JCIT, BANGALORE V. M/S HEWLETT PACKARD INDIA SALES P. LTD., BANGALORE

ITA 1252/BANG/2015

AI Insights

The case involves cross-appeals by HP India Sales Pvt. Ltd. and the Joint Commissioner of Income Tax against the appellate order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2010-11. The appeals pertain to various disallowances made by the AO under sections 143(3) and 144C of the Income Tax Act, 1961, which were partly contested and partly upheld by the CIT(A). The Tribunal's decision addressed issues such as the treatment of warranty expenses, vendor rebates, and the application of tax deduction at source on various expenditures.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775391 (ITAT-BANGALORE)
• Duration Of Justice: 9 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 23-09-2015
• Other Referred Cases: Hero Motocorp Ltd (156 TTJ 139), ICDS Ltd Vs. CIT, Mysore and ANR in Civil Appeal No.3282 of 2008, Saurashtra Cement & Chemical Industries Ltd (213 ITR 523)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PERCY PARDIWALA
• Keywords: Capital asset; Additional evidence; Business expenditure; Bad and doubtful debts; Depreciation; Income from undisclosed sources; Capital expenditure; TDS; Non-deduction of tax; Bogus
• Section: 143(3); 142(1); 131; 234B; 37; 37(1); 40(a)(ia); 194C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.1245/Bang/2015 Assessment year : 2010-11 HP India Sales Pvt. Ltd. [formerly Hewlett-Packard India Sales Pvt. Ltd.], 24, Salarpuria Arena, Hosur Main Road, Adugodi, Bangalore – 560 030. (PAN: AAACC 9862F) Vs. The Joint Commissioner of Income Tax, LTU, Bangalore. APPELLANT RESPONDENT ITA No.1252/Bang/2015 Assessment year : 2010-11 The Joint Commissioner of Income Tax, LTU, Bangalore. Vs. HP India Sales Pvt. Ltd. [formerly Hewlett-Packard India Sales Pvt. Ltd.], Bangalore – 560 030. APPELLANT RESPONDENT Assessee by : Shri Percy Pardiwala, Sr. Advocate Revenue by : Shri Shivanand Kalakeri, CIT(DR)(ITAT) Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 2 of 70 Date of hearing : 11.06.2025 Date of Pronouncement : 08.09.2025 O R D E R Per Prashant Maharishi, Vice President 1. ITA No. 1245/Bangalore/2015 filed by H P India Sales Private Limited [the assessee/appellant] and ITA No. 1252/Bangalore/2015 filed by The Joint Commissioner Of Income Tax, Large Taxpayer Unit, Bangalore (ld. Assessing Officer/AO) are cross appeals for assessment Year 2010–11 against the appellate order passed by The Commissioner of Income Tax (Appeals)–14, Large Taxpayer Unit, Bangalore (ld. CIT–A) dated 24/7/2015 wherein the appeal filed by the assessee against the assessment order passed under section 143(3) read with section 144C of The Income Tax Act, 1961 (The Act) passed by the learned AO on 24/3/2014 was partly allowed. 2. Therefore, both the parties are aggrieved with the appellate order and are in appeal before us. The assessee has preferred following grounds of appeal in ITA number 1245/B/2015: - “Based on the facts and circumstances of the case, Hewlett-Packard India Sales Private Limited (\"HPISPL\" or \"the Appellant\") respectfully submits that: 1. The Learned Commissioner of Income tax (Appeals) - Large Taxpayers Unit (\"CIT(A)\"] has erred in not specifically adjudicating on the grounds preferred by the Appellant, against various adverse comments / remarks made by the Joint Commissioner of Income-tax, Large Taxpayers Unit (\"AO\") in Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 3 of 70 the assessment order and holding that these matters are general in nature and do not require separate adjudication. 2. The CIT(A) has erred in law and on facts, on one hand, appreciating the Appellant's difficulty in collating the information sought and on the other hand, stating that the AO has granted sufficient opportunity to furnish data called for, by merely referring to notices issued and order sheet notings, without correlating the voluminous information sought, time granted, and details / information furnished by the Appellant during the course of assessment proceedings. 3. Toners and Cartridge 3.1 The CIT(A), having accepted Appellant's explanation on claim of deduction in respect of toner and cartridge, has erred in law and on facts in directing the AO to disallow expenses of Rs 4,608,132 for Assessment Year (\"AY\") 2010-11, merely stating that invoice dates for these expenses are not in Financial Year (\"FY\") 2009-10, without appreciating the accounting procedures / policies followed by the Appellant as per the mercantile system of accounting; 3.2 The CIT(A) has erred in law and on facts in stating that the accounting procedure followed by the Appellant is not in tune with mercantile accounting principle. 3.3 Without prejudice to the above ground, the CIT(A) has erred in law and on facts in not directing the AO to grant relief for the alleged expenses in the respective previous year to which invoice is dated, given that the genuineness of the expense is not doubted, and the amount has not been claimed twice. 4. Claim of deduction under section 40(a)(i) and section 40(a)(ia) of the Act 4.1 The CIT(A), having accepted the Appellant's contention that appropriate TDS has been deducted wherever applicable in the subsequent year, has erred in law and on facts in upholding the disallowance in respect of reversal of expenses in FY 2009- 10, which were considered as a part of disallowance under section 40(a)(i) and section 40(a)(ia) of the Act. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 4 of 70 4.2 The CIT(A) has erred in law and on facts in stating that, where original accrued liability has been reversed, claim of the Appellant cannot be accepted, since the evidence in the form of reasons for reversals and line-item wise details of the same were not available for verification. 4.3 The CIT(A) has erred in law and on facts, in not appreciating the Appellant's contention that denial of claim in respect of reversal of expenses would lead to double taxation, as the expenses were disallowed under section 40(a)(i) and section 40(a)(ia) of the Act in AY 2009-10 for non-deduction of taxes. 4.4 Without prejudice to the above, the CIT(A) has erred in law and on facts, in upholding the disallowance in respect of reversal of expenses. 5. Miscellaneous expenses 5.1 The CIT(A), having accepted Appellant's explanation on claim of deduction of miscellaneous expenses, has erred in law and on facts in directing the AO to disallow expenses having invoice dates prior to April 1, 2009, without appreciating the accounting procedures / policies followed by the Appellant as per the mercantile system of accounting. 5.2 Without prejudice to the above ground, the CIT (A) has erred in law and on facts in not directing the AO to grant relief for the alleged expenses in the respective previous year to which invoice is dated, given that CIT(A) has stated that the genuineness of the expense is not doubted. 6. Expenses debited as 'cost of goods sold' 6.1 The CIT(A) has erred in law and on facts in upholding the addition in respect of 'Accruals - products spare parts scrapped' of Rs 4,900,009 for want of evidence, without appreciating that the Appellant had furnished substantial evidence in respect of addition made under head 'Product spare parts scrapped' during Appellate proceedings and which also was accepted by the CIT(A). Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 5 of 70 6.2 The CIT(A), has erred in law and on facts in upholding the addition made on account of Vendor rebates Rs 58,147,794, merely for want of additional evidence. 6.3 The CIT(A), having accepted Appellant's claim of deduction in respect of custom brokers, has erred in law and on facts in directing the AO to disallow expenses having invoice dates prior to April 1, 2009, without appreciating the accounting procedures / policies followed by the Appellant as per the mercantile system of accounting. 6.4 Without prejudice to the above, the CIT(A) has erred in law and on facts in not directing the AO to grant relief for the alleged expenses in the respective previous year the invoice pertains to, given that CIT(A) has stated that the genuineness of the expense is not doubted. 7 Outside contract services 7.1 The CIT(A), having accepted Appellant's claim of deduction in respect of outside contract services, has erred in law and on facts in directing the AO to disallow expenses having invoice dates earlier to April 1, 2009, without appreciating the accounting procedures / policies followed by the Appellant as per the mercantile system of accounting. 7.2 Without prejudice to the above ground, the CIT(A) has erred in law and on facts in not directing the AO to grant relief for the alleged expenses in the respective previous year to which invoice is dated, given that CIT(A) has stated that the genuineness of the expense is not doubted. 8 Disallowance of demonstration expenses 8.1 The CIT(A) has erred in law and on facts by upholding the disallowance in respect of demonstration expenses amounting to Rs 6,316,692 for want of additional evidence. 8.2 The CIT(A) has erred in law and on facts in failing to appreciate the explanation provided by the Appellant pertaining to the nature of the expenses, given that deduction was claimed in Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 6 of 70 relation to demonstration equipment, which were utilized as samples for the purpose of generating sales. 8.3 The CIT(A) has erred in law and on facts by not appreciating that the facts of the decision of the Honourable Delhi Income Tax Appellate Tribunal (\"ITAT\") in the case of Hero Motocorp Ltd (156 TTJ 139) are squarely applicable in the Appellant's case. 9. Provision for warranty — Outside Contract Services 9.1 The CIT(A), having accepted Appellant's claim of deduction in respect of provision for warranty - outside contract services, has erred in law and on facts in directing the AO to disallow expenses having invoice dates earlier to April 1, 2009, without appreciating the accounting procedures / policies followed by the Appellant as per the mercantile system of accounting. 9.2 Without prejudice to the above ground, the CIT (A) has erred in law and on facts in not directing the AO to grant relief for the alleged expenses in the respective previous year to which invoice is dated, given that the genuineness of the expense was not doubted. 10. Other Grounds 10.1 The CIT(A) has erred in law and on facts in not adjudicating on short grant of TDS by the AO and merely referring to the rectification application, which is pending for disposal before the AO. 10.2 The CIT(A) has erred in law and on facts in stating that the interest is mandatory and consequential without appreciating that the AO has levied interest under section 234B and section 220(2) of the Act on the demand raised under section 143(1) of the Act for the same period. 10.3 The CIT(A) has erred in law and on facts by failing to appreciate that the manner of computation of interest under section 234B of the Act is inaccurate resulting in computation of interest on interest under section 234B of the Act. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 7 of 70 10.4 The CIT(A) has erred in law and on facts by not directing the AO to consider interest under section 234C of the Act as per the return of income filed by the Company. 10.5 The CIT(A) has erred in law and on facts by not adjudicating the ground on penalty proceedings. Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Honourable Income tax Appellate Tribunal to decide this appeal according to law.” 3. The learned assessing officer has preferred following grounds of appeal in ITA number 1252/Bangalore/2015 as under: - “1. The order of CIT(A) is opposed to the facts and law in so far as the below issues decided against the revenue. 2. The CIT(A) erred in deciding the issue of addition of Rs.203,11,57,705/-towards income received in advance in favour of the assessee and in directing the AO to allow appropriate TDS credit which was restricted in AY 09-10 is to be allowed to the extent of income recognized in AY 10-11 when the issue has not become final, and appeal is pending with ITAT for A.Y.09-10. 3. The CIT(A) erred in directing the AO to delete the addition made towards suppression of sale of goods-discounts and other adjustments amounting to Rs.1038,88,98,234/-. 4. The CIT(A) erred in directing the AO to delete the addition made on account of suppression of sales detected from reconciliation. 5. The CIT(A) erred in directing the AO to delete the addition made on account of discount on service income of Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 8 of 70 Rs.1210,72,35,796 based on additional evidence submitted before the CIT(A) without giving an opportunity to the AO. 6. The CIT(A) erred in directing the AO to delete the addition made on account of lease rent as capital expenditure by wrongly relying on the Hon'ble Supreme Court's decision in the case of M/s. ICDS Ltd Vs. CIT, Mysore. And ANR in Civil Appeal No.3282 of 2008. 7. The CIT(A) erred in directing the AO to delete the addition made on account of Provision for spar parts of Rs.40,30,72,850/- based on additional evidence without giving an opportunity to the AO based on additional evidence without giving an opportunity to the AO. 8. The CIT(A) erred in directing the AO to delete the addition made on account of defective spare parts of Rs.5,47,92,966/- based on additional evidence without giving an opportunity to the AO. 9. The CIT(A) erred in directing the AO to verify the disallowance made on account of miscellaneous expenditure of Rs.2,25,13,253 and restrict the disallowance only to those claims for which the invoices are dated prior to 1/4/2009. 10. The CIT(A) erred in directing the AO to delete the addition made on account of other provisions of Rs.3,99,95,033/- on the ground that reversal of provision of sales tax has been reflected in the financial statement based on additional evidence without giving an opportunity to the AO. 11. The CIT(A) erred in directing the AO to delete the addition made on account of expenditure under the head 'cost of goods sold based on the additional evidence submitted before the CIT(A) based on additional evidence without giving an opportunity to the AO. 12. The CIT(A) has erred in remitting back the issue relating to the disallowance made on account of outside contract service amounting to Rs.36,14,59,731/ back to the file of the AO for fresh consideration. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 9 of 70 13. The CIT(A) has erred in directing the AO to delete the addition made on account of audit actual entries u/s.37 of Rs.28,31,39,077. 14. The CIT(A) has erred in directing the AO to delete the addition made on account of provision of warranty Of Rs.144,54,92,317. 15. The CIT(A) has erred in directing the AO to delete the addition made on account of excess depreciation of Rs.3,63,88,324/-. 16.The CIT(A) has erred in directing the AO to partly allow the addition made on account of suppression of income detected from 26AS statement of Rs.278,65,19,835/-.” 4. Facts in brief as culled out from the orders of the learned lower authorities shows that the assessee is an Indian company incorporated on 2.9.1997 engaged in the business of trading of computer systems components and rendered certain support services. It filed its return of income on 13.10.2010 at a total taxable income of ₹ 1,436,040,795/-. This return was processed under section 143 (1) of the Act and subsequently return of income [ROI] was picked up for scrutiny by issuing notices u/s. 143(2) and 142(1) of the Act. During the assessment proceedings, summons u/s.131 of the Act was also issued for various details and information which was furnished by the assessee subject to the observation in the assessment order. 5. The assessment proceedings culminated into an assessment order passed u/s.143(3) r.w.s. 144C of the Act dated 24.3.2014 wherein the learned AO made the following adjustment/addition/disallowance. Sl. Nature of addition/disallowance Amount rupees Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 10 of 70 No. 1 Suppression of income detected from 26AS statement 278,65,19,835 2 Suppression of sale of goods 138,88,98,234 3 Suppression of sales detected from reconciliation statement 30,97,85,727 4 Disallowance of discount and service income 1,210,72,35,796 5 Addition of income received in advance 203,11,57,705 6 Disallowance of 40 (a) and 40 (a) (I) 93,08,45,488 7 Disallowance of lease rent as capital expenditure 4,38,55,450 8 Disallowance of demonstration equipment written off 63,16,692 9 Disallowance of provision for spare parts 40,30,72,850 10 Disallowance of defective spare inventory 5,47,92,966 11 Disallowance of miscellaneous expenditure 2,25,13,253 12 Disallowance of other provisions 3,99,95,033 13 Expenditure debited under the head cost of goods sold 84,98,42,348 14 Outside contract service 36,14,59,731 15 Date of approval and disallowed under section 37 28,31,39,077 16 Provision for warranty 144,54,92,317 17 Disallowance of access the appreciation 3,63,88,324 6. Assessee preferred appeal before the ld. CIT(A) who passed appellate order on 24/7/2015 partly allowing the appeal of the assessee as under: - Sl. No. Nature of addition/ disallowance Amount In Rs. Decision of CIT(A) 1 Suppression of income detected from 26AS statement 278,65,19,835 Deleted at Para 18.2 Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 11 of 70 2 Suppression of sale of goods 138,88,98,234 Deleted as per para 3.9 3 Suppression of sales detected from reconciliation statement 30,97,85,727 Deleted as per para 4.3 4 Disallowance of discount and service income 1,210,72,35,796 Deleted as per para 5.5 5 Addition of income received in advance 203,11,57,705 Deleted as per para 2.3 6 Disallowance of 40 (a) and 40 (a) (I) 93,08,45,488 Partly Deleted as per para 6.4 7 Disallowance of lease rent as capital expenditure 4,38,55,450 Deleted as per para 13.1 8 Disallowance of demonstration equipment written off 63,16,692 Deleted as per para 14.2 9 Disallowance of provision for spare parts 40,30,72,850 Partly deleted as per para 7.3 10 Disallowance of defective spare inventory 5,47,92,966 Deleted as per para 8.5 11 Disallowance of miscellaneous expenditure 2,25,13,253 Partly deleted as per para 9.3 12 Disallowance of other provisions 3,99,95,033 Deleted as per para 10.4 13 Expenditure debited under the head cost of goods sold 84,98,42,348 Partly Deleted as per para 11.1.1 – 11.5 14 Outside contract service 36,14,59,731 Partly deleted as per para 12.2 15 Date of approval and disallowed under section 37 28,31,39,077 Partly deleted as per para 15.2 16 Provision for warranty 144,54,92,317 Partly deleted as per para 16.2.1 – 16.4.1 Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 12 of 70 17 Disallowance of excess the depreciation 3,63,88,324 Deleted as per para 17.4 7. Thus, as demonstrated in the above table, both the parties are aggrieved and are in appeal before us. The ld AO has preferred the appeal against the additions/ disallowances deleted and Assessee is in appeal against the additions/ disallowances sustained. 8. First, we take up the appeal file by the ld. AO and also deal with connected grounds of appeal of assessee. 9. Ground No. 1 is general in nature, ground no 1 -2 of the appeal of the assessee, are general in nature, no arguments advanced and hence dismissed. 10. Ground no. 2 is against the deletion of the addition made by the ld.AO of ₹ 2,031,147,705 towards income received in advance and the direction of the ld. CIT(A) to the ld.AO to allow appropriated TDS credit which was restricted in assessment year 2009-10 to be allowed to the extent of income recognized in assessment year 2010-11 when the issue has not become final, and appeal is pending with the appellate authority for assessment year 2009-10. 11. Ground no 2 is :- “2. The CIT(A) erred in deciding the issue of addition of Rs.203,11,57,705/-towards income received in advance in favour of the assessee and in directing the AO to allow appropriate TDS credit which Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 13 of 70 was restricted in AY 09-10 is to be allowed to the extent of income recognized in AY 10-11 when the issue has not become final and appeal is pending with ITAT for A.Y.09-10.” 12. Facts related to the issue on in AY 2009-10 shows that it was found that assessee company is differing the income of the annual maintenance contracts on the ground that the revenue would be recognized over the period of contract time and are not at the time of raising of the invoice. Even though the revenue was deferred, the entire TDS credit has been claimed by the assessee in the year of raising of the invoices. Tus, assessee though receiving the total income involved in the contract receipt of maintenance in this year, though contract was pertaining for several years, offered the income received in this year only proportionate to the years of contract, but claimed TDS of the total amount deducted at the time of receipt of income. Accordingly, the notice was issued by the AO calling for the various details. The assessee did not furnish any information but requested for adjournment. And therefore, a summons u/s. 131 of the Act was also issued to the managing director in response to which the assessee furnished the written submission which was considered by the ld.AO and accordingly the issue was decided. The ld.AO was of the view that in several cases there was no revenue recognition in subsequent year and the opening balances have been carried forward to next year, in other cases only part of the income was recognized leaving huge balances outstanding. If it is the balance amount of earlier year automatically the entire balance amount should have been admitted in the next year on Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 14 of 70 the ground that assessee has claimed that they are recognizing the revenue and day-to-day basis. One year contains 365 days. If the revenue of 200 days is recognized in the first year, then the balance revenue of 165 days is to be recognized in the next year. The ld.AO further extracted a table at page No. 39 of the assessment order and analyzed those table and accordingly it was concluded that the income is deferred by the assessee company in the subsequent years and same was also not offered for taxation. According to the AO the claim of the company that out of ₹ 261.60 crores, a sum of ₹ 149.52 crores was offered in the AY 2009-10 was not accepted. Thus, the ld. AO found that assessee company has not admitted the income of ₹ 2,616,125,327/– which was the opening balance of the income received in advance. It was claimed that out of the above sum ₹ 149,52,98,015/– was recognized. The ld. AO did not find it correct. The ld. AO found that the assessee company has entered various contracts and raised the invoices for a sum of ₹ 5,193,828,624/–. This income not only accrues to the assessee but also received during the year. Out of this the company has admitted only a sum of Rs. 16,26,70,559/– as revenue and the balance amount of ₹ 2,031,157,705/– was deferred. According to the AO the Income Tax Act did not permit any such deferment and therefore this addition was made. 13. The ld. CIT(A) held that identical issue arose in the case of the assessee for AY 2009-10. In that year it was stated that for the subsequent AY 2011-12, ld. AO did not make any adjustment on this account. During appellate proceedings, the assessee furnished details Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 15 of 70 for revenue recognized contract-wise out of the current year billing and from the opening balance of income received in advance. Assessee also furnished about 30 copies of the signed contracts as sample evidence relevant for FY 2009-10. The ld. CIT(A) examined the same and found that issue is identical for AY 2009-10. The ld. CIT(A) held that the income recognition method has been correctly followed by the assessee. Accordingly, as per decision taken by him for earlier years that the claim of tax deduction at source by the assessee is restricted to the amount of income reflected from the maintenance business of the assessee, He held that revenue recognized from the opening balance as on 1/4/2009 the assessee is entitled for the appropriate tax credit. Tus, the ld CIT (A) directed the ld AO to grant credit of the TDS relevant to opening income received in advance balance which is offered for taxation during the year and also grant credit t only to the extent of income offered in this year by the assessee. 14. Aggrieved with the same, ld. AO is in appeal and stated that the addition deleted by the learned ld. CIT(A) and direction to grant credit based on the appellate order passed for AY 2009-10 is not proper as such appellate order is also pending before Tribunal. Therefore, the decision is premature as the issue has not become final. 15. The ld. AR vehemently submitted that similar addition has been deleted and TDS restrictions directed in taxpayer’s case for AY 2009-10 and in AY 2008-09. It was submitted that for AY 2008-09 no further appeal is filed by the taxpayer and revenue before ITAT. It was further stated Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 16 of 70 that no addition has been made on similar issue in any other past or future years. Therefore, there is no infirmity in the order of the ld. CIT(A). 16. We have carefully considered the rival contention and perused the orders of the learned lower authorities and find that the issue is with respect to the income received in advance and when it is offered for taxation. The ld. CIT(A) found that similar issue has been examined by the learned first appellate authority based on the details furnished by the assessee of revenue recognized contract wise out of current year billing and from the opening balance of income received in advance. The assessee further submitted 30 copies of the signed contracts for the respective assessment year. The assessee has recognized the income out of such contracts on time basis as per the mercantile method of accounting. It is not disputed that this method of accounting has not been followed by the assessee every year. No infirmity is pointed out by the learned DR in the method of accounting regularly followed by the assessee, or there is any qualification by the auditor or the directors. Thus, we do not find any infirmity in the method of accounting regularly followed by the assessee which has been accepted by the revenue for several years and it is disturbed only for those 2 assessment years. With respect to the claim of the TDS, ld. CIT(A) has directed the ld. AO to allow the credit of tax deduction at source on a pro rata basis related to the opening balance of the income received in advance which is offered for taxation during this year. We find that the above direction is also in accordance with the provisions of section 199 read with rule Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 17 of 70 37BA(3)(i) of the Income Tax Rules. Accordingly, we do not find any merit in ground No. 2 of the appeal, hence dismissed. 17. Ground Nos. 3 – 5 of the appeal is against the deletion of the addition of ₹ 1038, 88, 98,234/– made by the ld. AO towards the suppression of the sale of goods – discounts and other adjustment as under :- 3. The CIT(A) erred in directing the AO to delete the addition made towards suppression of sale of goods- discounts and other adjustments amounting to Rs.1038,88,98,234/-. 4. The CIT(A) erred in directing the AO to delete the addition made on account of suppression of sales detected from reconciliation. 5. The CIT(A) erred in directing the AO to delete the addition made on account of discount on service income of Rs.1210,72,35,796 based on additional evidence submitted before the CIT(A) without giving an opportunity to the AO. 18. Brief facts shows that assessee has disclosed the sales of ₹ 683,96,20,218/- . This was required to be reconciled along with the sales tax return. Assessee submitted that gross sales as per sales tax return was ₹ 77,023,098,793/– and as per service tax return was ₹ 8,161,729,987/–. Thus, the gross turnover of the assessee was ₹ Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 18 of 70 85,184,828,780/–. The difference was explained by the assessee by submitting a chart. It was stated that a sum of 165,86,78,346/– is cash discount which was not considered in sales tax returns , sum of ₹ 6,729,421,699/– is a post sales discount, and a sum of ₹ 1,085,284,444/– was booking in discount account. Thus, there is no difference in the sales shown in the income tax return and the sales tax return which is not accepted by the ld. AO. According to him, if those discounts are genuine, the assessee company should have admitted entire sale into the profit and loss account and discount should have been debited into the profit and loss account. According to him, in the present case huge sales was suppressed by posting several discounts in the books of accounts for which no evidence was given by the assessee company. The huge discount being post sale discount and Discount were shown by the assessee. The discounts were also verified from 2 vendors which shows that the discount was not in order. It was also not known to the ld. AO whether such cash discount was paid in cash or account payee cheques. Therefore, he held that the way such discount was claimed, the confirmation letter given by the company, response from the vendors, enquiry from respective assessing officer and other circumstantial evidence available on record has revealed that such discounts are not genuine. He was of the view that without getting hundred percent confirmation letter and cross verification of such discount, it cannot be allowed as a deduction based on self-declaration of the assessee company. He further held that it is the modus operandi of the assessee to suppress the sale by claiming such bogus discount. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 19 of 70 As the assessee company failed to substantiate the discount, he made an addition of ₹ 9,473,384,489/- as a suppression of sales. 19. The ld. AO further noted that there is a difference of ₹ 1,223,122,856/– on account of credit notes posted to the revenue accounts but excluded in the sales tax return of ₹ 62,253,136/–, service tax and reverse charge mechanism of ₹ 689,946,829/–, write off/refund/return of ₹ 71,067,815/-, sale of capital assets and raw material included in sales tax return but not in product sales amounting to ₹ 307609111/– and toner and cartridges cost of ₹ 92,245,965/–. With respect to sale of capital assets and raw material included in sales tax return but not included in the product sales, the assessee did not offer any explanation. With respect to service tax on reverse charge, as in none of the earlier assessment years’ service tax on reverse charge was claimed the ld. AO rejected the claim. He also confirmed the other adjustment on account of his findings for earlier years. 20. Assessee approached the ld. CIT(A), who deleted the addition of the cash discount of ₹ 1,658,678,346/– holding that the assessee has furnished before him party wise details of discount duly indicating invoice numbers, gross value, discount amount, net sales value matching to the ledger balances debited to the profit and loss account along with the details of the bank payments and reference in which the cash discount was settled with the customers. He further verified the early payment discount policy of the company and copy of the customer ledger extracts of six major customers covering more than Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 20 of 70 95% of the discount amount. Thus, it was found that the similar evidence was collected for AY 2009-10 and that the cash discount is an intrinsic part of the appellant’s business. Thus, the addition was deleted. 21. With respect to the post sales discount the ld. CIT(A) held that assessee has furnished the breakup of discount and the level of different programs detailing the layout which are mapped to its customers with document number, remittance details etc. Simple copies of the program letters were also produced which indicated the existence of posts sales discount as a regular feature in the assessee’s business as incentive mechanism. Therefore, as in the similar circumstances, the addition for AY 2009-10 was also deleted, he deleted the addition. 22. With respect to the addition of ₹ 1,085,284,444, the ld. CIT(A) noted that these are in respect of the lease rentals, identical issue was decided for AY 2009-10 and therefore on the similar logic, he deleted the addition. 23. With respect to the credit notes posted to the revenue account but excluded in sales tax return of ₹ 62,253,136/– ld. CIT(A) noted that assessee filed sample evidence of various States sales tax regulations and details of the credit notes which were deducted from the gross turnover declared in the sales tax return beyond a certain period which is six months. It was claimed that if the discount is beyond six months from the date of sales, it is not allowed in the sales tax return according Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 21 of 70 to the respective Sales Tax Act of the States. The ld. CIT(A) deleted the said addition after verification of the detail. 24. With respect to the service tax on reverse charge ₹ 406,547,840 based on the evidence of the Microsoft license related service tax. ₹ 689,946,829, the justification was given by the ld. CIT(A)in para No. 3.7.3 of his order wherein it has been held that it was an inadvertent mistake in the reconciliation statement wherein the assessee has wrongly been shown as service provider instead of service receiver. The ld. CIT(A) held that services are received as an import of service from Microsoft licenses and assessee is a service recipient therefore the above disallowance does not survive as it has nothing to do with sales. 25. With respect to the write off of ₹ 71,067,815, the ld. CIT(A) noted that this write offs are normal business operation of the assessee which are written off on account of reason of long ageing of debt , difference in prices, disputes on claims and non-recoverability. It is continuing business operations with the customer, and it is in the nature of bad debts written off. The ld. CIT(A) examined the same and found that the impugned amount constitutes a regular business expenditure and is supported by the due process and the details and therefore it was deleted. 26. With respect to the addition of ₹ 92,245,965/– the ld. CIT(A) noted in paragraph No. 3.9 that the products are sold to the customers by the assessee as part of its ordinary course of business. When assessee requires the toners and cartridges for its own internal consumption, it Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 22 of 70 purchases its supply from its customers to whom such products were sold earlier. The assessee provided the complete details with invoices for the owners and cartridges purchased along with 21 invoices. The ld. CIT(A) on examination of invoices found that the sample invoices submitted by the assessee are pertaining to FY 2008-09, but it has the stamp date of FY 2009-10. Therefore, he held that according to the accounting principles since the invoices are of FY 2008-09 it can be conclusively held that the expenditure in question had fully accrued in that year. There was no reason for its accrual in FY 2009-10. Accordingly, he held that this expenditure could have been claimed only in AY 2009-10 to the extent of ₹ 4,608,132/– since their corresponding revenue was accounted for in that period. According to him, the claim cannot be admitted in the impugned assessment year and therefore he directed the ld. AO to restrict the above disallowance to the extent of ₹ 4,608,132/-. 27. The ld. AO is aggrieved with the deletion of the balance addition and assessee is aggrieved as per ground number 3 with respect to upholding of the disallowance to the extent of ₹ 4,608,132/–. 28. The ld. AO aggrieved with the same is in appeal before us. It was submitted that the ld. AO has categorically held that the bogus discounts are given by the assessee and therefore the ld. CIT(A) merely following his appellate order for AY 2009-10 is not proper. It was therefore submitted that the addition made by the ld. AO is correct and order of the ld. CIT(A) is not sustainable. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 23 of 70 29. The learned AR categorically referred to the identical addition deleted by the ld. CIT(A) for AY 2009-10 and AY 2008-09 wherein the assessee was allowed the claim and the appeals are not preferred before the higher forum. Therefore, the issue has become final. He further stated that no addition has been made in similar matters in any other past or future years. With respect to the addition sustained by the ld. CIT(A) of ₹ 4,608,132/–, it was submitted that the ld. CIT(A) has directed the amounts to be disallowed based on the dates of the invoices being in the previous year and failed to appreciate that the date representing on it is current year on which the invoices were approved. It was submitted that though invoices were pertaining to the earlier year but same are approved and accounted for in this year. He submitted that the issue is squarely covered in favour of assessee by the decision of the Hon’ble Gujarat High Court in case of Saurashtra Cement & Chemical Industries Ltd (213 ITR 523). He submits that it is not the date of invoices, but it has been approved and liabilities admitted is relevant for allowance of expenditure. According to him, that is the date of incurring of the expenditure and therefore the ld. CIT(A) is incorrect. 30. On the disallowance of above sum on toner and cartridges, the ld. DR vehemently supported the order of the ld. CIT(A) and submitted that when the assessee has failed to produce the evidence that the bills are pertaining to the relevant financial year, but pertaining to earlier financial year, the same could not have been allowed to the assessee as Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 24 of 70 the expenditure were pertaining to the earlier years and not for this year. 31. On ground No. 5, the ld. DR vehemently submitted that the ld. CIT(A) admitted certain additional evidence and has not given an opportunity to the ld. AO to rebut or verify the same and therefore the disallowance deleted is without giving a proper opportunity to the AO. 32. In rejoinder, the ld. AR submitted that the AO has made the identical disallowance in respect of earlier years, and for this year also he has made the disallowance on similar details and therefore all these details were available before the AO, books of accounts and the other details were produced before the AO and therefore now it cannot be said that he was not given a proper opportunity of hearing before the ld CIT (A). . He submitted that assessee substantiate its claim which was made by producing similar details before the learned AO. Assessee has not submitted any additional evidence . Thus, the ld CIT (A) on appreciation of the same details have deleted the disallowance. The assessee has submitted and supported the grounds of appeal. 33. We have carefully considered the rival contention and perused the orders of the ld. lower authorities. It is apparent that the discount of ₹ 9,473,384,489/– is a difference between the income tax return and respective sales tax return filed by the assessee. The assessee has shown that there is a cash discount of ₹ 1,658,678,346/–, post sales discount of ₹ 6,729,421,699/– and bookings in discount account of ₹ 1,085,284,444/–. It was found that cash discount was substantiated by Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 25 of 70 the assessee showing the extensive details before the ld. CIT(A). The similar item of the discount was also part of the appeal for FY 2009-10. It was also held that the cash discount is intrinsic part of the appellant’s business. The ld. AO has failed to show that the discount is bogus by producing any evidence. In view of this we do not find any infirmity in the order of the ld. CIT(A) in deleting the addition made by the ld. AO with respect to the cash discount of ₹ 1,658,678,346/–. 34. With respect to the post sales discount of ₹ 672,94,21,699 it was found that that the assessee has furnished the breakup of the discount at the level of different programs and schemes launched by the assessee for sales promotion. The assessee has provided complete details along with the copies of the program letter also. It was also found to be a regular feature in the assessee’s business as sales incentive mechanism. Identical disallowance was deleted for AY 2009-10 which is not challenged and therefore we also do not find any infirmity in the order of the ld. CIT(A). 35. With respect to the credit posted to the revenue account of ₹ 62,253,136 which is related to the sales discount of various states where the sales tax regulation prohibited the reduction of credit notes from the gross turnover declared in sales tax return beyond a period of six months. This difference was explained by the assessee by filing the respective sales tax return and the financial statements along with party wise credit note and the invoice details of the amounts. The ld. CIT(A) verified this. Neither the ld. DR pointed out any infirmity, nor we Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 26 of 70 could find any reason to deviate from the order of the ld. CIT(A). Therefore, we confirm the order of the ld. CIT(A). 36. With respect to the service tax reverse charge of ₹ 689,906,829, we find that it was a mistake where the assessee was disclosed originally as service provider, but the assessee is the service recipient and therefore the disallowance could not have been made. It is a matter of common sense that the assessee has paid reverse charge service tax only on receipt of service and not on provision of service. It was not related to sales at all but purchases from its principal. Accordingly, the ld. CIT(A) has correctly deleted the addition. 37. With respect to the refund in return reserve of ₹ 71,067,815 which is in the form of bad debts , ld. CIT(A) noted that this write offs are normal business operation of the assessee which are written off on account of reason of long ageing of debt , difference in prices, disputes on claims and non-recoverability. It is continuing business operations with the customer, and it is in the nature of bad debts written off. The ld. CIT(A) examined the same and found that the impugned amount constitutes a regular business expenditure and is supported by the due process . The ld DR could not controvert the findings of the ld CIT (A). According to us also , based on the verification , the ld CIT (A) has correctly deleted the addition. Therefore, we do not find any infirmity in the order of the ld. CIT(A) who examined the complete details of the claim based on the evidence and no infirmity was pointed out by the ld. DR. Thus, the order of the ld CIT (A) is confirmed. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 27 of 70 38. Assessee is in appeal as per ground no 3 of the appeal:- 3. Toners and Cartridge 3.1 The CIT(A), having accepted Appellant's explanation on claim of deduction in respect of toner and cartridge, has erred in law and on facts in directing the AO to disallow expenses of Rs 4,608,132 for Assessment Year (\"AY\") 2010-11, merely stating that invoice dates for these expenses are not in Financial Year (\"FY\") 2009-10, without appreciating the accounting procedures / policies followed by the Appellant as per the mercantile system of accounting. 3.2 The CIT(A) has erred in law and on facts in stating that the accounting procedure followed by the Appellant is not in tune with mercantile accounting principle. 3.3 Without prejudice to the above ground, the CIT(A) has erred in law and on facts in not directing the AO to grant relief for the alleged expenses in the respective previous year to which invoice is dated, given that the genuineness of the expense is not doubted, and the amount has not been claimed twice. 39. However, with respect to the toner and cartridges of ₹ 92,245,965 which was shown by the assessee by submitting the invoices, we find that though the invoices may be pertaining to the earlier year, but they were admitted as a liability during this year. Hon’ble Gujarat High Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 28 of 70 Court in case of Saurashtra Cement and Chemical Industries Ltd (supra) wherein it has been held as under:- 9. Question No. 5 relates to the expenditure of Rs. 39,823 actually incurred during the previous year but was not allowed as deduction from the profit of the previous year on the ground that the liability in respect of various expenses included in the aforesaid sum had arisen in the earlier previous year and not in the relevant previous year and as the assessee maintained the accounts on mercantile system, the same was not allowable expenses of the previous year in question. 10. From the statement of the case and the order of the Tribunal it appears that the contention of the assessee was that the expenditures in dispute were incurred in the year under consideration because they were quantified in the previous year concerned, and the Commissioner (Appeals) rest contended by saying that when the expenses related to the earlier accounting years, how each of these expenses could be quantified in the year of consideration. The Tribunal affirmed the disallowance by observing that there is no dispute that the assessee- company maintained its books of account on mercantile basis. It was observed that if that is so, there was no justification in claiming these expenses for the assessment year under appeal. Having considered the material on record, we do not find any justification for the disallowance of the claim of the assessee on such abstract proposition. Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during the previous year so as required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years, it cannot be disallowed as deduction merely on the basis that the accounts are maintained on mercantile basis and that it related to a transaction of the previous year. The true profits and gains of a previous year are required to be computed for the purpose of determining tax liability. The basis of taxing income is accrual of income as well as actual receipt. If for want Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 29 of 70 of necessary material crystallising the expenditure is not in existence in respect of which such income or expenses relates, the mercantile system does not call for an adjustment in the books of account on estimate basis. It is actually known income or expenses, right to receive or liability to pay which has come to be crystallised, is to be taken into account under mercantile system of maintaining books of account. An estimated income or liability, which is yet to be crystallised, can only be adjusted as contingency item but not as an accrued income or liability of that year. To illustrate, we find from the details of the expenses that certain expenses are related to the fees paid to the experts, out of pocket expenses incurred by the consultation firm and discharge of liability on account of demurrages claimed by the port authorities. Such items without investigation into the fact about the crystallization of such dues cannot be disallowed merely on the ground that they relate to the transactions pertaining to earlier accounting year. In this connection it is useful to refer to a decision of the Gauhati High Court in the case of CIT v. Nathmal Tolaram [1973] 88 ITR 234 which was a case arising under the Indian Income-tax Act, 1922, as to the interpretation of section 10(2) (xv) which is corresponding to section 37(1) of the 1961 Act. The question related to the claim of deduction on account of the sales tax liability paid during the year 1957-58, whereas the liability related to the accounting year 1949-50. The Division Bench in that case observed as under: \". . . Under section 4 of the Income-tax Act, the income that accrues or arises during any previous year alone is to be taken note of. There is, therefore, a bar to include any income that accrues or arises outside the previous year subject to the deeming provisions in the Act. There is, however, no express bar in law, nor one by necessary implication, restricting the power of the Income-tax Officer to exclude the expenditure laid out or expended under section 10(2) (xv) of the 1922 Act. We are, therefore, unable to accede to the submission of the learned counsel for the department. Section 10(2) (xv) , shorn of other details for our purpose, provides for making allowances of any expenditure 'laid out' or 'expended'. The words 'laid out' are with reference to the mercantile system while the word 'expended' is with regard to the cash system. Once there was the sales tax demand in this case, which was an enforceable liability and as such a real expenditure, for which the assessee laid out the amount by debiting his account in the accounting year which was also the year of Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 30 of 70 demand of the department, deduction can be legitimately claimed under section 10(2) (xv) . Here is a case, where there is no doubt about the genuineness of the expenditure. There is also the compulsiveness in the sales tax demand which can be ignored only at peril of the assessee. This expenditure had never been taken note of in the earlier years for one reason or the other. In the absence of any legal bar in the way of the assessee claiming this expenditure in the year of demand for which provision has already been made in his accounting year, deduction under section 10(2) (xv) is permissible in law and has been rightly allowed by the Tribunal. \" (p. 238) We are in respectful agreement with the said view expressed by the Gauhati High Court. We, therefore, answer question No. 5 in the negative, i. e. , in favour of the assessee and against the revenue.” 40. Thus, respectfully following the decision of Honourable Gujarat High court [ supra] , We direct the ld. AO to delete the above disallowance. 41. We have also found that the ld. AO has made the disallowance based on the reconciliation of the sales tax return and the books of accounts of the assessee. The ld. AO has made the pointed disallowances running into each rupee by giving the detailed reasons. It is not the case that assessee did not provide reconciliation before him but before the ld CIT (A). There is no application of admission of additional evidence filed before the ld CIT (A). It is the claim of the ld AR that all those details which were available before the ld AO were made available to ld CIT (A). Ld DR also did not show us what are the additional evidence filed by the assessee before the ld CIT (A) . Thus, we find that the assessee has merely supported its case by producing the invoices and reconciliation only. Therefore, we do not find any reason that the ld. CIT(A) examine the same detail in greater depth has Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 31 of 70 resulted into any injustice to the revenue. Thus, we do not find any merit in ground no 5 of the appeal. 42. In the result ground Nos. 3–5 of the appeal of the ld. AO are dismissed, further ground No. 3 of the appeal of the assessee is also allowed. 43. As we have already allowed Ground no 3 of the appeal of the assessee , relying on the decision of Honourable Gujarat high court that the expenses are incurred as and when the liability accrues by accepting the claim of the other party and not based on the date of invoice, both the parties agreed that Ground nos 5,7 and 9 of the appeal of the assessee also involves identical ground, as facts are same their arguments are also same, as we have already allowed ground no 3 of the appeal of the assessee. for same reason we also allow Ground no 5 , 7 and 9 of the appeal of the assessee. 44. Ground No. 6 is against the deletion of the addition made by the ld. CIT(A) holding that lease rents are not capital expenditure. 6.The CIT(A) erred in directing the AO to delete the addition made on account of lease rent as capital expenditure by wrongly relying on the Hon'ble Supreme Court's decision in the case of M/s. ICDS Ltd Vs. CIT, Mysore. And ANR in Civil Appeal No.3282 of 2008. 45. The brief fact shows that in the computation of income assessee has claimed a sum of ₹ 43,855,450 on account of lease payments. The assessee was asked to submit the claim with the copy of the lease Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 32 of 70 agreement, The assessee furnished its reply. The ld. AO noted that identical issue arose in case of the assessee for AY 2009-10 wherein the lease rent paid for motor car under Finance lease agreement was held to be a capital expenditure. Accordingly for this year also the same was disallowed. 46. When the matter reached before the ld. CIT(A), he noted identical issue has been considered and allowed in favour of the assessee for AYs 2002-03 and 2003-04 by holding that in case of Finance lease transaction the lessor is the owner of the asset, is eligible for claiming depreciation. For this year, decision was rendered after considering the decision of the Hon’ble Supreme Court in which it was also found to be applicable for that appeal also. Accordingly, the ld. CIT(A) allowed the claim in favour of the legal expenditure. 47. The ld. AO aggrieved with the same is in appeal before us and the learned CIT DR reiterated the finding of the ld. AO and the grounds of appeal. 48. The learned AR vehemently stated that the above issue is squarely covered in favour of the assessee by the decision of the Hon’ble Karnataka High Court in taxpayers’ own case for AY 2004-05 and 2009-10 by the order of the ld CIT (A). ld. AO did not bring any further appeal. Therefore, it was stated that the decision of the Hon’ble Supreme Court considered by the ld. CIT(A) is the only issue of grievance. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 33 of 70 49. We have heard the rival contention and perused the orders of the learned lower authorities. It was not disputed by the ld. CIT-DR that the issue is covered by the decision of the Hon’ble High Court in assessee’s own case for AY 2004 – 05 and further when the CIT(A) has allowed the claim of the assessee for AY 2009-10 was not agitated before the higher forum. On careful consideration of the findings of the ld. CIT(A) it is apparent that he has categorically considered the decision of the Hon’ble Supreme Court in case of ICDS Limited v. CIT. Accordingly the ground of appeal raised by the ld. AO does not have any merit and hence dismissed. 50. Ground No.7 is against the deletion of the addition made by the ld. CIT(A) of Rs. 40,30,72,815/– on account of provision of spares and the claim of the ld. AO is that the ld. CIT(A) allowed the claim based on the additional evidence without giving an opportunity to the AO. 7. The CIT(A) erred in directing the AO to delete the addition made on account of Provision for spar parts of Rs.40,30,72,850/- based on additional evidence without giving an opportunity to the AO based on additional evidence without giving an opportunity to the AO. 51. Brief facts as per paragraph No. 9 of the assessment order shows that the assessee has debited a sum of is 40,30,72,850/– as provision for spares inventory, for repairs etc. and reduced it in the closing stock. Assessee was asked to provide evidence by issue of show cause notice. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 34 of 70 Assessee company furnished the Ledger account of the provision for inventory and written submission was furnished. As the assessee company did not furnish invoice copies and evidence, show cause notice was issued. The assessee furnished the extract of Ledger account of the inventory and gave the explanation that to record the value of repair parts which are in excess of normal usage criteria, but which have not been physically segregated for disposition are provided for. The ld. AO found that the explanation of the assessee is unverifiable, and it is a reduction in the spares inventory and to the extent the profit of the company is reduced. It was further noted that in profit and loss account in schedule 14 the cost of goods sold, and services are disclosed. The spares including third-party products and services was disclosed in that schedule which has an opening stock of ₹ 2,089,450,628/–. The current purchases were 286,87,91,757/- . The closing stock was shown at ₹ 1,667,034,831/– on account of the above provision, sum of ₹ 403,072,815 was reduced from the inventory of the closing stock or account of obsolescence and provisioning, but the assessee did not furnish any evidence and therefore same was disallowed. 52. Assessee approached the ld. CIT(A), and same Ledger was produced which showed that there is an opening balance of ₹ 56,63,63,787, out of which the provision was reversed during the year of ₹ 163,290,936 which left the closing balance of ₹ 403,072,851. It was claimed by the assessee that the ld. AO has referred to the provision account as per trial balance and not the provision debited or credited to the profit and Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 35 of 70 loss account. Even the rectification application was moved by the assessee which was also not disposed of. Based on this explanation, the ld. CIT(A) noted that there is no provision created in the impugned assessment year therefore the disallowance cannot stand and hence deleted the same. 53. The ld. DR reiterated the findings of the ld. AO submitting that assessee failed to furnish any information and therefore it has resulted into the addition. 54. The ld. AR submitted that addition made by the ld. AO on the closing balance in respect of provision for spare and there has been a net reduction in the provision of the spares during the impugned assessment year. There is no provision made during the year and therefore after verification of all the details, the ld. CIT(A) has reached a categorical finding that there is no provision made by the assessee during the year which is claimed as deduction and therefore the disallowance is correctly deleted. 55. We have carefully considered the rival contention and perused the orders of the ld. lower authorities. The ld. AO has made the addition based on the trial balance when the provision is outstanding at the end of the year. The assessee has submitted a Ledger account wherein it is apparent that the provision of the opening balances reduced in the end of the year by way of further reversal of the provision. Therefore, there is no debit to the profit and loss account and no claim of expenditure as deduction during the year is made and hence the ld. CIT(A) is correct Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 36 of 70 in deleting the addition. The same Ledger account was available before the ld. AO and therefore the ground of appeal raised by the learned AO deserves to be dismissed. Accordingly same is dismissed. 56. Ground No.8 is related to the defective inventory of spares. 8. The CIT(A) erred in directing the AO to delete the addition made on account of defective spare parts of Rs.5,47,92,966/- based on additional evidence without giving an opportunity to the AO. 57. The ld. AO on examination of the trial balance found that a sum of ₹ 54,792,966 was debited as a defective spare parts inventory and found that closing stock of inventory is reduced. The assessee was asked to furnish the details. The assessee submitted the Ledger account of inventory spares and stated that to record the estimated cost to repair and refurbishment on defective spare parts inventory the above amount is shown in the trial balance. Ld AO held that assessee did not provide information with evidence, hence in absence of any evidence, the learned assessing officer disallowed the same. 58. The assessee approached the ld. CIT(A), assessee explained that as per the Ledger account opening balance was ₹ 34,551,899 and provision made during the year was of ₹ 20,241,067 year being the closing balance of ₹ 54,792,966/–. The learned assessing officer instead of taking the provision made during the year of ₹ 20,241,067/– looked at the trial balance and made an addition of ₹ 54,792,966/–. It was Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 37 of 70 submitted that refurbished value standard cost which approximates the actual cost has been used to value spare parts inventory by the assessee at the end of the year. It was admitted that this methodology was the company’s internal policy applicable only for valuing spare parts inventory in India. The refurbished value standard was explained that it is a weighted average cost based on regional purchasing pattern wherein the service organization meets the customer demand by purchasing new parts as well as repairing the defective units. Since the cost to repair is much lower than purchasing a new part, the inventory value is blending between the new and repair cost. This blending is achieved by using the receipt quantities over a specified period of time which best reflects the end balance in the Ledger. This value is updated at least quarterly, based upon changes in purchase price, repair cost and changes in sourcing volume and/or makes. The length of the blending window will be reassessed on an annual basis. For the purpose of the valuation of the defective parts it was explained that it is refurbished valuation as Net repair the standard and cannot be less than zero. Net repair standard cost is the cost to repair a defective part subject to applicable warranty relief. This methodology was explained and verified by learned CIT – A with sample evidence in the form of materials identified from the warehouses as being defective along with the Net repair standard. The learned CIT – A produced the table at paragraph number 8.4 of the order and subsequently he found that the identification of the defective value and refurbished value standards are identified on a scientific and technical basis and is not computed in an Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 38 of 70 ad hoc or arbitrary manner and therefore it cannot be considered as a contingent liability. He held that the provisioning has the component of certainty and is made on scientific basis , hence, is to be allowed as an expenditure in the computation of profit for the year. Accordingly, he allowed the claim of the assessee deleting the disallowance. 59. The learned assessing officer aggrieved with the same is in appeal before us, the learned CIT DR vehemently supported the finding of the learned assessing officer. 60. The learned authorized representative vehemently supported the order of the Ld. CIT – A and submitted that no such addition/disallowance is made on the similar matter in any of the other past or future years. 61. We have carefully considered the rival contentions and perused the orders of the learned lower authorities. The learned assessing officer has made the addition of the closing balance in respect of provision for spare parts and not the actual provision made during the year. The details of the opening balance, provision made during the years and resultant closing balance have been verified by the learned CIT – A, sample invoices and methodology of making the provision was also ascertained and found to be made on scientific and consistent basis, no such disallowance is made in the earlier years or in the subsequent years but for this year only, the liability of the expenditure is not contingent in nature, the ld. CIT (A) correctly allowed the claim of the assessee. Accordingly, we find no infirmity in the order of the learned Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 39 of 70 CIT – A deleting this disallowance. Accordingly ground number 8 of the appeal is dismissed. 62. Ground number 9 is with respect to the miscellaneous expenditure disallowed by the learned assessing officer deleted by the learned CIT – A. Ld. AO has raised following ground :- 9. The CIT(A) erred in directing the AO to verify the disallowance made on account of miscellaneous expenditure of Rs.2,25,13,253 and restrict the disallowance only to those claims for which the invoices are dated prior to 1/4/2009. 63. It was found during the course of the assessment proceeding that assessee has debited a sum of ₹ 62,360,929/– as miscellaneous expenditure, the assessee was asked to furnish the evidence. Assessee submitted the broader details of such expenditure stating that recruitment expenses is ₹ 8,730,216, miscellaneous expenditure is ₹ 22,513,253 and donation and charity is of ₹ 3,11,17,462 which comprises in the total miscellaneous expenditure of ₹ 62,360,929. The assessee was asked to explain the details of ₹ 22,513,253 which was stated to be submitted by furnishing the Ledger account for miscellaneous expenditure stating that these are reimbursement of employee expenses, subscription charges, tender submission charges etc. The learned assessing officer held that assessee failed to submit further evidence, the disallowance was made. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 40 of 70 64. The learned CIT – A decided the issue in paragraph number 9 of his appellate order stating that he has verified the details of the impugned expenditure along with 36 sample invoices. On the basis of verification found that certain invoices are related prior to 1/4/2009 and therefore he confirmed the disallowance to that extent and deleted the balance disallowance holding that on verification of these data the genuineness of the assessee this expenditure has not been questioned. Assessee is also aggrieved with the above appellate order and also in appeal as per ground number 5. 65. The learned departmental representative vehemently supported the orders of the learned assessing officer and submitted that when the assessee has not submitted any details before the learned assessing officer, the AO did not get an opportunity to verify the same and therefore the learned CIT – A is not correct in deleting the addition. 66. The learned authorized representative vehemently supported the order of the learned CIT – A holding that in similar circumstances in assessee’s own case for assessment year 2008 – 09 and assessment year 2009 – 10 the similar disallowances are deleted, and the revenue has not preferred further appeal before the tribunal. No disallowance of identical nature has been raised in any of the other past or future years. 67. We have carefully perused the arguments of the learned representative and also the orders of the learned lower authorities. As we have already allowed the ground number 5 of the appeal of the assessee following Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 41 of 70 the decision of the honourable Gujarat High Court, no discussion is required here. 68. With respect to the ground no. 9 of appeal of the AO it is clear that the learned CIT – A has verified the details of the expenditure, after minutely verifying the same, he has directed the learned assessing officer to verify the details and restrict the disallowance only to those claims for which the invoices dated prior to 1/4/2009. Therefore, we do not find any infirmity in the direction of the learned CIT – A for verification of the details and thereafter allow it. As stated earlier there is no evidence that assessee furnished any additional evidence , but the ld CIT (A) perused the same evidence which were before ethe ld AO, we do not agree that the ld AO is required to be given one more opportunity of verifying the details once again. The ld DR could not point out any error in the process of verification adopted by the ld CIT (A). Thus, ground number 9 of the appeal is dismissed. 69. Ground number 10 of the appeal is with respect to disallowance of the other provisions amounting to ₹ 39,995,033/– which was debited as other provisions in the profit and loss account. Ground is :- 10. The CIT(A) erred in directing the AO to delete the addition made on account of other provisions of Rs.3,99,95,033/- on the ground that reversal of provision of sales tax has been reflected in the financial statement based on additional evidence without giving an opportunity to the AO. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 42 of 70 70. The AO noted that it is not added back in the computation of income and therefore the assessee was asked to furnish the reply. The assessee did not furnish the reply and it was noted by the learned assessing officer that the other provision was the additional provision on account of sales tax. He disallowed the same. 71. The assessee agitated the same before the learned CIT – A dealt with this issue on verifying the details that in the statement of the computation of total income the sum of ₹ 3,303,900,731 is already added back. He has also verified the computation of the total income and put a copy thereof at page number 36 of his appellate order. Accordingly, he held that the disallowance is unjustified. 72. The ld. AO aggrieved with the same is in appeal, the learned CIT DR supported the order of the learned AO whereas the assessee relied upon the computation of total income and the details of the above expenditure. 73. We have carefully considered the rival contention and the orders of the learned lower authorities. The learned CIT – A has categorically stated that the addition of the above sum has already been made by the assessee in the computation of total income and therefore the addition made by the learned assessing officer is altogether not required. The paragraph number 10.2 of the order of the learned CIT – A shows complete bifurcations of the amount of the disallowance as per the Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 43 of 70 financial statement and amount of disallowance as per form number 3CD furnished along with the return wherein the differential amount is the amount of payment made before the due date of filing of the return of income. Accordingly, no infirmity is shown to us in the order passed by the learned CIT – A in deleting the disallowance. Accordingly ground number 10 of the appeal is dismissed. 74. Ground number 11 of the Appeal is. 11. The CIT(A) erred in directing the AO to delete the addition made on account of expenditure under the head 'cost of goods sold based on the additional evidence submitted before the CIT(A) based on additional evidence without giving an opportunity to the AO. 75. It is with Respect to the Various Expenditure Debited as Cost of Goods Sold Wherein the Learned assessing officer noted that assessee has debited the expenditure of services IC billing labour of ₹ 287,631,467/– , products part scrapped of ₹ 743,250,205/–, vendor’s rebate of ₹ 58,147,794/–, obsolescence materials ₹ 61,045,442/- and customs brokers ₹ 24,26,86,608/-. The Ld. assessing officer was of the view that these expenses are debited under the head cost of goods sold and these expenses are tracked for the provision of the tax deduction at source which the assessee company is required to furnish evidence of all the expenditure as well as the evidence of deduction of tax. The assessee was given an adequate time to furnish the above details however Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 44 of 70 despite this the assessee did not make any submission but furnished the return of tax deduction at source. This made the learned AO to examine the evidence on his own in the statement. Thus, the assessing officer made the disallowance of ₹ 849,842,348/– out of the above expenditure. The learned assessing officer was also of the view that the assessee has merely provided the Ledger extracts of some of the expenditure and therefore for want of evidence also the disallowance was made. 76. The assessee aggrieved with the same preferred an appeal before the learned CIT – A wherein the assessee submitted the evidence in soft copy with respect to product spare parts scrapped and also sample copies of invoices linked to the tax deduction at source wherever applicable. The learned CIT – A referred to the service billing labour charges of ₹ 287,631,461 and directed the learned assessing officer to delete the disallowance wherein he found that sum of ₹ 241,361,166 out of the claim has been accounted in a different general ledger code which had been subsequently reversed during year self and therefore to that extent no disallowances could have been made. For the balance sum of the above expenditure the details maintained by the assessee produced before him support the claim and therefore he directed the learned AO to delete the same. 77. With respect to the product spare parts, he found that out of the total sum of ₹ 200,337,037/– the details with respect of ₹ 4,900,009/– are Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 45 of 70 not available for verification and therefore the disallowance was restricted to the above sum and the balance disallowance was deleted. 78. With respect to the vendor’s rebate, it was found that the claim about is not backed by any evidence such as copy of the original contract for marketing of Microsoft products and evidence of the negotiation process and further the claim remains a self-serving one, he confirmed the disallowance. 79. With respect of the obsolescence of material amount into ₹ 61,045,442/– he verified the Ledger account along with the inventory listing showing the provisions created in respect of the aged inventory. As the provision was based on the accounting policy and technical basis, it was allowable. Accordingly, he held that it is not in the nature of a contingent liability and allowed the claim. 80. With respect to the custom broker expenditure of ₹ 24.26 crores he verified the party wise details of the custom brokers, Taxes withheld etc. which have been furnished before the assessing officer as well as before him. On verification of the invoices, he found that some of the invoices are also pertaining to earlier years, and therefore he restricted the disallowance to that extent only. 81. Assessee is also aggrieved by the above order and challenge the same as per ground number 6 of appeal, the ld. AO is in appeal as per ground number 11. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 46 of 70 82. The learned CIT DR vehemently supported the order of the learned assessing officer as far as the addition is deleted by the learned CIT – A. With respect to the claim of the assessee in ground number 6, she supported the order of the learned CIT – A stating that when there is no evidence available that expenses are not pertaining to this year, the disallowance has rightly been confirmed. 83. The learned authorized representative with respect to the addition deleted by the learned CIT – A confirmed that there is no disallowance of identical nature made in the past or future years. On similar disallowances made in case of the assessee for assessment year 2009 – 10 has already been deleted. He referred to the various paragraphs of the appellate order and submitted that there is no infirmity in the disallowance deleted. 84. Coming to ground number 6 of the appeal of the assessee he vehemently submitted that product spare parts scrapped represents the year end accrual entries and should have been allowed as a deduction. With respect to the vendor debate it is submitted that the copy of the Ledger was submitted before the ld. AO and the first appellate authority which represents reversal of the portion of the income pertaining to the Microsoft vendor rebate accounted by the taxpayer in the previous year. The disallowance of the same amount would result in the same income being offered to tax twice. The learned CIT – A has failed to appreciate the submission made by the assessee in respect of the assessment year. With respect to the expenditure disallowed by Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 47 of 70 the learned CIT – A as it is pertaining to the earlier years, he relied on the decision of the honourable Gujarat High Court referred to in ground number three of the appeal of the assessee. 85. Assessee has also made a written submission with respect to the disallowance of service billing of labour amounting to ₹ 287,631,467 stating that complete details were submitted before the lower authorities in the form of Ledger extract, party wise details of the expenses and tax deducted at source thereon along with the sample invoices and the summary of the different general ledger code which are reversed. 86. We have carefully considered the rival contention and perused the orders of the learned lower authorities. With respect to the disallowance of service billing labour charges, the learned CIT – A has categorically held that out of the above, sum of ₹ 241,361,166 has been reversed and the balance sum is found to be subject to deduction of tax at source wherever it is required. The details maintained by the assessee supported the claim made by the assessee. The learned departmental representative could not show us any reason that whether the expenses are nongenuine or not incurred or are not forming the cost of goods sold, and therefore we do not find any infirmity in the order of the learned CIT – A to that extent. 87. With respect to the product spare parts scrapped of ₹ 200,337,037/– we find that the assessee has maintained adequate details which have been Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 48 of 70 submitted before the learned lower authorities and the claim of the assessee was verified and it was allowed in part. 88. With respect to the disallowance of ₹ 49 Lacs it was stated that no details are available for verification and therefore the disallowance was confirmed. We find that the assessee submits that a sum of ₹ 49 Lacs is the accrual entries passed under the head cost of goods sold at the end of the year. The explanation of the assessee has not been correctly appreciated by the lower authorities. We direct the assessee to explain the above accrual entries passed under the head cost of goods sold on the year end, the learned assessing officer is directed to verify and if found in the order, the disallowance may be deleted. 89. With respect to the vendor rebate of ₹ 58,147,794/– the claim of the assessee is that the above sum is rebate received in the company transaction in respect of the marketing activities carried out in India by the assessee for Microsoft products. The sum of ₹ 282,511,842 was offered for taxation in financial year 2008 – 09. Out of the above amount, there is a reversal of accrual for vendor rebates in this year which has resulted due to negotiation in the matter of marketing of the products. It is in fact the reversal of income. The learned CIT – A confirmed the disallowance on the basis of absence of evidence. However, he failed to appreciate that it is a reversal of income which have been already offered for taxation in the earlier year, therefore the addition confirmed by the learned CIT – A is not correct, we direct the learned AO to delete the disallowance. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 49 of 70 90. With respect to the obsolescence material, we find that the learned CIT – A has given a concrete finding that it is based on continuing policy and technical basis for which the provision is made, and it is not contingent. Any provision made on the basis of sound accounting policy and on the basis of prudence and further quantified on technical basis, which could be found fault with such provision cannot be disallowed. We do not find any infirmity in the order of the learned CIT – A in deleting the disallowance. 91. With respect to the customs broker the learned CIT – A examined the detail which was furnished before the assessing officer showing party wise details of brokers, Taxes withheld etc. and also verified the invoices. On such verification he came to know that certain invoices are also pertaining to the earlier year, and he confirmed the disallowance to that extent only. Therefore, we do not find any infirmity in the order of the learned CIT – An as far as he has deleted the addition based on the verification. 92. Further with respect to the disallowance confirmed by him holding that certain payments are based on the invoices pertaining to the earlier years, the claim of the assessee is also covered by the decision of the honourable Gujarat High Court dealt with while dealing with ground number 3 of the appeal of the assessee. Accordingly, as the expenditure has been incurred/approved during the year, the disallowance could not have been confirmed. Accordingly, we direct the learned assessing Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 50 of 70 officer to delete the complete disallowance out of the above expenditure. 93. Accordingly ground number 11 of the appeal of the AO is dismissed and ground number 6 of the appeal of the assessee is partly allowed as indicated above. 94. Ground number 12 is :- 12. The CIT(A) has erred in remitting back the issue relating to the disallowance made on account of outside contract service amounting to Rs.36,14,59,731/ back to the file of the AO for fresh consideration. 95. It is related to the disallowance of outside contract service expenditure of ₹ 361,459,731/–. The assessee was asked to furnish the copies of the contract, agreement, party ledgers and tax deduction at source details. Assessee furnished few details and written submission however the assessee could not furnish the details of the above sum with respect to the evidence of tax deduction at source and therefore the learned assessing officer disallowed the same for want of evidence as well as for want of tax deduction at source particulars. 96. The assessee carried the same before the learned CIT – A who after r examining the details found that assessee has produced Ledger along with the details of tax deduction at source and copies of the invoices and purchase order for 169 transactions. Wherever he found that the Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 51 of 70 invoices are pertaining to the earlier year, he confirmed the disallowance. Therefore, both the parties are aggrieved. 97. The learned CIT DR vehemently supported the order of the learned assessing officer whereas the learned authorized representative submitted that that identical disallowance issue was there in the case of the assessee for assessment year 2009 – 10 which has been deleted by the learned CIT – A. Further no such disallowances is made by the learned assessing officer in case of the assessee either in the past or in subsequent years. It was further stated that the learned CIT – A has categorically examined 169 transactions which is supported by the invoices, purchase orders, Ledger extracts and tax deduction at source thereon. Therefore, the learned CIT – A has allowed the claim of the assessee after proper examination which could not be found fault with. With respect to the disallowance confirmed by the learned CIT – A, he relied upon the decision of the honourable Gujarat High Court. 98. We have carefully considered the rival contention and perused the orders of the learned lower authorities. We find that the learned assessing officer has disallowed by citing reason of the absence of details and the learned CIT – A examine the same evidence and tax deduction at source thereon along with the sample copies of the invoices and purchase orders of 169 transactions and thereafter he found that the disallowance is not proper as far as the invoices are pertaining to this year. We find that the challenge to the disallowance confirmed by the learned CIT – A as per ground number 7 of the Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 52 of 70 appeal of the assessee, we have already allowed it following the decision of the honourable Gujarat High Court and therefore the disallowance confirmed by the learned CIT – A is not sustainable, and the learned assessing officer is directed to delete the disallowance. 99. With respect to the disallowance deleted by the learned CIT – A the learned CIT DR could not point out any infirmity wherein the learned CIT – A has verified the invoices, purchase orders, Ledger accounts of the parties and the details of tax deduction at source thereon. Accordingly, we do not find any infirmity in the order of the learned CIT – A in allowing the claim of the assessee by deleting the disallowance. Accordingly ground number 12 of the appeal is dismissed. 100. Ground number 13 is. 13. The CIT(A) has erred in directing the AO to delete the addition made on account of audit actual entries u/s.37 of Rs.28,31,39,077. 101. It is relating to the disallowance deleted by the learned CIT – A with respect to the various expenses incurred by the assessee. The brief fact of the case shows that the assessee was requested to furnish Ledger extracts of various indirect expenses such as rent, advertisement, illegal and professional charges, freight, outside contract, etc. along with the evidence for the tax deduction at source on such expenditure. Assessee submitted Ledger extracts and also details of tax deduction at source returns. The learned assessing officer noted that at the end of the each Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 53 of 70 of the Ledger, there is one entry posted showing accrual entries. Identical addition/disallowance was made for assessment year 2009 – 10. Therefore, the learned assessing officer held that it is a contingent liability which is not allowable under section 37 of the act and further the taxes required to be deducted thereon. Such expenses were quantified at ₹ 552,789,460 and same were disallowed. However, as the disallowance out of the various expenditure such as warranty and other expenditure which were involved in the cost of goods sold the sum of ₹ 312,548,753 was excluded and the net disallowance of ₹ 283,139,077/– was made. 102. The assessee aggrieved with the same preferred an appeal before the learned CIT – A. The learned CIT appeal examined the evidence in the form of simple invoices for each of the above heads in the table indicated the reasons for misclassification in the first place requiring subsequent reclassification reversal. He further verified the invoices for the all the expenses involved in the about disallowance and found that there is an accrual of liability in financial year 2009 – 10 and therefore he allowed the claim of the assessee holding that same is neither contingent but incurred during the year stop the claim of the assessee was allowed. 103. The learned assessing officer is aggrieved with the same. The learned CIT DR vehemently supported that order of the learned assessing officer who has made the disallowance of the expenditure of ₹ 283,139,077/– holding that they are not allowable under section 37 of Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 54 of 70 the act and further the deduction of the tax thereon has not been made. There is no finding of the learned CIT – A with respect to non- deduction of tax thereon. 104. The learned authorized representative vehemently submitted that the learned CIT – A has considered the submission of the taxpayer filed before the assessing officer and deleted the addition following the assessee’s own case for assessment year 2009 – 10 wherein the learned CIT – A has deleted the addition on the identical facts and circumstances. It was further stated that no such disallowances is made in other earlier years and subsequent years. 105. We have carefully considered the rival contention and the orders of the learned lower authorities. We find that rent expenditure of ₹ 9,478,460/–, communication expenditure of ₹ 9,880,239/–, travel expenditure of ₹ 38,146,227/–, legal and professional expenditure of Rs. 108,41,959/– and freight expenditure of ₹ 218,792,192/– totaling to ₹ 283,139,077/– was disallowed by the learned assessing officer. The learned CIT – A on the basis of the evidence in the form of invoices for each of the above 5 nature of expenditure found them that those are pertaining to financial year 2009 – 10 and the liability has accrued during the year and therefore the disallowance was deleted holding that same is not contingent in nature. Accordingly, the claim of the assessee was allowed. We find that none of the expenses were stated before us to be not belonging to the respective year, not pertaining to the business of the assessee and therefore we are also agreeable to the finding of the Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 55 of 70 learned CIT – A that these expenses are wholly and exclusively incurred for the purposes of the business of the assessee and are not disallowable. Accordingly ground number 13 of the appeal of the AO is dismissed. 106. Ground number 14 is. 14. The CIT(A) has erred in directing the AO to delete the addition made on account of provision of warranty Of Rs.144,54,92,317. 107. It is with respect to the provision for warranty and management expenses which was disallowed by the learned assessing officer deleted by the learned CIT – A. 108. The brief fact before the learned assessing officer shows that in the profit and loss account the assessee has debited a sum of ₹ 3,377,412,268/– as warranty support and maintenance services. The assessee was asked to furnish the details which was submitted in the form of Ledger account of warranty support and maintenance services. The learned assessing officer analyzed the data however he doubted the various adjustment entries posted therein. The assessee explained that ‘outside contract expenditure’ represents an expenditure pertaining to warranty incurred by the assessee during the financial year. On the aspect of the various journal vouchers it was submitted that these are adjustment entries. The learned assessing officer discussed the decision of the honourable Supreme Court in 314 ITR 62 in case of Rotork controls India private limited and quoted extensively the notes on Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 56 of 70 accounts. He noted that opening balance for the warranty was 233,58,87,564/–, the provision made for the warranty expenses is ₹ 2,656,285,705, utilization is ₹ 2,911,341,819 leaving the closing balance of ₹ 2,080,831,450/– and therefore the assessee company should have furnished evidence for utilization for warranty of ₹ 291.13 crores. He further issued show cause notice asking the assessee to provide the details in a tabular format. When the assessee submitted the details of the warranty expenditure, he noticed that it was a dump data where the company did not provide any details as required in the show cause notice. He further noted that assessee has debited the expenditure of facility management, infrastructure management, electrical additional supply, housekeeping management, scanning services, logistic services and each lesson charges etc. dumping several expenses and stated that the provision for warranty was not created scientifically. In the end, he noted that in the profit and loss account of sum of rupees. And 37,74,12,268/– was debited in the warranty support and maintenance services expenses and the company has claimed a sum of ₹ 2,656,285,705/– as the current year provision for warranty and further as under the warranty expenses several other expenditures are debited having the balance sum of ₹ 2,414,899,938/–, he computed 20% of such expenditure at ₹ 482,979,987/– as disallowable. Further from the balance amount of ₹ 96,25,12,330/– , he found that there are two journal entries passed amounting to ₹ 649,903,577/– pertaining to the outside contract service and ₹ 31,25,48,753/– was also not Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 57 of 70 verifiable and accordingly he made the total disallowance of the above expenditure of ₹ 1,445,492,317/-. 109. The assessee aggrieved with the order of the learned AO preferred an appeal before the learned CIT – A wherein the assessee raised an issue that out of the sum of ₹ 1,445,492,317/– comprises of the approval entries of 31,25,48,753/–, outside contract service of ₹ 64,99,63,577/– which is posted in warranty support and maintenance Ledger, and ad hoc disallowance of ₹ 482,979,987 is an ad hoc disallowance at the rate of 20% is unwarranted. The assessee further submitted that whenever the assessee sales product, it outsource the warranty services to an outside contractor. The assessee submitted the detail of the party wise payment, along with the tax deduction at source and the sample copy of the invoices. The learned CIT – A examined the same. However, he directed the learned assessing officer only to allow the claim of the assessee for invoices having dates of financial year 2008 – 09 and the disallowance was directed of balance sum. With respect to the balance sum it was held that assessee’s details clearly established that the claim was made in a genuine manner with tax deduction at source wherever applicable. With respect to the journal voucher amounting to ₹ 312,548,753/– , he examined the Ledger account and the breakup given by the assessee which is reproduced at page number 51 of his appellate order, correlating the same with the sample invoices and 139 cases explaining the reasons and basis for reclassification. He held that the claim of the assessee is backed by evidence and clearly sustainable therefore he directed the learned assessing officer to delete Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 58 of 70 disallowance. With respect to the ad hoc disallowance made by the learned assessing officer, he held that he has examined the party wise details of the expenses along with the tax deduction at source and he was completely in agreement with the assessee that recording of the expenses under the incorrect head will not diminish the genuineness of the same. He further held that the provision is made based on historical trend and evidence laid down in the decision of the honourable Supreme Court is the base for allowing the claim of warranty. He further held that for assessment year 2009 – 10 the identical issue was decided and therefore he deleted the disallowance. 110. The learned CIT – A has deleted the addition of ₹ 1,425,908,199/– and sustained the addition of Rs 1,95,84,018/– out of the total disallowance of ₹ 1,445,492,317/–. Therefore, the ld AO is aggrieved and has raised an issue of the disallowance deleted as per ground number 14 and the assessee has raised ground number 9 for the balance disallowance upheld by the learned CIT – A. 111. Ground no 9 of the appeal of the assessee is as under :- 9. Provision for warranty — Outside Contract Services 9.1 The CIT(A), having accepted Appellant's claim of deduction in respect of provision for warranty - outside contract services, has erred in law and on facts in directing the AO to disallow expenses having invoice dates earlier to April 1, 2009, without appreciating the accounting procedures / policies followed by the Appellant as per the mercantile system of accounting. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 59 of 70 9.2 Without prejudice to the above ground, the CIT (A) has erred in law and on facts in not directing the AO to grant relief for the alleged expenses in the respective previous year to which invoice is dated, given that the genuineness of the expense was not doubted. 112. The learned assessing officer aggrieved with the same, and is in appeal before us, the learned CIT DR vehemently supported the order of the learned assessing officer stating that according to the verdict of the honourable Supreme Court, the warranty expenses are allowable only if made on scientific basis. It was further stated that the assessee has not furnished the details of the various journal voucher entries shown therein and therefore the learned CIT – A is not correct in deleting the disallowance made by the learned assessing officer without giving an opportunity to the learned assessing officer to verify the same. 113. The learned authorized representative vehemently submitted that CIT – A has considered the submission of the taxpayer before the learned assessing officer and on verification of the same detail deleted the addition following is on order in assessee’s own case for assessment year 2009 – 10. It was further stated that no disallowance of been made in the earlier years on in the subsequent year other than the assessment year involved in the earlier year. He further referred to his written submission wherein schedule 15 was referred to showing the warranty support and maintenance services expenses showing that what category of the expenditure are incurred and shown under that head . Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 60 of 70 114. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The fact shows that the assessee has debited a sum of rupees. In 37,74,12,268/– to the profit and loss account under the head warranty support and maintenance services. During the course of the assessment proceedings the learned assessing officer asked the assessee to furnish the details and on examination of such details or absence of such details the learned assessing officer made the disallowance of various portion of the warranty expenditure. He disallowed a sum of ₹ 649,963,577 be warranty expenses related to the outside contract services for want of further details and evidence. He further disallowed a sum of ₹ 312,548,753/– for want of further details and evidence pertaining to the journal entries. Therefore, out of the balance amount of ₹ 2,414,899,938/– he disallowed a sum of 20% being ₹ 482,979,987/– based on the observation of the AO that the various unrelated expenses were being recorded under the head of warranty expenses. It was the claim of the assessee that the learned assessing officer has misunderstood the above expenditure as he failed to appreciate that the expenses under that had included various expenses like labour, material, spares and third-party service cost for servicing products sold by the company under warranty and other annual maintenance contract expenditure. When the details were produced before the learned CIT – A along with the invoices, breakup of the expenses and reclassification of the entries, the learned CIT – A allowed completely the amount of ₹ 312,548,753 and deleted the ad hoc disallowance at the rate of 20% of ₹ 482,979,987/–. However out Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 61 of 70 of the warranty expenses pertaining to outside contract services amounting to ₹ 640,099,577/– he allowed the claim of ₹ 63,03,79,505 nine pertaining to the financial year 2009 – 10 however confirm the disallowance of rupees one crore 95,84,018/– pertaining to the earlier years. Thus, the assessee is in appeal against the above sum confirmed by the learned CIT – A. We find that this issue is squarely covered in favour of the assessee by the decision of the honourable Gujarat High Court wherein in ground number 3 of the appeal of the assessee we have deleted the addition lying on the same judgement holding that though the invoices date may be pertaining to the earlier year but if the same are incurred during the year, same are on the basis of the date of approval should be allowed as the expenses in the year in which such offer tax place. Accordingly, we direct the learned assessing officer to delete the disallowance of rupees one crore 95,84,018/–. 115. With respect to the addition deleted by the learned CIT – A and raised in the grounds of appeal by the learned assessing officer we find that for the warranty expenses relating to the outside contract services they assessee has produced the Ledger expenses, warranty methodology and tax deduction at source on the payment made to the outside contract. Further with respect to the other entries the learned CIT – A is correctly deleted the disallowance of ₹ 312,548,753/that related to the various journal entries. We find that the learned assessing officer has made an adhoc disallowance of ₹ 482,979,987/– without any justifiable reason. When he found that the warranty expenses are incurred these on the relevant documentation is evidence supported with the historical cost as Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 62 of 70 well as on standard scientific basis, he should not have disallowed 20% of the total expenditure. Further identical for assessment year 2009 – 10 wherein the identical allowance was claimed, the learned AO disallowed the same however on appeal, the disallowance was deleted with a direction and after verification the order giving effect was passed on 10 March 2025 deleting the total addition. It was not the claim of the revenue that the facts for this year are not identical to the facts pertaining to assessment year 2009 – 10. Further the learned assessing officer has relied upon the decision of the honourable Supreme Court for making the disallowance the learned CIT – A held that the allowance claimed by the assessee of warranty expenses is supported by the decision of the honourable Supreme Court. We find that no evidence are produced before us to show that the expenses claimed by the assessee of warranty expenses are not supported by any scientific basis, most of the expenses incurred are based on the outside contract business as assessee has stated that for warranty services outside contract is awarded the contract for repairs et cetera. According to this we do not find any infirmity in order of the learned CIT – A and we are also of the view that the decision of the honourable Supreme Court relied upon by the learned CIT – A allowing the claim of the assessee of warranty expenses is proper. Accordingly, we confirm the order of the learned CIT – A in deleting the disallowance amounting to ₹ 1,425,908,299. In the result ground number 9 of the appeal of the assessee is allowed and ground number 14 of the appeal of the learned AO is dismissed. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 63 of 70 116. Ground number 15 of the appeal :- 15. The CIT(A) has erred in directing the AO to delete the addition made on account of excess depreciation of Rs.3,63,88,324/-. 117. Ld AO is aggrieved with respect to the deletion of the disallowance of access depreciation claimed by the assessee on motor vehicles. The brief fact of the case shows that in the depreciation schedule prepared for the purpose of income tax the assessee company has claimed excess depreciation on vehicles purchased on or after 1 January 2009 by relying upon the notification dated 21/4/2009. These motor vehicles are entitled for depreciation at the rate of 15% however the assessee company has claimed depreciation at the rate of 50%. The learned assessing officer was of the view that notification is applicable only for new commercial vehicles and not for the companies like the assessee was engaged in the business of trading of computer and accordingly the depreciation claim is restricted to the 15% and access the appreciation has disallowed amounting to ₹ 36,388,324/–. 118. The assessee of with the same preferred an appeal before the learned CIT – A allowed the claim of the assessee following the decision of the coordinate bench in case of L M glassfibre India private limited versus ACIT in ITA number 40/Bangalore/2008 wherein it has been held that the assessee is entitled to the depreciation of higher rate at the rate of 50% on motor vehicles also. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 64 of 70 119. The learned assessing officer aggrieved with the same is in appeal before us. The learned CIT DR supported the order of the learned AO and the learned authorized representative relied upon the decision of the coordinate bench based on which the learned CIT allowed the claim of the assessee – A. 120. We have carefully considered the rival contention and perused the orders of the learned lower authorities. We find that the claim of the assessee on depreciation on motor car relying upon the notification issued by the central government and supported by the decision of the coordinate bench holding that motor cars are also eligible for depreciation at the rate of 50% instead of 15%, was allowed by the learned CIT – A. No contrary decision was shown to us. As the learned CIT – A has followed the decision of the coordinate bench, respectfully following the decision of the coordinate bench, we confirm the order of the learned CIT – A – ground number 15 of the appeal. 121. Ground number 16 of the appeal is :- 16.The CIT(A) has erred in directing the AO to partly allow the addition made on account of suppression of income detected from 26AS statement of Rs.278,65,19,835/-.” 122. It is with respect to the subscription of income detected from 26AS statement. During the course of assessment proceedings, the assessee company was asked to reconcile the tax deduction at source certificate on one to one basis. On examination of 26AS treatment the tax Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 65 of 70 deducted was under section 194C and 194I of the act which show that the appointed value taxable which vendors. On examination of the tax statement, it was found that assessee has service income of ₹ 1566.26 crores whereas the admitted income of the assessee in the return of income was only ₹ 1285.46 crores therefore there was a difference of ₹ 280.80 crores. The assessee has also claimed tax credit of ₹ 1,340,119,695/– on the basis of the above tax statement. The learned assessing officer therefore found that a sum of ₹ 2,786,519,835 is an undisclosed service income of the assessee for the impugned assessment year. This income was added to the total income of the assessee. 123. Aggrieved, assessee preferred an appeal before the learned CIT – A held that for assessment year 2009 – 10 the issue of discrepancy between the tax deduction at source claimed in the return on income offered for taxation based on the TDS certificate was adjudicated along with the issue of income received in advance and therefore the revenue with income. He further held that assessee has admitted that it had claimed credit for the tax deduction at source as per the amount reflected in tax statement and has not restricted any part of the credit for the closing balance of income received in advance and deferred revenue. The assessee did not object to limit in the credit for tax deduction at source to the extent of income offered. As the facts are related to the assessment year are identical, the learned CIT – A recorded that similar facts are involved for this assessment year also except the issue of deferred revenue where there was a negative Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 66 of 70 movement and therefore no adjustment was made by the learned assessing officer. He directed the learned assessing officer to grant consequential relief in the matter of deferred revenue with respect to the amount is taxed earlier so that double taxation is not imposed for the same amount in two different assessment years. He further directed the learned assessing officer to limit the credit of tax deduction at source to the income disclosed. Accordingly, this ground of appeal was allowed as indicated therein. 124. The learned AO is aggrieved and is in appeal before us relying upon the assessment order submitted that the learned assessing officer has made the assessment of unaccounted income being the difference between the income shown in the tax statement of tax deducted at source income offered in the return of income. The learned and CIT appeal has given an indication that only the tax deduction at source claim of the assessee is required to be restricted to the extent of income offered by the assessee. He submitted that the learned and CIT – A has misunderstood the addition. 125. The learned authorized representative submitted that the learned CIT – A addition based on the direction provided for restriction of tax source credit in respect of income received in advance given that the said amount is subsumed in the same. Further the direction of the learned CIT – A based on his own direction for assessment year 2009 – 10 against which the revenue has not preferred the appeal. He submitted Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 67 of 70 that there is no unaccounted income found by the learned assessing officer, but he has merely made the addition on account of difference. 126. We have carefully considered the rival contention and the orders of the learned lower authorities. The simple issue involved in this ground of appeal that there is a difference in the income shown in the tax statement of tax deducted at source and income shown by the assessee the audited statement and income tax return. The learned assessing officer found that there is an excess of income shown in the tax deduction at source statement when the income shown in the income tax return and made an addition of undisclosed income. We find that because the difference between the income shown in the tax statement and the income shown in the financial statement, no addition could be made. That may be the first trigger point of the investigation but merely the difference does not result into existence of unaccounted income. In the case of the assessee. Therefore, the deferred revenue income accounting entries and further there is also an advance income received. Tax deduction statement will show the amount of tax deducted also on income received in advance as well as the deferred revenue income. Further the income offered under the about to category would be in the different year. Identical issue arose in the case of the assessee for assessment year 2009 – 10 wherein also the addition was deleted, and it was not further agitated by the revenue as submitted by the assessee. The learned CIT – A has further restricted the claim of the assessee of tax deduction at source to the extent of income offered, therefore if the assessee does not offered income for this year, it will Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 68 of 70 also the tax deduction credit as well as the income would be taxable in the year in which it accrues. It is not the case of the assessing officer that the income shown in the tax deduction statement has not been offered by the assessee to the income tax in any of the years. Thus, we do not find any infirmity in the order of the learned CIT – A. Accordingly ground number 16 of the appeal is dismissed. 127. Ground number 8 of the appeal of the assessee is. 8 Disallowance of demonstration expenses 8.1 The CIT(A) has erred in law and on facts by upholding the disallowance in respect of demonstration expenses amounting to Rs 6,316,692 for want of additional evidence. 8.2 The CIT(A) has erred in law and on facts in failing to appreciate the explanation provided by the Appellant pertaining to the nature of the expenses, given that deduction was claimed in relation to demonstration equipment, which were utilized as samples for the purpose of generating sales. 8.3 The CIT(A) has erred in law and on facts by not appreciating that the facts of the decision of the Honourable Delhi Income Tax Appellate Tribunal (\"ITAT\") in the case of Hero Motocorp Ltd (156 TTJ 139) are squarely applicable in the Appellant's case. Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 69 of 70 128. It is against the confirmation of the disallowance of demonstration expenses of ₹ 6,316,692/–. The brief fact of the case shows that assessee has debited the above sum in the profit and loss account, the assessee was directed to show the necessary evidence. Assessee furnished the return submission with respect to the policy of writing off but did not furnish evidence in the evidence and therefore the learned assessing officer disallowed the same. 129. Aggrieved with the assessment order assessee preferred an appeal. The learned CIT – A was shown the details of the demonstration equipment, there is useful life in months. The learned CIT – A noted that identical disallowance is also made in assessment year 2009 – 10 and therefore he confirmed the addition. 130. The assessee is in appeal before us and submitted that identical addition deleted by the coordinate bench in case of the assessee for assessment year 2009 – 10 and therefore the issue is squarely covered in favour of the assessee. 131. The learned departmental representative vehemently supported the order of the learned assessing officer. 132. We have carefully considered the rival contention and perused the orders of the learned lower authorities. As it is claimed by the assessee that the issue is squarely covered in favour of the assessee by the decision of the coordinate bench in case of the assessee for assessment year 2009 – 10 and the learned CIT – A has confirmed the Printed from counselvise.com ITA No.1245 & 1252/Bang/2015 Page 70 of 70 disallowance on the basis of his own order for assessment year 2009 – 10, which is upset by the coordinate bench, now the issue is squarely covered in favour of the assessee accordingly ground number 8 of the appeal of the assessee is allowed and the learned AO is directed to delete the disallowance of demonstration expenses amounting to ₹ 6,316,692/–. 133. Ground no 10 is either consequential or premature , so dismissed. 134. In the result appeal of the ld AO is dismissed and Assessee is partly allowed. Pronounced in the open court on this 8th day of September 2025. Sd/- Sd/- ( KESHAV DUBEY ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 8th September 2025. Dragon Copy to: 1. Assessee 2. Revenue 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore By order Assistant Registrar ITAT, Bangalore. Printed from counselvise.com "