Eimco Elecon (India) Ltd. v. Jt. CIT

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The Tax PublishersITA No. 3254/Ahd/2009 2013 TaxPub(DT) 1906 (Ahd-Trib) : (2013) 155 TTJ 0033 Income Tax Act, 1961 --Business expenditure--Provision for warranty Method of accounting consistently followed by assessee--As assessee has consistently adopted method of accounting for making provision for warranty expenses, quantum of provision of warranty was reasonable and not excessive as compared to actual expenditure incurred by assessee, therefore, provision for warrant was allowable as business expenditure. Income Tax Act, 1961 Section 37(1) Income Tax Act, 1961 --Business expenditure--Disallowance under section 14A Investment in shares not from borrowed funds--Where assessee-company had substantial own funds amounting to Rs. 83.89 crores, whereas investment in shares was only Rs. 1.99 crores and as such, it was to be accepted that no borrowed fund was utilized for such investment, no disallowance under section 14A could be made for interest expenditures. Moreover, rule 8D was not applicable in relevant assessment year as such, however, for administrative expenses disallowance of Rs. 50,000 was justified. Income Tax Act, 1961 Section 14A Income Tax Act, 1961 --Business expenditureCommission For securing export order--In view of details and correspondence made by assessee, it was clear that M & Co. had procured export order for assessee by negotiating on behalf of latter. The M & co. requested assessee to pay commission also to three agents by whom also export orders were secured on behalf of assessee. Assessing officer disallowed payment of commission on the ground that for same orders commission was paid to 4 persons. Held: /b>Not justified. As regards payment made to four persons in connection with same order, assessee had submitted that entire project could not be handled by M & Co. alone and thus, it had engaged services of three other persons. The export commission was as such allowable as there was no dispute of rendering of services by agents and payment of commission to them. The agent has intimated the assessee that they are having very good contacts in Bangladesh and they are aware of the works contract awarded for underground mining project of Bangladesh to a Korean company and this company requires some mining machinery and for the same, the agent has intimated the assessee company that if the assessee is interested, they can procure orders for the assessee from Korean company. In reply, the assessee-company sent the required product literature and other details and thereafter, this agent intimated the assessee that product literature was forwarded by them to the Korean company. They also asked the assessee company to quote the payment terms and Dispatch Schedule etc. There are other letters in this connection between the assessee and the agent and as per letter dated 30-06-2005, the agent M/s M & Co. made a request to the assessee that since they cannot alone handle the whole project, there were some other persons also involved in the execution of this contract and, therefore, they have requested the assessee company to make payment of Rs. 65 lacs to three different persons and only the balance amount of Rs. 46,78,986 was to be paid to M/s M & Co. The assessee made the payments accordingly. Considering all these facts, the assessee have brought on record sufficient material in support this contention that services were rendered by the agent. Regarding this aspect that on what basis the payment were made to four different persons in connection with single order, for this also, the assessee has furnished a reasonable explanation that the entire project could not be handled by M/s M & Co. and they have engaged services of three other persons and as per their terms between themselves, the payment was distributed by them among themselves. It makes no difference to the assessee as to whether the entire payment was made to M/s M & Co. and thereafter, he distributes the amount to three different persons or whether the agent request the assessee to make separate payments to all the four persons. It has no bearing on the allowability of the commission expenses, once it is found that the services were rendered and commission is paid, the same should be allowed as business expenses. Therefore, this disallowance is deleted. SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No. 3254/Ahd/2009
2013 TaxPub(DT) 1906 (Ahd-Trib) : (2013) 155 TTJ 0033

Income Tax Act, 1961

--Business expenditure--Provision for warranty Method of accounting consistently followed by assessee--As assessee has consistently adopted method of accounting for making provision for warranty expenses, quantum of provision of warranty was reasonable and not excessive as compared to actual expenditure incurred by assessee, therefore, provision for warrant was allowable as business expenditure.

Income Tax Act, 1961 Section 37(1)

Income Tax Act, 1961

--Business expenditure--Disallowance under section 14A Investment in shares not from borrowed funds--Where assessee-company had substantial own funds amounting to Rs. 83.89 crores, whereas investment in shares was only Rs. 1.99 crores and as such, it was to be accepted that no borrowed fund was utilized for such investment, no disallowance under section 14A could be made for interest expenditures. Moreover, rule 8D was not applicable in relevant assessment year as such, however, for administrative expenses disallowance of Rs. 50,000 was justified.

Income Tax Act, 1961 Section 14A

Income Tax Act, 1961

--Business expenditureCommission For securing export order--In view of details and correspondence made by assessee, it was clear that M & Co. had procured export order for assessee by negotiating on behalf of latter. The M & co. requested assessee to pay commission also to three agents by whom also export orders were secured on behalf of assessee. Assessing officer disallowed payment of commission on the ground that for same orders commission was paid to 4 persons. Held: /b>Not justified. As regards payment made to four persons in connection with same order, assessee had submitted that entire project could not be handled by M & Co. alone and thus, it had engaged services of three other persons. The export commission was as such allowable as there was no dispute of rendering of services by agents and payment of commission to them.

The agent has intimated the assessee that they are having very good contacts in Bangladesh and they are aware of the works contract awarded for underground mining project of Bangladesh to a Korean company and this company requires some mining machinery and for the same, the agent has intimated the assessee company that if the assessee is interested, they can procure orders for the assessee from Korean company. In reply, the assessee-company sent the required product literature and other details and thereafter, this agent intimated the assessee that product literature was forwarded by them to the Korean company. They also asked the assessee company to quote the payment terms and Dispatch Schedule etc. There are other letters in this connection between the assessee and the agent and as per letter dated 30-06-2005, the agent M/s M & Co. made a request to the assessee that since they cannot alone handle the whole project, there were some other persons also involved in the execution of this contract and, therefore, they have requested the assessee company to make payment of Rs. 65 lacs to three different persons and only the balance amount of Rs. 46,78,986 was to be paid to M/s M & Co. The assessee made the payments accordingly. Considering all these facts, the assessee have brought on record sufficient material in support this contention that services were rendered by the agent. Regarding this aspect that on what basis the payment were made to four different persons in connection with single order, for this also, the assessee has furnished a reasonable explanation that the entire project could not be handled by M/s M & Co. and they have engaged services of three other persons and as per their terms between themselves, the payment was distributed by them among themselves. It makes no difference to the assessee as to whether the entire payment was made to M/s M & Co. and thereafter, he distributes the amount to three different persons or whether the agent request the assessee to make separate payments to all the four persons. It has no bearing on the allowability of the commission expenses, once it is found that the services were rendered and commission is paid, the same should be allowed as business expenses. Therefore, this disallowance is deleted.