Consolidated Construction Consortium Limited, CHENNAI V. ACIT, CHENNAI

ITA 205/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7928 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 05-02-2016
• Court: TRIBUNAL
• Department Lawyers: PATHLVATH PEERYACIT
• Assessee Lawyers: S SRIDHAR
• Keywords: Earning of tax free income
• Section: 14A; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ITA NO.205/MDS./2016 ASSESSMENT YEAR:2010-11 M/S.CONSOLIDATED CONSTRUCTION CONSORTIUM LTD., NO.5, 2 ND LINK STREET, CIT COLONY, MYLAPORE, CHENNAI 600 004. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 1(3), CHENNAI. PAN AAACC 4214 B (APPELLANT) (RESPONDENT) / APPELLANT BY : MR.S.SRIDHAR,ADVOCATE /RESPONDENT BY : MR.PATHLVATH PEERYA,CIT DR / DATE OF HEARING : 10 - 11 - 201 6 / DATE OF PRONOUNCEMENT : 30 - 11 - 2016 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, CHENNA I DATED 09.10.2015 PERTAINING TO ASSESSMENT YEAR 2010-11. ITA NO.205/MDS./15 :- 2 -: 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD T O DISALLOWANCE U/S 14A R.W. RULE 8D OF INCOME TAX RULES, 1962. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE I TSELF HAS OFFERED THE EXPENDITURE U/S 14A OF THE ACT OF ` 1,83,088/-. THE ASSESSEE HAS SHOWN IN ITS ACCOUNTS DIVIDEND INCOME OF ` 24,70,634/- AND HAS BORROWED CAPITAL OF 324.58 CRORES AS ON Y.E 31.03.2010 AGAISNT WHICH IT HAS INCURRED INTEREST EXPENDITURE OF ` 31,27,96,676. NOT SATISFIED WITH THE AMOUNT OF EXPENDITURE DISCLO SED U/S 14A AND NOT SATISFIED WITH THE EXPLANATION GIVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER PROCE EDED TO WORK OUT THE DISALLOWANCE OF ` 1,44,87,576/- U/S 14A R.W. RULE 8D. THE AO HAD DISCUSSED THE REASONS FOR INVOKING THE PROVISIONS O F THE SECTION 14A R.W.R 8D IN PARA 5 OF THE ASSESSMENT ORDER. AGGRI EVED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) CONFIRMED THE ACTION OF THE AO FOLLOWING THE DECISI ON OF LD.CIT(A) IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009-10 DAT ED 30.12.2013. AGGRIEVED WITH THE ORDER OF LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD.CIT(A) BASED HIS CONCLUSION ON HIS E ARLIER ORDER IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009-10. FO R ASSESSMENT ITA NO.205/MDS./15 :- 3 -: YEAR 2009-10, THE SAME ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO.594/MDS./ 14 & 702/MDS./14 DATED 06.01.2011WHEREIN THE TRIBUNAL REMITTED THE I SSUE TO THE FILE OF AO WITH THE FOLLOWING OBSERVATIONS:- 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR OPINION, THE DECISION OF THE SPECIAL BENCH DELHI IN THE CASE OF CHEMINVEST VS IT O (SUPRA) IS NO MORE GOOD LAW AS THIS DECISION IS REVERSED BY THE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS CIT I N I.T.A.NO. 749/2014 DATED 2.9.2015 WHEREIN HELD THAT NO DISALL OWANCE U/S 14A CAN BE MADE IN A YEAR IN WHICH NO EXEMPT IN COME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. SEC. 14A ALSO DOES NOT APPLY TO SHARES BOUGHT FOR STRATEGIC PURPO SES. BEING SO, IN OUR OPINION, APPLICABILITY OF DECISION OF SP ECIAL BENCH IS NOT PROPER. FURTHER, THE LD. AR RELIED ON THE JUDG MENT OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF M/S GEO JIT INVESTMENT SERVICES LTD VS ACIT, I.T.A.NO.261/COCH/ 2014 DATED 28.8.2014 AND ALSO THE DECISION OF THE CHENNA I BENCH IN THE CASE OF ACIT VS M/S BEST & CROMPTON ENGINEERING LTD, I.T.A.NO.1603/MDS/2012, DATED 16.7.2013, FOR THE PR OPOSITION THAT THE ASSESSING OFFICER SHALL SATISFY HIMSELF AB OUT THE APPLICABILITY OF 14A R.W. RULE 8D. IN OUR OPINION, THE GRIEVANCE OF THE ASSESSEE IS JUSTIFIED AND IT REQU IRES REEXAMINATION AT THE END OF THE ASSESSING OFFICER A ND HE HAS TO SEE WHETHER ANY EXPENDITURE WAS INCURRED FOR EAR NING THE EXEMPT INCOME OR NOT. THE ASSESSING OFFICER SHALL CONSIDER THE ABOVE DECISIONS AND ALSO THE DECISION OF MUMBAI BENCH IN THE CASE OF M/S DAGA GLOBAL CHEMICALS PVT. LTD VS A CIT IN I.T.A.NO.5592/MUM/2012, DATED 1.1.2015 AND THE JUDG MENT ITA NO.205/MDS./15 :- 4 -: OF THE DELHI HIGH COURT IN THE CASE OF JOINT INVEST MENTS PVT. LTD VS CIT, 372 ITR 694 WHEREIN IT WAS OBSERVED AS UNDER:- 6. HEARD BOTH THE PARTIES. ON A PERUSAL OF THE ORD ER OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DAGA GLOBAL CHEMICALS PVT. LTD. (SUPRA), WE FIND THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL HOLDING THAT DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D CANNOT EXCEED THE EXEMPT INCOME. WHILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER:- 2. AT THE TIME OF HEARING, DR. K.SHIVARAM ALONG WITH SHRI RAHUL HAKANI, LD. COUNSELS FOR THE ASSESSEE ADVANCED THEIR ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED BY SUBMITTING THAT NO EXPENDITURE DIRECTLY OR INDIRECTLY WAS INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME AND FURTHER THE INVESTMENT IN SHARES WAS MADE IN EARLIER YEARS OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS, THEREFORE, NO DISALLOWANCE U/S 14A R.W. RULE 8D IS TO BE MADE. 2.1. ON THE OTHER HAND, SHRI AKHILENDRA YADAV STRONGLYDEFENDED THE CONCLUSION ARRIVED AT BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BY CONTENDING THAT A WELL REASONED ORDER HAS BEEN PASSED BY THE LD. FIRST APPELLATE AUTHORITY AS APPORTIONMENT OF EXPENDITURE FOR EARNING THE DIVIDEND INCOME WAS DONE AS PER THE PROVISIONS OF THE ACT. IT WAS PLEADED THAT SECTION 14A R.W. RULE 8D OF THE RULES IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT APPEAL. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A LIMITED COMPANY, ENGAGED IN TRADING OF BULK AND FINE, CHEMICALS, SOLVENT AND PHARMACEUTICAL RAW MATERIALS DECLARED ITS INCOME AT RS.74,40,000/- ON 26/09/2009. THE ASSESSEE CREDITED DIVIDEND INCOME OF RS.1,82,262/- IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT INVOKE SECTION 14A R.W. RULE 8D BY CONTENDING THAT ASSESSEE CLAIMED VARIOUS EXPENSES WHICH ARE RELATED TO EXEMPT INCOME IN ITS PROFIT & LOSS ACCOUNT AND DISALLOWED RS.14,58,412/-. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BROADLY ITA NO.205/MDS./15 :- 5 -: THE STAND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. THE TOTALITY OF FACTS CLEARLY INDICATES, AS CLAIMED BY THE ASSESSEE THAT NO BORROWED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME BY THE ASSESSEE AND FURTHER THE DIVIDEND WERE DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE AND NO EXPENDITURE WAS CLAIMED. WHAT IT MAY BE, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS.1,82,362/- AS DIVIDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE OF RS.14,58.412/- BY INVOKING SECTION 14A R.W. RULE 8D UNDER THE FACTS AVAILABLE ON RECORD. IT WAS ALSO EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ON IDENTICAL FACT IN EARLIER YEARS, NO DISALLOWANCE WAS MADE. IN THE PRESENT ASSESSMENT YEAR ALSO, NO BORROWED FUNDS WERE INVESTED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES OR FOR EARNING DIVIDEND INCOME . AT BEST, IF ANY DISALLOWANCE COULD BE MADE THAT CAN BE RESTRICTED TO RS. 1,485/- WHICH WERE CLAIMED AS DEMAT CHARGES. DISALLOWANCE U/S 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS THEREFORE, ALLOWED. 5.1 FOLLOWING THE ABOVE DECISION OF THE MUMBAI B ENCH OF THE TRIBUNAL, WE ARE OF THE OPINION THAT DISALLOWAN CE U/S.14A R.W. RULE 8D SHOULD NOT EXCEED THE EXEMPT INCOME. THE MUMBAI BENCH IN ITS ORDER SUSTAINED THE DISALLOWANC E ON APPLICABILITY OF PROVISIONS OF SEC.14A R.W. RULE 8D . HOWEVER, THE ALTERNATIVE CLAIM OF THE ASSESSEE WAS THAT DISA LLOWANCE IF AT ALL SHOULD BE MADE, IT SHOULD BE RESTRICTED TO E XEMPT INCOME EARNED AND NOT BEYOND THAT. ACCORDINGLY, TH E AO IS DIRECTED TO LOOK AT THIS ISSUE ON THIS ANGLE AND DE CIDE IT AFRESH IN THE LIGHT OF THE ABOVE DECISION OF THE MUMBAI BE NCH OF THE TRIBUNAL. ACCORDINGLY, THIS ISSUE IS REMITTED TO THE FILE OF AO ON SIMILAR DIECTION. ITA NO.205/MDS./15 :- 6 -: 5. THE NEXT GROUND IN THIS APPEAL IS THAT LD.CIT(A ) ERRED IN SUSTAINING THE DISALLOWANCE OF THE CLAIM OF DEDUCTI ON ON RETENTION MONEY PAYABLE AGGREGATING TO ` 11,48,49,903/- IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASO NS AND JUSTIFICATION. 6. THIS ISSUE CAME FOR CONSIDERATION FOR EARLIER A SSESSMENT YEAR IN ITA NO.1824/MDS./2014 FOR ASSESSMENT YEAR 2006-0 7 & ITA NO.592/MDS./2014 FOR ASSESSMENT YEAR 2007-08 IN ASS ESSEE'S OWN CASE VIDE ORDER DATED 06.01.2016, THE TRIBUNAL HELD AS UNDER:- 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. GENERALLY, THE EXPENDITURE WHICH IS AC TUALLY INCURRED OR IS INCURRED IN A RELEVANT YEAR WOULD BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME FROM BUSINESS. SUCH A LIABILITY HAS TO BE IN PRAESENTI. HOWEVER, AT THE SAME TIME, IT RELATES TO THE WORKS UNDERTAKEN BY THE ASSESSEE, C OMPLETED CONTRACT METHOD OF ACCOUNTING IS FOLLOWED WHICH IS CONSISTENT WITH THE ACCOUNTING STANDARDS AND THESE ACCOUNTING STANDARDS ALSO LAID DOWN THE NORMS INDICTING THE PARTICULAR P OINT OF TIME WHEN THE PROVISIONS FOR ALL KNOWN LIABILITIES AND L OSSES HAVE TO BE MADE. THE MAKING OF SUCH A PROVISION BY THE ASS ESSEE APPEARS TO BE JUSTIFIED MORE SO WHEN THE ASSESSEE HAD RECOGNIZED GAIN AS WELL ON SUCH PROJECT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THIS APPEARS TO BE IN CON SONANCE WITH THE PRINCIPLE OF MATCHING COST AND REVENUE AS WELL. THE REASON GIVEN BY THE DEPARTMENT IS THAT THE RETENTIO N MONEY WHICH IS RECEIVABLE WAS NOT RECOGNIZED AS INCOME AS SUCH, RETENTION PAYMENT ALSO CANNOT BE ALLOWED AS DEDUCTI ON WHILE COMPUTING THE INCOME OF THE ASSESSEE. AS RIGHTLY ARGUED BY ITA NO.205/MDS./15 :- 7 -: THE ASSESSEE, BOTH THESE ARE GOVERNED BY DIFFERENT ACCOUNTING STANDARDS. RETENTION PAYMENT IS GOVERNED BY AS-7 I SSUED BY ICAI, NEW DELHI. ON THE OTHER HAND, RETENTION MONE Y RECEIVABLE IS GOVERNED BY AS-9. WHAT IS APPLICABLE TO RETENTION MONEY RECEIVABLE CANNOT BE APPLIED TO RETENTION MON EY PAYABLE AS THESE ARE GOVERNED BY DIFFERENT ACCOUNTING STAND ARD. FURTHER IT IS UNDISPUTED THAT WHENEVER ASSESSEE INC URRED EXPENDITURE ON THE PROJECT IT IS ADMISSIBLE FOR DED UCTION. THE ONLY DISPUTE RAISED BY THE REVENUE IS REGARDING THE YEAR OF LIABILITY OF EXPENDITURE. CONSIDERING THAT THE ASS ESSEE-COMPANY IS ASSESSED AT UNIFORM RATE OF TAX, THE ENTIRE EXER CISE OF SEEKING TO DISTURB THE YEAR OF ALLOWABILITY OF EXPENDITURE IS, IN ANY CASE, REVENUE NEUTRAL. WE ARE REMINDED OF THE CLASSIC OB SERVATION MADE BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS NAGRI MILLS CO. LTD, 33 ITR 681 WHICH READS AS UNDER: WE HAVE OFTEN WONDERED WHY THE INCOME-TAX AUTHORITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE INCOME-TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASSESSMENT YEAR 1952-53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 1953-54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH D O ITA NO.205/MDS./15 :- 8 -: NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER.' 12.1 THE AFORESAID OBSERVATION OF THE BOMBAY HIGH COU RT WAS REITERATED BY THE DELHI HIGH COURT IN THE CASE OF C IT VS SHRI RAM PISTOS AND RINGS LTD, 220 CTR 404, AS UNDER: 'FINALLY, WE MAY ONLY MENTION WHAT HAS BEEN ARTICULATED BY THE BOMBAY HIGH COURT IN CIT V. NAGRI MILLS CO. LTD. [1958] 33 ITR 681 (BOM) AS FOLLOWS : . . . IN THE REFERENCE THAT IS BEFORE US THERE IS NO DOUBT THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE . THE ONLY DISPUTE IS REGARDING THE DATE ON WHICH THE LIABILITY HAD CRYSTALLIZED. IT APPEARS THAT THERE W AS NO CHANGE IN THE RATE OF TAX FOR THE ASSESSMENT YEAR 1983-84 WITH WHICH WE ARE CONCERNED. THE QUESTION, THEREFORE, IS ONLY WITH REGARD TO THE YEAR OF DEDUCTION AND IT IS A PITY THAT ALL OF US HAVE TO E XPAND SO MUCH TIME AND ENERGY ONLY TO DETERMINE THE YEAR OF TAXABILITY OF THE AMOUNT.' 12.2 FURTHER, IN OUR OPINION, THE PROVISION FOR ACC RUED LIABILITY WHICH HAS TO BE DISCHARGED AT A FUTURE DA TE BY THE ASSESSEE IS AN ALLOWABLE EXPENDITURE. IN THE CASE OF CIT VS MICRO LAND LTD, 347 ITR 613 [KARNATAKA HIGH COURT], THE ASSESSEE CLAIMED DEDUCTION U/S 37 OF THE ACT FOR P ROVISION FOR FUTURE WARRANTY. THE ASSESSING OFFICER OPINED THAT PROVISION FOR FUTURE WARRANTY IS CONTINGENT LIABILITY AND CANNOT BE ALLOWED. THE SUPREME COURT IN THE CASE OF ROTORK CONTROLS IN DIA PVT. LTD VS CIT, 314 ITR 62, HELD THAT THE PROVISION MADE BY THE ASSESSEE FOR WARRANTY CLAIMS ON THE BASIS OF PAST E XPERIENCE IS ALLOWABLE DEDUCTION U/S 37 OF THE ACT. IN THE CAS E OF BHARAT ITA NO.205/MDS./15 :- 9 -: EARTH MOVERS VS CIT, 245 ITR 428, THE SUPREME COURT HELD THAT WHERE THE ASSESSEE HAS INCURRED EXPENDITURE WHICH IS MORE THAN THE PROVISION FOR WARRANTY OBLIGATION MADE IN THE BOOKS OF ACCOUNT, IT CANNOT BE SAID THAT THE PROVISION MADE BY THE ASSESSEE IS NOT CAPABLE OF BEING ESTIMATED WITH THE REASONABLE CERTAINTY THOUGH ACTUAL QUANTIFICATION WAS NOT POS SIBLE AND THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN ALLOWING T HE DEDUCTION. THE DELHI HIGH COURT IN THE CASE OF CIT VS ERICSSIO N COMMUNICATIONS P. LTD, 318 ITR 340, HELD THAT PROVI SION FOR WARRANTY CLAIMS ON SCIENTIFIC BASIS WHICH IS CONSIS TENTLY APPLIED BY THE ASSESSEE FOR ITS BUSINESS WAS ALLOWABLE AS DEDUCTION. THE MADRAS HIGH COURT IN THE CASE OF CIT VS LUK IND IA PVT. LTD, 239 CTR 440, HELD THAT PROVISION FOR WARRANTY CLAIM ED BY APPLYING THE SETTLED PRINCIPLES OF HAVING REGARD TO THE FACT THAT CLAIM WAS BASED ON A SCIENTIFIC APPROACH AND IT WAS WORKED OUT ON THE AVERAGE OF PREVIOUS YEARS WARRANTY SETTLEME NT IS ALLOWABLE EXPENDITURE. SAME VIEW WAS TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF KONE ELEVA TOR INDIA PVT. LTD VS ACIT, 340 ITR 46. FURTHER, THE SUPREME COUR T IN THE CASE OF CALCUTTA CO. LTD VS CIT, 37 ITR 1, HELD THA T WHERE THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACC OUNTING IS ENTITLED FOR DEDUCTION OF THE EXPENDITURE WHICH IS INCIDENTAL TO THE BUSINESS ON ACCRUAL BASIS THOUGH IT WAS NOT ACT UALLY INCURRED DURING THE RELEVANT ACCOUNTING YEAR. THE KERALA HIGH COURT IN THE CASE OF CIT VS INDIAN TRANSFORMERS LTD , 270 ITR 259, HELD THAT PROVISION CREATED BY THE ASSESSEE F OR AFTER SALES SERVICES BASED ON WARRANTY WAS TOWARDS A DEFINITE A ND ASCERTAINED LIABILITY. ON THE BASIS OF RELEVANT FA CTS THE PROVISION CANNOT BE TREATED AS A CONTINGENT LIABILITY AND THE REFORE, THE SAME WAS ALLOWABLE AS DEDUCTION. SAME VIEW WAS TAK EN BY THE DELHI HIGH COURT IN THE CASE OF CIT VS WHIRLPOOL OF INDIA LTD, 242 CTR 245, WHEREIN HELD THAT THE ASSESSEE CONSIS TENTLY ITA NO.205/MDS./15 :- 10 - : MAKING PROVISION FOR WARRANTY ON THE BASIS OF ACTUA RIAL VALUATION IN RESPECT OF MACHINES SOLD DURING THE YE AR COULD NOT BE PRECLUDED FROM REVISING THIS PROVISION AFTER TAK ING INTO CONSIDERATION THAT WARRANTY PERIOD OF THE GOODS SOL D UNDER WARRANTY WAS EXCEEDING AND PROVISION ALREADY PROVID ED IN A PARTICULAR YEAR IS FALLING SHORT OF THE EXPECTED CL AIM THAT MAY BE RECEIVED. SUCH A PROVISION IS BASED ON SCIENTIFIC STUDY AND ACTUARIAL BASIS AND TO BE ALLOWED AS A BUSINESS EXP ENDITURE. HENCE, IN OUR OPINION, THE PROVISION FOR PAYMENT MA DE BY THE ASSESSEE TOWARDS SUB-CONTRACT IS ALLOWABLE EXPENDIT URE AS THE ASSESSEE RECOGNIZED THE REVENUE FROM THE SAID CONTR ACT AS INCOME IN THE ASSESSMENT YEAR UNDER CONSIDERATION. FURTHER, WE MAKE IT CLEAR THAT THE ASSESSEE CANNOT CLAIM TH E SAME EXPENDITURE ON ACTUAL PAYMENT BASIS, OTHERWISE IT A MOUNTS TO DOUBLE DEDUCTION ONE ON THE BASIS OF ACCRUAL AND ANOTHER ON THE BASIS OF ACTUAL PAYMENT. HENCE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THIS RETENTION MONEY PAYMENT ONLY ON ACCRUAL BASIS AND NOT ON ACTUAL PAYMENT BASIS. WITH THESE OBSERVATIONS, WE REMIT THIS ISSUE TO THE FILE OF TH E ASSESSING OFFICER FOR QUANTIFICATION. THIS GROUND IS PARTLY ALLOWED. IN VIEW OF THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE, WE REMIT THE ISSUE TO THE FILE OF AO ON SIMILAR DIRECTION. 7. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF THE CLAIM OF AMORTIZATION OF PRELIMINARY EXPENSES AGGREGATING TO ` 1 LAKHS U/S.35D OF THE ACT IN THE COMPUTATION OF TAXABLE IN COME. ITA NO.205/MDS./15 :- 11 - : 7. AT THE TIME OF HEARING, THE LD.A.R HAS NOT RAIS ED ANY SERIOUS OBJECTION AS IN EARLIER YEAR. ACCORDINGLY, THIS GR OUND IS DISMISSED AS NOT PRESSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 30 TH NOVEMBER, 2016, AT CHENNAI. SD/ - SD/ - . ! '# $ ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER %& / CHENNAI '() / DATED: 30 TH NOVEMBER, 2016 K S SUNDARAM (*++,-.+/. / COPY TO: + 1 . / APPELLANT 3. + 0+$ / CIT(A) 5. .12+,,3 / DR 2. / RESPONDENT 4. + 0 / CIT 6. 2#4+5 / GF