2021 (1) TMI 959 - AT - Income Tax

Addition on account of bonus payable to General Electric International Ltd. - HELD THAT - Assessee has entered into a long term Comprehensive Service Agreement (CSA) with GE International, a renowned International organization, on 20.06.2009 for the power plant and the said agreement is valid till March 31, 2025. As per the agreement with GE, the party has to ensure 90% availability of the Power Plant for operation and if they ensure availability above 90% then they are eligible for Bonus otherwise they are liable for penalty. This will accrue on year to year basis and will be finally settled on closure of the contract. During the year under consideration, the contractor has ensured the 90% availability of the power plant to the assessee. Accordingly, the assessee booked an expenditure on account of bonus payable to the contractor. These facts were not disputed by the revenue at any point of time. There was no uncertainty regarding the incurrence of the expenditure and assessee becomes liable to pay the bonus to the contractor as soon as the contractor fulfills the conditions of annual availability of power plant in terms of the factors given under the said contract. Assessee has established that a business liability has definitely arisen in the accounting year which is year to year basis. The assessee is following the mercantile system of accounting which is not disputed by the revenue. Therefore, the liability is ascertained liability and is allowable u/s 37(1) of the Act which was not taken cognizance by the Assessing Officer as well as the CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of ?12,99,68,406/- on account of bonus payable to GE International Ltd. for A.Y. 2012-13.
2. Addition of ?12,99,68,406/- on account of bonus payable while computing Minimum Alternate Tax (MAT) under Section 115JB for A.Y. 2012-13.
3. Relief of ?2,15,05,00,000/- on account of interest attributed to work in progress for A.Y. 2013-14.
4. Relief of ?65,25,165/- on account of HQ expenses for A.Y. 2013-14.

Issue-wise Detailed Analysis:

1. Disallowance of ?12,99,68,406/- on account of bonus payable to GE International Ltd. for A.Y. 2012-13:
The assessee, a public sector undertaking, entered into a long-term Comprehensive Service Agreement (CSA) with GE International Ltd. The agreement stipulated that GE would ensure 90% availability of the power plant, making them eligible for a bonus if this condition was met. The assessee claimed this bonus as an expenditure. However, the Assessing Officer disallowed this amount, categorizing it as an unascertained liability. The CIT(A) upheld this disallowance, interpreting the terms of the CSA to conclude that the liability was not certain. The Tribunal, however, found that the liability was indeed ascertained and arose in the accounting year, making it allowable under Section 37(1) of the Act. The Tribunal allowed the assessee's appeal for A.Y. 2012-13.

2. Addition of ?12,99,68,406/- on account of bonus payable while computing Minimum Alternate Tax (MAT) under Section 115JB for A.Y. 2012-13:
The same bonus amount was also added back while computing MAT under Section 115JB. The Tribunal noted that since the liability was ascertained and allowable under Section 37(1), it should not be added back for MAT computation. Consequently, this addition was also deleted.

3. Relief of ?2,15,05,00,000/- on account of interest attributed to work in progress for A.Y. 2013-14:
The Revenue appealed against the relief granted by the CIT(A) for interest attributed to work in progress. The CIT(A) had relied on the order of his predecessor for A.Y. 2012-13 without examining the merits. The Tribunal observed that the facts for A.Y. 2013-14 were identical to A.Y. 2012-13, and the Revenue had accepted the CIT(A)'s order for the previous year without appeal. Following the rule of consistency, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.

4. Relief of ?65,25,165/- on account of HQ expenses for A.Y. 2013-14:
The Revenue also contested the relief granted for HQ expenses. The CIT(A) had again relied on the order for A.Y. 2012-13. The Tribunal noted that the facts and circumstances were the same as the previous year, and the Revenue had not appealed against the earlier order. Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing this part of the Revenue's appeal as well.

Conclusion:
The Tribunal allowed the assessee's appeal for A.Y. 2012-13, deleting the disallowance and addition of the bonus payable to GE International Ltd. It dismissed the Revenue's appeal for A.Y. 2013-14, upholding the CIT(A)'s relief on interest attributed to work in progress and HQ expenses, following the principle of consistency. The order was pronounced on January 25, 2021.