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2008 (11) TMI 278 - AT - Income TaxAccrual of income - treatment of retention money - deduction under s. 80-IA of the Act on the profits of turnover of trading goods. Accrual of income - treatment of retention money - Method of Accounting - installation and commissioning activity - assessee did not make any claim for exclusion of retention money while computing the total income but Subsequently filed a revised calculation - HELD THAT - The revenue from sale of UPS is to be recognized at the time of delivery of the same to the customer and revenue from installation and service charges is to be recognized at the time of rendering of such services. However if the assessee is recognizing such revenue prior to that stage i.e. at the time of receiving amount after pre-despatch inspection consistently then the same can be followed by the assessee. But the assessee cannot postpone recognition of the same beyond the stages mentioned by us in the preceding lines. In this regard it is also noted that there is no dispute in regard to these aspects before us hence it can safely be concluded that except for amount represented by performance bank guarantee the assessee is accounting for revenue from such transactions at the appropriate stages and if such stage has not been achieved during the year then the same has been shown as advance. Having stated so we have already taken into consideration factual accounting commercial and legal aspects in detail hereinbefore and accordingly we hold that there is no merit in the claim of the assessee not to recognize the amount represented by the performance bank guarantee as revenue of the year of sales - this ground of the assessee in all the years under consideration is dismissed. Eligibility of the assessee s claim for deduction under s. 80-IA of the Act on the profits of turnover of trading goods - whether the profit of trading activities can be considered as eligible for deduction under s. 80-IA of the Act or not? - HELD THAT - The assessee has placed heavy reliance on the wordings used in sub-s. (1) of s. 80-IA of the Act. In our opinion the words any business of have been used therein as a prefix not only to undertaking but these are also with reference to subsequent business(s) such as hotel or operation of ship or developing maintaining and operating any infrastructure facility etc. mentioned therein hence these words have been used to show the nature of business of activities which could be eligible for deduction under s. 80-IA of the Act and therefore these words do not enlarge the scope of the deduction - Similarly as per s. 80-IA(2)(iii) and/or (iv) an industrial undertaking should be engaged in the manufacturing or produce articles or things or to operate its cold storage plant or plants or in the generation and distribution of power that means the words any business of an industrial undertaking used in sub-s. (1) has to be read in conjunction with the activities of such undertaking as defined in sub-s. (2) and profits and gains of only those activities could be considered as profits and gains derived of any business of an industrial undertaking hence the trading activities carried on by the assessee cannot be considered as eligible for deduction under s. 80-IA of the Act - it is further found that as per the provisions of sub-s. (5) of s. 80-IA of the Act as it stood at the relevant point of time and sub-s. (1) of s. 80-IA brought on statute subsequently and sub-ss. (3) to 11B of s. 80-IB of the Act refer to the profits and gains derived from such industrial undertaking or other specified businesses are only eligible for computing the quantum of deduction which could be allowed to the assessee and if these provisions are read together with sub-s. (1) of respective sections then it becomes amply clear that the deduction is eligible only on profits and gains derived from such businesses and not from any other activities which may be attributable or incidental to manufacturing activity or which may be carried on simultaneously by the industrial undertaking - the assessee is not entitled for deduction under s. 80-IA of the Act on the profits of trading activities for all the years under consideration. All the appeals of the assessee stand dismissed.
Issues Involved:
1. Reopening under Section 148. 2. Provision for warranty. 3. Depreciation on technical know-how. 4. Proportionate leasehold premium. 5. Treatment of retention money. 6. Deduction under Section 80-IA on trading turnover. Detailed Analysis: 1. Reopening under Section 148: The issue regarding reopening under Section 148 for the assessment year 1994-95 was not pressed by the assessee. Consequently, the relevant grounds for these assessment years were dismissed as not pressed. 2. Provision for Warranty: Similarly, the issue concerning the provision for warranty for the assessment year 1994-95 was not pressed by the assessee. Therefore, the relevant ground was dismissed as not pressed. 3. Depreciation on Technical Know-How: The issue at serial No. 4 regarding depreciation on technical know-how was not pressed in all the assessment years. Hence, the relevant ground in each year was dismissed as not pressed. 4. Proportionate Leasehold Premium: The issue regarding proportionate leasehold premium for the assessment years 1996-97 to 2001-02 was covered against the assessee by the decision of the Special Bench of the Tribunal in the case of Jt. CIT vs. Mukund Ltd. Consequently, the relevant ground in each year was dismissed. 5. Treatment of Retention Money: The assessee claimed a deduction for retention money, arguing that it should be excluded from the total income. The AO rejected this claim on both technical grounds and merits, stating that the assessee did not file a revised return within the prescribed time and that the retention money did not enter the books of account. The AO also noted that the assessee had received full payment from customers upon furnishing a bank guarantee and that no expenditure had been incurred by the assessee till the date of completion of assessment proceedings. The CIT(A) confirmed the AO's action, leading to the assessee's appeal. The Tribunal held that the revenue from the sale of UPS systems should be recognized at the time of delivery to the customer, and revenue from installation and service charges should be recognized at the time of rendering such services. The Tribunal found no merit in the assessee's claim to postpone the recognition of revenue represented by the performance bank guarantee. The Tribunal dismissed this ground of the assessee in all the years under consideration. 6. Deduction under Section 80-IA on Trading Turnover: The assessee claimed a deduction under Section 80-IA on the profits of trading turnover, arguing that trading and manufacturing activities were closely integrated. The AO and CIT(A) rejected this claim, stating that the trading profits could not be treated as derived from the industrial undertaking. The Tribunal held that trading activities carried on by the assessee were of the assessee company and not of the industrial undertaking. The Tribunal noted that an industrial undertaking is established to carry out manufacturing, production, or processing activities and not for trading activities. The Tribunal also found that the provisions of Section 80-IA were not wider in scope compared to Section 80HH and that the profits and gains of only those activities defined in Section 80-IA(2) could be considered as derived from the industrial undertaking. Consequently, the assessee was not entitled to a deduction under Section 80-IA on the profits of trading activities for all the years under consideration. Conclusion: All the appeals of the assessee were dismissed.
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