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2019 (9) TMI 784 - AT - Income TaxRevenue recognition - Income recognition method followed by the assessee from contract activity - HELD THAT - The assessee is following percentage completion method in line with Accounting Standard 7. The Authorities below rejected revenue recognition method of the assessee. We find that similar issue had come up before the Tribunal in assessee s own case for assessment year 2004-05 wherein, the Authorities below were in disagreement with the assessee on the revenue recognition policy. The Tribunal accepted assessee s method of recognition of profit by observing AS-7 which existed prior to letter dated 01st April, 2003 continues to remain the same; but for minor changes. There are minor changes in relation to the computational issues. However, there is no change so far as cost based percentage completion method in concerned. Therefore, the computation of recognition income is concerned, the order of the CIT(A) is fair and reasonable and the same does not call for any interference. Accordingly, relevant grounds stand allowed in favour of the assessee. Claim of Prior period expenses - HELD THAT - We observe that in the past as well the assessee has been claiming prior period expenditure . After being unsuccessful before the Commissioner of Income Tax (Appeals), the assessee carried the issue in appeal before the Tribunal. The Tribunal adjudicated this issue in favour of the Revenue. The Tribunal has been taking a consistent view in rejecting assessee s claim of prior period expenses in the past. Thus, following the order of Tribunal in assessee s own case, the assessee s claim of prior period expenses is rejected. Liquidated damages - assessee has been claiming penalty paid to customers for delay in delivery of consignment as liquidated damages - We find this issue is recurring in the past several assessment years. The Co-ordinate Bench in appeal of assessee for assessment year 2004-05 decided the issue in favour of the assessee by placing reliance on assessee s own case . 2019 (3) TMI 1608 - ITAT PUNE Commercial expediency is a term of wide import and has been held to include such expenditure as a prudent businessman incurs for the purpose of business. The expenditure incurred though not under any legal obligation but still it is allowable as a business expenditure if incurred on the grounds of commercial expediency and the method of recognition is followed from year to year. Before us, no material has been placed by the Revenue that the expenditure is not a genuine expenditure or has been incurred to benefit any group concerns. Considering the totality of the facts we are of the view that the expenditure is allowable D isallowance of depreciation claimed at 80% on plant and machinery used for manufacturing of air/gas/fluid heating systems being renewable energy devices - HELD THAT - since both the parties have admitted that the facts of the case in the present ground are identical to that of earlier years, we therefore following the decision of the Co- ordinate Bench of the Tribunal in assessee s own case for A.Y 2002-03 and for similar reasons hold that assessee is eligible to claim depreciation @ 80% with respect to plant and machinery used Plant Nos.4 and 8 in the manufacture of air / gas / fluid systems but is not eligible for 100% depreciation in respect of plant and machinery used in the manufacture of heat pumps. Disallowance made u/s.14A in respect of exempt income earned - HELD THAT - AO made disallowance @2.5% of exempt income earned. The Ld.AR fairly admitted that in preceding assessment year i.e. assessment years 2002-03, 2004-05, the Tribunal has upheld the disallowance made by the Assessing Officer @ 2.5%. We find no reason to deviate from the view taken by the Co-ordinate Bench of the Tribunal in confirming disallowance @2.5% of the exempt income. Accordingly, ground No.5 raised in appeal by the assessee is dismissed being devoid of any merit. Disallowance of provision for warranty - assessee has created provision on account of provision for warranty - HELD THAT - AR has pointed that no disallowance in respect of warranty provision was made in assessment years 2002-03 to 2004-05 as no incremental provision was made by the assessee. Rather there was reversal of provision during the aforesaid assessment years. The ld. DR has failed to controvert the findings of the Tribunal on this issue 2016 (8) TMI 1449 - ITAT PUNE . Thus, respectfully following the decision of the Co-ordinate Bench, we allow assessee s claim in entirety. Disallowance of legal and professional expenditure paid to Mckinsey Co . - allowable revenue expenditure - HELD THAT - In view of the facts of the present case and the various decisions discussed above, we are of the considered view, consultancy charges paid by assessee to Mckinsey Co. for enhancing efficiency, efficacy, profitability and market penetration is revenue in nature . The Commissioner of Income Tax (Appeals) has rightly reversed the findings of Assessing Officer and has held that the expenditure is not capital in nature. We are in agreement with the observation of the First Appellate Authority that no intangible asset has come in existence and hence, expenditure is allowable as revenue. However, we do not subscribe to the observation of the First Appellate Authority that the expenditure is allowable as deferred revenue expenditure . In the light of the judgments discussed above, we hold the expenditure is on revenue account and hence, entirely allowable in the impugned assessment year. Disallowance of sales commission - HELD THAT - As the assessee has not furnished cogent evidence to substantiate rendering of services by the aforementioned two parties. For the parity of reasons, we reverse the findings of Commissioner of Income Tax (Appeals) on this issue. Hence, ground No.5 raised in appeal by Revenue is allowed.
Issues Involved:
1. Revenue Recognition 2. Prior Period Expenses 3. Liquidated Damages 4. Depreciation 5. Disallowance u/s.14A 6. Provision for Warranty 7. Legal and Professional Expenses 8. Ad-hoc Disallowances of Miscellaneous Expenses 9. Sales Commission Issue-wise Detailed Analysis: 1. Revenue Recognition: The assessee followed the percentage completion method as per Accounting Standard 7 for revenue recognition. The Assessing Officer included freight cost and recovery in the calculation, which was contested by the assessee. The Tribunal, referencing previous years' decisions, upheld the assessee's method, noting that freight costs being reimbursed should not affect income recognition. Thus, the assessee's appeal was allowed, and the Revenue's corresponding ground was dismissed. 2. Prior Period Expenses: The assessee claimed prior period expenses of ?10,77,994/-. This claim was consistently rejected in previous years, including assessment year 2004-05. The Tribunal upheld the disallowance, dismissing the assessee's ground. 3. Liquidated Damages: The assessee claimed deductions for liquidated damages paid to customers for delayed deliveries. The Tribunal, following previous decisions, allowed the claim in full, dismissing the Revenue's corresponding ground. 4. Depreciation: The assessee claimed 80% depreciation on plant and machinery used for manufacturing renewable energy devices. The Tribunal, referencing prior decisions, allowed 80% depreciation for Plant Nos. 4 and 8 but denied it for Plant No. 11, which was used for manufacturing heat pumps. The assessee's ground was partly allowed. 5. Disallowance u/s.14A: The assessee earned ?9.78 Crores in dividend income but made no suo-moto disallowance. The Assessing Officer disallowed 2.5% of the exempt income, upheld by the Tribunal in previous years. The Tribunal upheld this disallowance, dismissing the assessee's ground. 6. Provision for Warranty: The assessee created a provision of ?2,39,35,670/- for warranty obligations. The Tribunal, referencing past decisions and the Supreme Court's ruling in Rotork Controls India P. Ltd., allowed the provision in full, dismissing the Revenue's corresponding ground. 7. Legal and Professional Expenses: The assessee paid ?9.02 Crores to Mckinsey & Co. for consultancy services. The Tribunal held these expenses as revenue in nature, rejecting the deferred revenue expenditure treatment by the Commissioner of Income Tax (Appeals). The assessee's ground was allowed, and the Revenue's corresponding ground was dismissed. 8. Ad-hoc Disallowances of Miscellaneous Expenses: The Assessing Officer made ad-hoc disallowances on various expenses. The Commissioner of Income Tax (Appeals) deleted these disallowances, a decision upheld by the Tribunal referencing previous years' decisions. The Revenue's ground was dismissed. 9. Sales Commission: The assessee paid sales commission to two parties, which was disallowed by the Assessing Officer for lack of evidence of services rendered. The Tribunal upheld this disallowance, reversing the Commissioner of Income Tax (Appeals)'s decision. The Revenue's ground was allowed. Conclusion: The Tribunal's order resulted in partial allowances and disallowances for both the assessee and the Revenue, maintaining consistency with previous years' rulings and established legal precedents.
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