2016 (5) TMI 220 - HC - Income Tax

Disallowance u/s 14A - Held that - Issues stands concluded in favour of the respondent-assessee and against the Revenue by virtue of the decision of this Court in Godrej & Boyce Mfg. Co. Ltd. Vs. Deputy Commissioner of IncomeTax and another 2010 (8) TMI 77 - BOMBAY HIGH COURT . Amounts received from various public sector companies - whether were only advances and not receipts of income? - Held that - We find that the respondent-assessee follows the mercantile system Accounting and adopting the percentage completion of method. The finding by the Tribunal that the amounts related to the milestones achieved during the year has been offered to tax in the subject assessment year is essentially a finding of fact. On principle it cannot be disputed that income only arises when the same has accrued to the respondent-assessee who follows the mercantile system of accounting. Tribunal was correct in its decision that the amounts received from various public sector companies were only advances and not receipts of income, based on the percentage completion method followed by the Company Appeal admitted on substantial questions of law at question nos. (iii) and (iv). (iii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the orders of the CIT(A) in regard to the liability on account of warranties? (iv) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the provision of warranty is an ascertained liability within the provisions of Section 115JB of the Income Tax Act?

Summary

Issues involved:
1. Challenge to order of Income Tax Appellate Tribunal for Assessment Year 2007-08.
2. Questions of law raised regarding disallowance under Rule 8D, computation of book profits under Section 115JB, liability on account of warranties, and treatment of amounts received from public sector companies as advances.

Analysis:
1. The appeal challenges the Tribunal's order for Assessment Year 2007-08. Questions of law raised include the correctness of disallowance under Rule 8D and the computation of book profits under Section 115JB. The Tribunal's decision on liability for warranties and treatment of amounts received from public sector companies as advances are also disputed.

2. Regarding Question Nos. (i) & (ii), the counsel for the Revenue concedes that these issues are settled in favor of the respondent-assessee based on a previous court decision. Therefore, these questions are not entertained.

3. Concerning Question No. (v), the respondent-assessee follows the percentage completion method for recognizing revenue from construction contracts. The assessing Officer and CIT (A) sought to tax the entire amount received without considering the work completed. However, the Tribunal held that income accrues only to the extent of work completed, treating the excess amounts as advances. The Revenue argues for taxing the entire amount received, but the Tribunal's finding is upheld based on the mercantile system of accounting followed by the respondent.

4. The Tribunal's decision on Question Nos. (iii) and (iv) is admitted for further consideration. The Registry is directed to provide a copy of the order to the Tribunal for necessary action.