We have gone through the entire Judgment of the Tribunal in answering the substantial questions of law which are framed in the case. While answering the questions of law which arose for consideratIon before the Tribunal they have carefully looked into the records and have made certain observations. The observations are not findings. The findings recorded by the Tribunal has to be confined only to the issues Involved in the appeal adjudicated. Any observation made ‘de-hors’ those findings are only in the nature of an observation and they do not constitute findings so as to prevent either of the parties from putting forth their claims contrary to the said findings. Therefore, the contention that the Tribunal has exceeded its jurisdiction and has answered issues which do not arise for 1—

“)l consideration by looking into the records is misconceived. Those obse-rvations would not in any way affect the interest of either of the parties in either of the pending proceedings or in future and therefore these four questions do not arise for consideration in this appeal in the strict sense and therefore they are accordingly not answered. The appeal is accordingly disposed off. pnncaE ScI/ .JUDGE Rsk