PRIYA LTD, MUMBAI V. DCIT CIR 2(2), MUMBAI

ITA 8725/MUM/2010

• Counselvise Citation: 872519914 RSA 2010
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 16-07-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 14-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHIT JAIN
• Assessee Lawyers: J P BAIRAGRA
• Keywords: Earning of tax free income; Capital expenditure
• Section: 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. . . , / , BEFORE S/SH. B.R. MITTAL, JUDICI AL MEMBER & RAJENDRA, ACCOUNTANT MEMBER ./ ITA NO.8725 /MUM/2010, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2005-06 M/S PRIYA LTD. 209/210 , KIMATRAI BLDG., 77,79, M.K. ROAD MUMBAI- 400002 DCIT CIR 2(2) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400020 PAN: AAACP2210Q ( #$ / APPELLANT ) ( %&#$ / RESPONDENT ) ./ ITA NO.5671 /MUM/2011, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2008-09 M/S PRIYA LTD. KIMATRAI BLDG., 4 TH FLOOR 77,79, M.K. ROAD MUMBAI - 400002 DCIT CIR 2(2) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 PAN: AAACP2210Q ( #$ / APPELLANT ) ( %&#$ / RESPONDENT ) ./ ITA NO. 3523/MUM/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2009-10 M/S PRIYA LTD. 209/210 , KIMATRAI BLDG., 77,79, M.K. ROAD MUMBAI - 400002 DCIT CIR 2(2) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 PAN: AAACP2210Q ( #$ / APPELLANT ) ( %&#$ / RESPONDENT ) !'( * + / ASSESSEE BY : SHRI J.P. BAIRAGRA * + / REVENUE BY : SHRI MOHIT JAIN, DR ! ! ! ! * ** * (, (, (, (, / DATE OF HEARING : 16 . 07-2013 -.' * (, / DATE OF PRONOUNCEMENT : 02-08-2013 ! ! ! ! , 1961 * ** * 254(1) (/( (/( (/( (/( 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDERS OF THE CIT(A)-5,MUMBAI FOR T HE VARIOUS ASSESSMENT YEARS(AYS.)ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: ITA NO.8725 / MUM/2010 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR WARRANTY FOR AFTER SALES SERVICE OF RS.10,10,378/-. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE ADDITION OF RS. 2 ITA NO.8725 /MUM/2010 MS. PRIYA LTD. 4,032/- UNDER SECTION 36(1)(VA) OF THE INCOME TAX A CT ON ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. 3. THE APPELLANT COMPANY CRAVES TO ADD TO, ALTER OR AMEND THE FOREGOING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER, AT THE TIME OF HEARING. ITA NO.5671/MUM/2011 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE DISALLOWANCE OF A SUM OF 23,89,033/.- U/S. 14A OF THE INCOME TAX ACT AS PER RULE 8D OF THE INCOME TAX RULES. 2.THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR WARRANTY OF 53,066/-. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF 21,333/ UNDER SEC. 36(1)(VA) OF THE I. T. ACT. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMATION THE ADDITION OF 704 /- BEING DIFFERENCE IN RECONCILIATION OF AIR REPORT. 5. THE APPELLANT COMPANY CRAVES TO ADD TO, ALTER OR AMEND THE FOREGOING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER, AT THE TIME OF HEARING. ITA NO.3523/MUM/2012 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF A SUM OF R S. 31,61,504/- U/S. 14A OF THE INCOME TAX ACT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR WARRANTY OF RS.2,51,179/-. 3. THE APPELLANT COMPANY CRAVES TO ADD TO, ALTER OR AMEND THE FOREGOING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER, AT THE TIME OF HEARING. ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF IMPO RTING AND SELLING VARIOUS TYPES OF COMPUTER PERIPHERALS.DETAILS OF DATES OF FILING OF RETURNS,I NCOMES RETURNED,DATES OF ASSESSMENT,ASSESSED INCOMES, DATES OF ORDERS OF THE CIT(A)CAN BE SUMMAR ISED AS UNDER : AY. DATE OF FILING OF RETURN RETURNED INCOME (RS.) DATE OF ASSESSMENT ASSESSED INCOME (RS.) DT. OF ORDERS OF CIT(A) 2005-06 24.10.2005 17.97 LACS 19.09.2007 40.90 LACS 29 .10.2009 2008-09 30.09.2008 58.16 LACS 22.11.2010 89.75 LACS 10.06.2011 2009-10 26.09.2009 2.01 CRORES 22.04.2011 2.35 CRORES 12.03.2012 ITA NO.8725/MUM/2010 -AY.2005-06 2.FIRST GROUND OF APPEAL PERTAINS TO CONFIRMATION OF THE DISALLOWANCE OF PROVISION FOR WARRANTY FOR AFTER SALES SERVICE OF RS.10,10,378/-.DURING THE AS SESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.19.04 LACS AS WARRANTY REPLACEMENT EXPENSES.THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 19,04,996/- AS WARRANT Y REPLACEMENT EXPENSES.ON VERIFICATION OF THE DETAILS FURNISHED BY THE ASSESSEE, IT IS NOTICED TH AT THE EXPENSES INCLUDE PROVISIONS OF RS. 10, 10,378/-. HE DIRECTED THE ASSESSEE TO FILE JUSTIFIC ATION FOR THE CLAIM. AFTER CONSIDERING THE REPLY OF THE ASSESSEE DATED 3.9.2007 ,HE HELD THAT THE CONTE NTION OF THE ASSESSEE WAS NOT ACCEPTABLE,THAT AS PER SECTION 37(1), ANY EXPENDITURE (NOT BEING IN TH E NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF BUSINESS, SHOULD BE ALLOWED,THAT FOR CLAIMING DEDUCTION AMOUNT IN QUEST ION SHOULD HAVE BEEN LAID OUT OR EXPENDED DURING THE PREVIOUS YEAR ,THAT THE ASSESSEE HAD NOT INCURRED THE EXPENDITURE DURING THE YEAR UNDER CONSIDERATION,THAT IT HAD NOT FURNISHED THE BASIS O F ESTIMATE OF THE LIABILITY,THAT THE AMOUNT CLAIMED WAS NOTHING BUT A PROVISION FOR FUTURE EXPENDITURE THAT MIGHT OR MIGHT NOT BE INCURRED, THAT CONTINGENT LIABILITIES DID NOT CONSTITUTE EXPENDITU RE AND COULDNOT BE THE SUBJECT MATTER OF DEDUCTION EVEN UNDER MERCANTILE SYSTEM OF ACCOUNTING. FINALLY ,HE MADE A DISALLOWANCE OF RS.10.10 LACS . 2.1. AGAINST THE ORDER OF THE AO,ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER,HE HELD THAT 3 ITA NO.8725 /MUM/2010 MS. PRIYA LTD. THERE WAS NO MERIT IN THE CONTENTIONS OF THE APPELL ANT,THAT THE AO HAD DISALLOWED ONLY THE PROVISION OUT OF AGGREGATE AMOUNT OF RS 19.04 LAKH DEBITED AS WARRANTY EXPENSES,THAT THE ASSESSEEHAD BEEN ALLOWED DEDUCTION ON ACTUAL EXPENSES THAT NOTHING W AS BROUGHT ON RECORD THAT THE SAME WAS ASCERTAINED LIABILITY,THAT NO BASIS FOR ARRIVING A T THE FIGURE HAD BEEN FURNISHED,THAT AD HOC PROVISI ON COULD NOT BE ALLOWED,THAT THE EXPENDITURE WHICH WAS DEDUCTIBLE FOR INCOME TAX PURPOSES WAS ONE WHICH WAS TOWARDS A LIABILITY ACTUALLY EXISTING AT THE RELEVANT TIME,THAT PUTTING ASIDE OF MONEY WHICH MIGHT BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT WAS NOT AN ALLOWABLE ITEM,THAT CONTINGENT LIABILITIES DID NOT CONSTITUTE EXPENDITU RE AND COULDNOT BE SUBJECT MATTER OF DEDUCTION EVEN UNDER THE MERCANTILE SYSTEM OF ACCOUNTING,THAT IF THE LIABILITY HAD ACCRUED AND THOUGH DISCHARGED AT A LATER DATE WOULD BE DEDUCTIBLE, THA T IT SHOULD BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATI ON MIGHT NOT BE POSSIBLE, THAT IN THE CASE UNDER CONSIDERATION THESE FACTS WERE MISSING,THAT LIABIL ITY WOULD ARISE ONLY WHEN ANY CLAIM WAS MADE BY THE PURCHASERS AND NOT BEFORE.HE PLACED RELIANCE ON THE JUDGMENTS OF INDIAN MOLASSES CO. P.LTD (37 ITR 66),CALCUTTA CO.LTD (37ITR1) SAJJAN MILL LT D (156 ITR 585). HE FINALLY HELD THAT THE ASSESSEE HAD MADE A PROVIS ION REGARDING CHARGES PAYABLE IN TERMS OF SALE WHICH HAD NOT CRYSTALLISED ,THAT THE ASSESSEE FAILE D TO PROVE THE ACTUAL INCURRENCE OF LIABILITY UNDER THE WARRANTY CAUSE,THAT IN ABSENCE OF ANY SUCH DETA ILS, ACCEPTANCE OF THE CLAIM WITHOUT ANY BASIS COULD NOT BE ALLOWED,THAT THE AO WAS JUSTIFIED IN M AKING THE IMPUGNED DISALLOWANCE. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT THE ASSESSEE WAS INCURRING EXPENDI - TURE UNDER THE HEAD WARRANTY FOR AFTER SALES SERVIC E,THAT DURING THE YEAR ASSESSEE HAD INCURRED WARRANTY EXPENDITURE OF RS.9 LACS FOR THE YEAR UNDE R CONSIDERATION,THAT THE ASSESSEE HAD MADE PROVISIONS FOR THE FIRST TIME,THAT IN SUBSEQUENT YE AR NECESSARY ENTRIES WERE PASSED IN BOOKS OF A/CS.,THAT IN THE BALANCE-SHEET SAID FACT WAS MENTI ONED IN FORM OF A NOTE,THAT SALES OF THE ASSESSEE HAS INCREASED IN THE YEAR UNDER CONSIDERATION AS CO MPARED TO LAST YEAR,THAT PROVISION MADE WAS REASONABLE CONSIDERING THE SALES.HE REFERRED TO PAG E NO.1,11,12OF THE PAPER-BOOK (PB).HE RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT DELI VERED IN THE CASE OF ROTORK CONTROLS INDIA PVT.LTD.(314ITR62).HE ALSO REFERRED TO THE ORDER OF THE BANGALORE ITAT DELIVERED IN THE CASE OF LENOVO (INDIA)PVT.LTD.(21TAXMANN.COM.256).DEPARTMEN TAL REPRESENTATIVE (DR) SUBMITTED THAT NO SCIENTIFIC BASIS FOR CALCULATING WARRANTY WAS PROVI DED BY THE ASSESSEE,THAT ACTUAL EXPENDITURE HAD GONE DOWN WITH THE INCREASED SALES,THAT THERE WAS N O DIRECT RELATION WITH THE SALE,THAT PROVISION WAS AD-HOC AND COULD NOT BE ALLOWED.HE RELIED UPON THE CASE OF MICRO LAND INDIA LTD. (18TAXMANN.80- HIGH COURT OF KARNATAKA). 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.EXPENDITURE INCURRED BY AN ASSESSEE FOR WARRANTY LIABILITY IS ALLOWABLE EXPENDITURE,PROVIDED IT IS COVERED BY THE PRINCI - PLES ENUMERATED BY THE COURTS,FROM TIME TO TIME,IN THIS REGARD.AS PER THE ESTABLISHED LAW WARRANTY LIABILITY CAN BE CONSIDERED PART AND PARCEL OF THE SALE AND MIGHT BE ALLOWED IN COMPUTING THE TAXABLE INCOME.BUT,FOR CLAIMING THE ALLOWANCE ONE H AS TO FURNISH A FAIR, SCIENTIFIC AND REASONABLE BASIS TO THE AO.TO ARRIVE AT THE CONCLUSION THAT TH E ASSESSEE IS FOLLOWING A REASONABLE AND SCIENTIFIC METHOD WITH REGARD TO WARRANTY LIABILITIES,AS DIREC TED BY THE HONBLE SUPREME COURT IN THE MATTER OF ROTORK CONTROLS INDIA PVT.LTD.(SUPRA),FACTS AND FIGURES OF THE EARLIER YEARS ARE ESSENTIAL.BESIDES,AO SHOULD ALSO CONSIDER AS-WHAT W AS THE POLICY PRACTISED BY THE ASSESSEE IN EARLIER YEARS,WHAT WAS THE BASIS FOR CALCULATING A CERTAIN PERCENTAGE OF SALES FOR DETERMINING WARRANTY LIABILITY,AND WHAT WAS THE RATE OF REVERSA LS OF LIABILITIES IN THE EARLIER YEARS. WE FIND THA T IN THE CASE UNDER CONSIDERATION,THE ASSESSEE DID NOT P ROVIDE MATERIAL WITH REGARD TO WARRANTY LIABILITIESTO THE AO OR TO FAA DURING ASSESSMENT/AP PELLATE PROCEEDINGS. WE FIND THAT THE AO HAS SPECIFICALLY MENTIONED THAT ASSESSEE HAD FILED ANY BASIS OF CALCULATING THE AMOUNT OF WARRANTY.IT IS FOUND THAT ASSESSEE-COMPANY HAS NOT CERTIFIED THE P APER-BOOK AS REQUIRED BY RULE,18 OF ITAT,RULES 1963 AND IT HAS NOT MENTIONED THAT ALL T HE PAPERS,INCLUDING PAPER NO.1,WERE PRODUCED BEFORE THE AO.PG.1 OF THE PB CONTAINS BASIS OF WARR ANTY EXPENDITURE.IN ABSENCES OF THE CERTIFICATE AS WHETHER THE PAPER NO.1 WAS BEFORE THE AO OR NOT WE CAN SAFELY SAY THAT SAME WAS NOT MADE AVAILABLE TO HIM.EVEN IF IT WAS FURNISHED TO HIM,I N OUR OPINION IT IS OF NO USE.WE FIND THAT THE COMPANY HAS NOT SCRUTINISED THE HISTORICAL TREND OF WARRANTY PROVISIONS MADE AND COMPARED IT WITH THE ACTUAL EXPENSES INCURRED. APPELLANT HAS FA ILED TO PROVE THAT FIGURES FURNISHED BY IT ARE 4 ITA NO.8725 /MUM/2010 MS. PRIYA LTD. BASED ON A SENSIBLE ESTIMATE.WE FIND THAT EVIDENC E OF YEARLY REASSESSMENT OF SUCH ESTIMATESWERE NOT PRODUCED. IN OTHER WORDS APPELLA NT HAS NOT MAINTAINED DATA SYSTEMATICALLY.ASSESSEE HAS CLAIMED THAT GROSS SAL ES HAD INCREASED OVER THE YEARS.WE FIND THAT THE ASSESSEE IN NOT ONLY DEALING IN COMPUTER PERIPHERAL S, BUT IT IS ALSO ENGAGED IN THE BUSINESS OF EXPORTING OF CHEMICALS AND DYE STUFF,BULK PHARMACEU TICALS AND INTERMEDIARIES. IT IS NOT KNOWN WHETHER THE INCREASE IN SALES WAS RESULT OF SELLING OF COMPUTERS OR OTHER ITEMS.DR HAS RIGHTLY POINTED OUT THAT THERE IS NO CORRELATION BETWEEN TH E INCREASED SALES AND WARRANTY EXPENDITURE- EXPENDITURE ON WARRANTY LIABILITY HAS GONE DOWN WIT H INCREASE IN SALES.IN THESE CIRCUMSTANCES,WE ARE OF THE OPINION THAT PROVISION MADE BY THE ASSES SEE WAS FOR CONTINGENT LIABILITY.WE HAVE PERUSED THE JUDGMENTS DELIVERED BY THE HONBLE APEX COURT D ELIVERED IN THE CASE OF ROTORK CONTROLS INDIA PVT.LTD. (SUPRA).IN OUR HUMBLE OPINION THAT CASE RA THER SUPPORTS THE VIEWS EXPRESSED BY THE AO AND THE FAA.WE FIND THAT IN THE SUBMISSIONS MADE BY THE ASSESSEE HISTORICAL TREND OF WARRANTY PROVISIONS SENSIBLE ESTIMATEAND YEARLY REASSESSM ENT OF SUCH ESTIMATES WERE EXISTING. IN OTHER WORDS ASSESSEE HAS NOT MAINTAINED DATA SYSTEMATICA LLY, AS DESIRED BY THE HONBLE SUPREME COURT.IN THE CASE OF LENOVO (INDIA) PVT.LTD.(SUPRA) ASSESSEE COMPANY HAD TAKEN OVER BUSINESS FROM IBM. CONSIDERING THE ABOVE FACT TRIBUNAL HELD THAT AS IBM WAS MAKING PROVISIONS IN EARLIER YEARS,SO ASSESSEE CAN USE THE DATA FOR WARRANTY EXP ENDI -TURE.IT WAS FURTHER HELD THAT IF ESTIMATE WAS MADE ON A SCIENTIFIC BASIS,SAME COULD BE ALLOWED.IN THE MATTER BEFORE US,SCIENTIFIC DATA IS NOT AVAILABLE.IN THESE CIRCUMSTANCES WE HOLD THAT THERE IS NO NEED TO INTERFERE WITH THE ORDER OF THE FAA.UPHOLDING HIS ORDER WE DECIDE GROUND NO.1 AGAIN ST THE ASSESSEE. 3. NEXT GROUND OF APPEAL IS ABOUT ADDITION OF RS. 4,03 2/- UNDER SECTION 36(1)(VA) OF THE INCOME TAX ACT ON ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES CON TRIBUTION TO PROVIDENT FUND.DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD PAID THE EMPLOYEES CONTRIBUTION TOWARDS PF AMOUNTING TO RS. 4,032/- ON 21.3.2005 WHICH WAS DUE ON 15.3.2005. HE DISALLOWED THE SAME U/S. 36(L)(VA) OF THE ACT. 3.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE,HE HELD THAT THE APPELLANT HAS NOT MADE THE SAID PAYMENT EVEN WITHIN THE GRACE PERIOD OF 5 DAYS ,THAT DELAYED PAYMENT WAS NOT ALLOWABLE AS PER THE PROVISIONS OF THE ACT, THAT NONE OF THE DECISI ONS RELIED UPON WERE APPLICABLE TO THE FACTS OF THE CASE.FINALLY,HE UPHELD THE ORDER OF THE AO. 3.2. BEFORE US,AR SUBMITTED THAT THERE WAS DELAY ONLY OF FIVE DAYS , THAT PAYMENT OF EMPLOYEES CONTRIBUTION WAS MADE WITHIN THE FINANCIAL YEAR CON CERNED,THAT THERE WAS NO DEFAULT ON PART OF THE ASSESSEE.HE RELIED UPON THE JUDGMENTS OF AOMIL LTD. (321ITR508),ALOM EXTRUSIONS LTD. (319ITR306).DR SUBMITTED THAT AMOUNT IN QUESTION WA S CONTRIBUTION OF EMPLOYEES,THAT ASSESSEE HAD TO DEPOSIT IT ON DUE DATE. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.FROM THE ORDER OF THE AO AND THE FAA IT IS CLEAR THAT DISPUTED AMOUNT WAS PAID BEFORE THE END OF THE FINANCIAL YEAR I.E. ON 20.03.2005.COURTS ARE OF THE VIEW THAT IF THE PA YMENT IS MADE EVEN BEFORE DUE DATE OF FILING OF THE RETURN OF INCOME,IT HAS TO BE ALLOWED.IN THESE CIRCUMSTANCES, REVERSING THE ORDER OF THE FAA, WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART. ITA NO.5671/MUM/2011-AY.2008-09 4. FIRST GROUND OF APPEAL PERTAINS TO DISALLOWANCE CON FIRMED BY THE FAA U/S.14A OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD MADE INVESTMENT OF RS 3.52 CRORES,THAT NO DISALLOWANCE U/S.14A OF THE ACT WAS MADE BY IT.AFTER CONFRONTING THE ASSESSEE WITH RULE 8D R.W.S.14A PROVISIONS, HE MADE A DISALLOWANC E OF RS. 23.83 LAKHS. 4.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE,HE HELD THAT THE ISSUES ARISING OUT OF 5 ITA NO.8725 /MUM/2010 MS. PRIYA LTD. APPLICATION OF SEC. 14A AND RULE 8D WERE SETTLED BY GODREJ AND BOYCE MFG. LTD (43 DTR 177- BOM)IN WHICH IT WAS DECIDED THAT THE PROVISIONS OF RULE 8D WERE NOT ULTRA-VIRES ,THAT SUB SECTION (2) OF SECTION 14A WAS APPLICABLE FROM AY 2007 ONWA RDS,THAT THE PROVISIONS OF RULE 8D WERE APPLICABLE W.E.F. AY 2008-09,THAT THE AO HAD WORKED OUT THE DISALLOWANCE IN TERMS OF RULE 8D R.W.S.14A OF THE ACT.FINALLY, HE UPHELD THE ORDERS OF THE AO. 4.2. BEFORE US, AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT THE ASSESSEE HAD MADE LONG TERM INVESTMENT IN THE SHARES OF TWO GROUP COMPANIES M/S . VXL INSTRUMENTS LTD.(RS. 3.51 CRORES) AND M/S. GAURAV CHEMICALS LTD. (RS.1,00,000/-), THAT TH E ASSESSEE HAD BUSINESS TRANSACTIONS WITH THEM,THAT SHARES HELD AS INVESTMENT/ STOCK-IN-TRADE DID NOT HAVE ANY IMPACT ON THE APPLICABILITY OF THE SEC.14,THAT NO DIVIDEND WAS RECEIVED DURING THE YEAR, THAT THAT DIVIDEND INCOME DID NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE FOR THE YE AR UNDER CONSIDERATION, THAT NO EXPENDITURE WAS INCURRED FOR DOING THE TRANSACTION OF INVESTMENT IN THE SHARES WHICH RESULTED IN ANY DIVIDEND INCOME,THAT THERE WAS NEITHER ANY TAX FREE INCOME N OR ANY EXPENDITURE HAD BEEN INCURRED DURING THE YEAR,THAT DISALLOWANCE MADE U/S. 14A READ WITH RULE 8D WAS NOT JUSTIFIED. DR SUPPORTED THE ORDER OF THE FAA. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT AO HAS NOT MENTIONED ANYWHERE AS HOW MUCH EXEMPT INCOME WA S DECLARED BY THE ASSESSEE-COMPANY FOR THE YEAR UNDER CONSIDERATION.HE HAS ALSO SILENT ABO UT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING SUCH INCOME.HE HAS DISALLOWED RS. 23.83 LAC S ON THE ASSUMPTION THAT ASSESSEE HAD MADE INVESTMENT IN SHARES OF TWO COMPANIES AND MUST HAVE EARNED EXEMPT INCOME. AO/FAA HAS NOT ENQUIRED ABOUT THE INVESTMENTS MADE BY THE ASSESSEE AND THE AVAILIBILITY OF FUNDS WITH IT. BOTH OF THEM HAVE DISCUSSED THE LEGAL PRINCIPLES, BUT HAVE TOTALLY MISSED THE FACTS.IN OUR OPINION,IF NO EXEMPT-INCOME WAS SHOWN BY THE ASSESSEE IN THE RETU RN OF INCOME AND NO EXPENDITURE WAS CLAIMED BY IT TO EARN SAID INCOME,PROVISIONS OF SECTION 14A AS WELL AS RULE 8D WOULD NOT BE APPLICABLE.AS THE FAA HAS NOT DISCUSSED THESE VITAL ISSUES BEFORE REJECTING THE CLAIM OF THE ASSESSEE,SO,WE ARE UNABLE TO ENDORSE HIS VIEWS.IN SHORT,THE BASIC FACT S OF CLAIM OF EXEMPT INCOME AND INCURRING EXPENSES FOR EARNING THE SAID INCOME ARE MISSING IN THE MATTER UNDER CONSIDERATION.THEREFORE, REVERSING THE ORDER OF THE FAA,WE DECIDE GROUND NO. 2 IN FAVOUR OF THE ASSESSEE. 5. NEXT GROUND OF APPEAL ABOUT WARRANTY EXPENDITURE. W HILE DECIDING THE APPEAL FOR THE LAST AY., WE HAVE DECIDED IDENTICAL ISSUE AGAINST THE ASSESSE E. FOLLOWING THE SAME,GROUND NO.2 STANDS DISMISSED. 6. THIRD GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS. 21,333/- U/S 36(1)(VA) OF THE ACT. AO MADE THE SAID DISALLOWANCE ON ACCOUNT OF DELAY IN PAYMEN T OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND BEYOND GRACE PERIOD OF FIVE DAYS AFTER DUE DAT E.WE HAVE DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE WHILE DISPOSING GROUND NO.2 FOR THE PR EVIOUS ASSESSMENT YEAR. FOLLOWING THE SAME,GROUND NO.3 IS DECIDED IN FAVOUR OF THE ASSES SEE. 7.LAST GROUND OF APPEAL IS ABOUT ADDITION OF RS. 70 4/-, BEING DIFFERENCE IN RECONCILIATION OF AIR REPORT. BEFORE US,SAID GROUND WAS NOT PRESSED. GROUND NO.4 STAND DISMISSED,AS NOT PRESSED. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED IN PART. ITA NO.3523/MUM/2012 AY- 2009-10 8. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS. 31.61 LACS MADE BY THE AO AND AFFIRMED BY THE FAA U/S 14A OF THE ACT R.W. RULE 8D. 8.1. WE FIND THAT IDENTICAL ISSUE FOR THE EARLIER YEAR H AS BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE.FACTS AND CIRCUMSTANCES OF THE CASE ARE SI MILAR THAT OF THE PREVIOUS ASSESSMENT YEAR- EXCEPT THE FACT THAT THE ASSESSEE HAD MADE FURTHER INVESTMENT OF RS. 9.85 LACS WITH ONE OF THE GROUP COMPANIES.THERE IS NO EVIDENCE ON RECORD THAT ASSES SEE HAD CLAIMED ANY EXPENDITURE OR EXEMPT- 6 ITA NO.8725 /MUM/2010 MS. PRIYA LTD. INCOME IN THE RETURN OF INCOME FILED BY IT FOR THE YEAR UNDER CONSIDERATION.THEREFORE, REVERSING THE ORDER OF THE FAA,WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE. 9. LAST GROUND OF APPEAL IS ABOUT CONFIRMATION OF DISA LLOWANCE OF PROVISION FOR WARRANTY OF RS.2,51,179/-. 9.1. WE HAVE DECIDED THE IDENTICAL ISSUE AGAINST THE ASS ESSEE FOR THE EARLIER AYS.AS NO NEW FACTS WERE BROUGHT TO OUR NOTICE,SO,FOLLOWING THE ORDER O F THE EARLIER YEARS,WE DECIDE GROUND NO.2 AGAINST THE ASSESSEE. AS A RESULT, APPEALS FILED BY THE ASSESSEE FOR ALL THE THREE ASSESSMENT YEARS I.E. AY 2005-06, AY 2008-09 AND AY 2009-10 ARE ALLOWED IN PART. ' 1 !'(-! * (!3 ! '4( !. . 2005-06, 2008-09 (# 2009-10 ) * 8 0 1 * ( 9:. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND AUGUST,2013 . 0 * -.' 8 ;! 2 VXLR , 2013 . * / < SD/- SD/- ( . = = = = . . B.R.MITTAL ) ( / RAJENDRA ) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, ;! /DATE: 2 ND AUGUST,2013 SK 0 0 0 0 * ** * %(> %(> %(> %(> ?>'( ?>'( ?>'( ?>'( / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT (A) / @ A , 4. THE CONCERNED CIT / @ A 5. DR C BENCH, ITAT, MUMBAI / >B/ %(! , . . . 6. GUARD FILE/ / C &>( &>( &>( &>( %( %(%( %( //TRUE COPY// 0! / BY ORDER, D / 9 DY./ASST. REGISTRAR , /ITAT, MUMBAI