Mahindra & Mahindra Ltd. v. Dy. CIT

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The Tax Publishers2014 TaxPub(DT) 1869 (Mum-Trib) Mahindra & Mahindra Ltd. v. Dy. CIT INCOME TAX ACT, 1961 --Business expenditure--AllowabilityWarranty liability----Where fair, reasonable and scientific basis of calculation of warranty liability was not produced before revenue authorities, the issue was to be remanded to AO.--Where assessee could not produce any fair, reasonable and scientific basis to compute warranty liability, the issue was to be remanded to AO. Income Tax Act, 1961, Section 37(1) *Distinguished:*Rotork Controls India (P.) Ltd. v. CIT (2009) 314 ITR 62 (SC), CIT v. Nokia Siemens Networks India (P.) Ltd. (2011) 202 Taxman 390 (Karn) and CIT v. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (). *REFERRED :* CIT v. Diners Club India Ltd. (2001) 248 ITR 679 : 118 Taxman 161 (Bom.), CIT v. National Insurance Co. of India (1981) 127 ITR 54 : 5 Taxman 283 (Cal.), Rotork Controls India (P.) Ltd. v. CIT (2009) 314 ITR 62 : 180 Taxman 422 (SC), CIT v. Woodward Governor India Ltd. (2010) 321 ITR 147 : 195 taxmann 328 (Delhi), CIT v. LUK India (P.) Ltd. (2012) 20 taxmann.com 556 (Mad.), CIT v. Nokia Siemens Networks India (P.) Ltd. (2011) 202 Taxman 390 : 14 taxmann.com 84 (Kar.), GE India Exports (P.) Ltd. v. Dy. CIT (IT Appeal Nos. 185 to 187 (Bang.) of 2010, dated 15-7-2011), CIT v. Ericsson Communications (P.) Ltd. (2009) 318 ITR 340 : 185 Taxman 160 (Delhi), Himalaya Machinery (P.) Ltd. v. Dy. CIT (2011) 334 ITR 64 : 203 Taxman 85 (Mag.) : 16 taxmann.com 60 (Guj.), CIT v. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom.) FAVOUR : Matter remanded. A.Y. : 2006-07 INCOME TAX ACT, 1961 --Transfer pricing--Computation of ALPReimbursement of expenses to AE----Where AE who was distributor of tractors and 'AE' incurred expenditure to cure manufacturing defects the reimbursement of expenditure to AE would not be allowed to assessee in the absence of relevant agreement.--Assessee-company was manufacturer of tractors and it also exported the same. During the course of assessment proceedings, it was noticed by AO that due to manufacture defects, certain tractors were recalled and defects were to be rectified in US on which distributor AE incurred expenditure and said expenditure was reimbursed to AE. TPO noted that there was no evidence of this practice and expenditure was to be borne by AE. DRP upheld order of TPO. *Held:* Justified. Reimbusement of expenditure to cure defect in absence of agreement was to be borne by AE. Income Tax Act, 1961, Section 92C *REFERRED :* FAVOUR : Against the assessee. A.Y. : 2006-07 INCOME TAX ACT, 1961 --Business expenditure--AllowabilityEmployees' stock option scheme (ESOS) shares vis-a-vis notional loss----Where shares were offered to employees under employees' stock option scheme (ESOS) there is no incurring of employees cost being difference between fair market value of shares offered under ESOS on date of grant of option and price at which they were offered to employees but it was a short receipt, i.e., loss amounts to notional loss, which is not allowable.--Assessee-company claimed certain sum in respect of employee cost it incurred to reward its employees by giving them employees' stock option scheme (ESOS). Employee cost being difference between fair market value of shares offered under ESOS on date of grant of option and price at which they were offered to employee. AO rejected assessee's claim on ground that expenditure was incurred for increasing share capital of assessee. *Held:* Justified. Issuing shares below market price does not result into incurring of any expenditure but it results into short receipt. Such amount was notional loss which was not allowable. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2014 TaxPub(DT) 1869 (Mum-Trib)

Mahindra & Mahindra Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

--Business expenditure--AllowabilityWarranty liability----Where fair, reasonable and scientific basis of calculation of warranty liability was not produced before revenue authorities, the issue was to be remanded to AO.--Where assessee could not produce any fair, reasonable and scientific basis to compute warranty liability, the issue was to be remanded to AO.

Income Tax Act, 1961, Section 37(1)

Distinguished:Rotork Controls India (P.) Ltd. v. CIT (2009) 314 ITR 62 (SC), CIT v. Nokia Siemens Networks India (P.) Ltd. (2011) 202 Taxman 390 (Karn) and CIT v. Nagri Mills Co. Ltd. (1958) 33 ITR 681 ().

REFERRED : CIT v. Diners Club India Ltd. (2001) 248 ITR 679 : 118 Taxman 161 (Bom.), CIT v. National Insurance Co. of India (1981) 127 ITR 54 : 5 Taxman 283 (Cal.), Rotork Controls India (P.) Ltd. v. CIT (2009) 314 ITR 62 : 180 Taxman 422 (SC), CIT v. Woodward Governor India Ltd. (2010) 321 ITR 147 : 195 taxmann 328 (Delhi), CIT v. LUK India (P.) Ltd. (2012) 20 taxmann.com 556 (Mad.), CIT v. Nokia Siemens Networks India (P.) Ltd. (2011) 202 Taxman 390 : 14 taxmann.com 84 (Kar.), GE India Exports (P.) Ltd. v. Dy. CIT (IT Appeal Nos. 185 to 187 (Bang.) of 2010, dated 15-7-2011), CIT v. Ericsson Communications (P.) Ltd. (2009) 318 ITR 340 : 185 Taxman 160 (Delhi), Himalaya Machinery (P.) Ltd. v. Dy. CIT (2011) 334 ITR 64 : 203 Taxman 85 (Mag.) : 16 taxmann.com 60 (Guj.), CIT v. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom.)

FAVOUR : Matter remanded.

A.Y. : 2006-07

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPReimbursement of expenses to AE----Where AE who was distributor of tractors and 'AE' incurred expenditure to cure manufacturing defects the reimbursement of expenditure to AE would not be allowed to assessee in the absence of relevant agreement.--Assessee-company was manufacturer of tractors and it also exported the same. During the course of assessment proceedings, it was noticed by AO that due to manufacture defects, certain tractors were recalled and defects were to be rectified in US on which distributor AE incurred expenditure and said expenditure was reimbursed to AE. TPO noted that there was no evidence of this practice and expenditure was to be borne by AE. DRP upheld order of TPO. Held: Justified. Reimbusement of expenditure to cure defect in absence of agreement was to be borne by AE.

Income Tax Act, 1961, Section 92C

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2006-07

INCOME TAX ACT, 1961

--Business expenditure--AllowabilityEmployees' stock option scheme (ESOS) shares vis-a-vis notional loss----Where shares were offered to employees under employees' stock option scheme (ESOS) there is no incurring of employees cost being difference between fair market value of shares offered under ESOS on date of grant of option and price at which they were offered to employees but it was a short receipt, i.e., loss amounts to notional loss, which is not allowable.--Assessee-company claimed certain sum in respect of employee cost it incurred to reward its employees by giving them employees' stock option scheme (ESOS). Employee cost being difference between fair market value of shares offered under ESOS on date of grant of option and price at which they were offered to employee. AO rejected assessee's claim on ground that expenditure was incurred for increasing share capital of assessee. Held: Justified. Issuing shares below market price does not result into incurring of any expenditure but it results into short receipt. Such amount was notional loss which was not allowable.