Thermax Ltd. v. Addl. CIT

INCOME TAX ACT, 1961

--Deduction under section 35AB--Process know-how feeAmount actually paid vis-a-vis accured--In the computation of income assessee claimed a deduction of Rs. 7,16,58,292 on account of process know-how fee paid, whereas in the books of account, assessee had charged to the Profit & Loss Account only a sum of Rs. 2,29,97,486 being 1/6th portion of the technical know-how fee. In the computation of income annexed with the return of income assessee claimed that the entire amount should be allowed as deduction under section 37(1). The AO determined the deduction allowable under section 35AB with reference to the amounts actually paid during the year under consideration. Further, issue relating to the determination of deduction under section 35AB before the CIT(A) was in relation to lump-sum fee for know-how paid in the earlier years.The assessee contended that at least the deduction under section 35AB could not be denied, even if the appeal of the assessee was pending before the Tribunal. The CIT(A) considered the plea of the assessee and directed the AO to allow deduction under section 35AB in respect of the know-how fee whose innings under section 35AB had begun in the past and where the balance eligible period under section 35AB was not over. Held: The expenditure incurred by the assessee for acquiring process know-how fee was to be allowed amortization in terms of section 35AB in view of decision of the Bangalore Bench of the Tribunal in the case of M/s. Amco Power Systems Ltd. v. ITO vide ITA No. 889/Bang/2007 dated 13-6-2009 Further, the CIT(A) had directed the AO to allow deduction under section 35AB in respect of know-how fee whose innings under section 35AB of the Act had begun in the past and where the balance eligible period under section 35AB was not over. In fact, it was a common point between the parties that so far as the claim of deduction of 1/6th cost was concerned, the same was allowed by the AO in the respective years. In view of the aforesaid factual matrix, the direction of the CIT(A) was quite infructuous and in-fact, was not called for. As a consequence, the decision of the CIT(A) on this asepct was set aside as being infructuous.

Income Tax Act, 1961, Section 35AB r/w Section 37(1)

Followed:Drilcos (India) (P) Ltd. v. CIT (2012) 348 ITR 382 (SC) amd Amco Power Systems Ltd. v. ITO ITA No. 889/Bang/2007, dt. 13-6-2009Relied:Addl. CIT v. Buckau Wolf New India Engineering Works Ltd. (1986) 157 ITR 751 (Bom), and Padamjee Pulp and Paper Mills Ltd. v. CIT (1994) 210 ITR 97 (Bom) and Kalyani Steels Ltd. v. Dy. CIT (1997) 59 TTJ 316 (Pune-Trib).

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 1998-99 & 1999-2000

INCOME TAX ACT, 1961

--Business expenditure--AllowabilityProvision for warranty--The assessee made a provision of Rs. 3,45,59,744 on account of provision for warranty with respect to the products sold. Considering the opening balance of provision of Rs. 2,95,97,441 the differential amount of provision amounting to Rs. 49,62,303 was debited to the Profit & Loss Account of the year under consideration. The said provision was made by the assessee on account of the fact that it was under an obligation to provide warranty for a period of one to two years on the products sold by it on account of any manufacturing defect found later. In such a situation, assessee was obliged to replace the product or repair the product free of cost during the period of warranty. The AO as well as the CIT(A) disallowed the deduction on the ground that the provision for warranty was only a contingent liability. Held: A reference was made to the decision of the Pune Bench of the Tribunal in the assessee's own case for assessment year 1997-98 vide ITA No. 970/PN/2001, dated 3-9-2014, wherein the earlier decision of the Tribunal in the case of the assessee for assessment years 1994-95 and 1995-96 was followed and issue was allowed in favour of the assessee. Following the aforesaid precedents, which continue to hold the field, the AO was directed to give effect to the aforesaid precedents, and the assessee accordingly succeeded on this ground.

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