9911796707
TMI Blog2015 (7) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal wherein held an accepted position that the issue regarding assessee’s claim for deduction of proportionate premium of leasehold land amortized and charged to the Profit & Loss Account for the year under consideration is liable to be decided in terms of the judgement of the Hon’ble Supreme Court in the case of Govind Sugar Mills Ltd. vs. CIT, (1997 (7) TMI 16 - SUPREME Court ) against the assessee - Decided against assessee. Disallowance of Provision for profit equalizations in terms of AS-7 - Held that:- There has been no change in the facts and circumstances in the present year, nor there is any change in the accounting treatment given by the assessee. We do not find any reason to deviate from the view taken by the Co-ordinate Bench in assessment years 1998-99 and 1999-2000 wherein the Tribunal upheld the allowability of provision for profit equalization while recognizing incomes on application of percentage of completion method in the case of long term contracts in the light of the AS-7 issued by the ICAI. Accordingly, this ground in the appeal of the assessee is accepted.- Decided against revenue. Disallowance of expenditure on computer software - Held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years disallowance as confirmed by the CIT(A) has been a subject matter of consideration by the Tribunal in assessment year 1997-98. In view of the aforesaid precedent, the action of the CIT(A) in restricting the disallowance to 2.5% of the gross income is hereby affirmed.- Decided against assessee Addition on account of Lease Rental income - Held that:- The assessee admittedly maintains books of account according to the mercantile system of accounting. However, the assessee in its books of account have not recognized the lease rental income due from (i) Modi Alkalies; (ii) Inertia; (iii) Parasrampuria Industries Ltd.; and, (iv) Parasrampuria International Ltd. on the ground that these companies are in financial distress, therefore, no rental income is recoverable. In our opinion, the correct course of action which the assessee should have followed is to recognize lease rental income from the aforesaid companies in its books and thereafter should have claimed the same as bad debts. The CIT(A) has upheld the findings of the Assessing Officer in principle which in our opinion is the correct proposition. Accordingly, the same is upheld - Decided against assessee Allowability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) has followed the judgement of the Hon’ble Bombay High Court in the case Padamjee Pulp and Paper Mills Ltd. (1993 (10) TMI 16 - BOMBAY High Court ). It was a common point between the parties that the Assessing Officer has been allowing deduction to the assessee to the extent of 1/6th since assessee itself was debiting only 1/6th of process know-how fee in the Profit & Loss Account and what the Assessing Officer was rejecting was the claim of the assessee made in the computation of income that the full amount should be allowed in the first year itself. Infact, it was a common point between the parties that so far as the claim of deduction of 1/6th cost is concerned, the same was allowed by the Assessing Officer in the respective years. In view of the aforesaid factual matrix, the direction of the CIT(A) is quite infructuous and in-fact was not called for. As a consequence, the decision of the CIT(A) on this aspect is set-aside as being infructuous. - Decided in favour of revenue for statistical purposes. Provisions for reimbursement of medical expenses - CIT(A) allowed claim - Held that:- The amount of medical reimbursement are in the nature of incentives given by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... film resistors, related accessories and treasury operations. The assessee filed its return of income for the assessment year 2000-01 on 30.11.2000 declaring total income of ₹ 14,88,97,010/-. In assessment year 2001-02, the assessee filed its return of income on 31.10.2001 declaring total income of ₹ 8,20,84,180/-. The return of income for both the impugned assessment years was subject to scrutiny assessment. During the course of scrutiny assessment, the Assessing Officer made additions/disallowances in the income returned by the assessee inter alia, on account of : (i) Deduction under section 35AB for payment of technical know-how fees; (ii) Provision for warranty; (iii) Amortization of premium paid on lease-hold land; (iv) Provision for Medical Expenses; (v) Retention money; (vi) Expenditure on purchase of computer software; (vii) Depreciation claim @ 100% on plant and machinery; (viii) Expenditure on earning tax-free income; (ix) Lease rental income; (x) Claim of deduction under section 80HHC; and, (xi) Claim of deduction under section 80IA. Aggrieved by the assessment orders in the respective assessment years, the assessee filed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Deduction allowed under section 80IA. (iv) Lease Rentals allowed as bad debts (counter to ground No.vii of assessee s appeal). 7. The first ground in the appeal of assessee is provision of warranty. The assessee is providing warranty for a period of one to two years on the products manufactured by it. The assessee is under obligation to replace or repair the product free of cost against manufacturing defects. The assessee created provision for warranty to meet these repair/replacement expenditure. The Assessing Officer disallowed the same by following the order of CIT(A) in the earlier assessment years. 7.1. The Ld. AR of the assessee pointed out that in assessment year 1998-99 similar ground was raised by the assessee. The Co-ordinate Bench of the Tribunal decided the issue in favour of the assessee. 7.2. After perusal of the order of Co-ordinate Bench dated 15.12.2014 in assessee s own case for assessment years 1998-99 and 1999-2000 we find that this issue has been decided in favour of the assessee. The findings of the Co-ordinate Bench on the issue are as under :- 12. In this context, relevant facts are that the assessee made a provision of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land by following the order of the Commissioner of Income Tax (Appeals) in assessment year 1993-94. In appeal, the Commissioner of Income Tax (Appeals) has confirmed the findings of the Assessing Officer. 8.1 The Ld. AR of the assessee fairly submitted that this issue has been decided against the assessee in assessment years 1998-99 and 1999-2000 by the Tribunal. We observe that this issue has been considered by the Co-ordinate Bench in assessment years 1998-99 and 1999-2000 and has decided the same against the assessee with the following observations :- 15. In this context, the Ld. Representative for the assessee conceded that similar issue has been decided against the assessee by the Tribunal in the past years and in this context referred to the recent order of the Tribunal dated 03.09.2014 (supra) pertaining to assessment year 1997- 98. It was also an accepted position that the issue regarding assessee s claim for deduction of proportionate premium of leasehold land amortized and charged to the Profit Loss Account for the year under consideration is liable to be decided in terms of the judgement of the Hon ble Supreme Court in the case of Govind Sugar Mills Ltd. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication of percentage of completion method in the case of long term contracts in the light of the AS-7 issued by the ICAI. In view of the decision of the Tribunal in the assessee s own case in the preceding assessment year, we do not deal with the issue any further except directing the Assessing Officer to implement the order of the Tribunal dated 03.09.2014 (supra) on this Ground too. As a consequence, whereas Ground of Appeal of the assessee is allowed that of the Revenue is dismissed. There has been no change in the facts and circumstances in the present year, nor there is any change in the accounting treatment given by the assessee. We do not find any reason to deviate from the view taken by the Co-ordinate Bench in assessment years 1998-99 and 1999-2000. Accordingly, this ground in the appeal of the assessee is accepted and the ground raised by the Revenue in its appeal is dismissed. 10. The fourth ground raised by the assessee in appeal is expenditure on computer software. The assessee during the relevant assessment period had purchased license to use computer softwares like, Windows 95, AutoCAD, MS Office, FoxPro, etc.. The assessee treated the expenditure towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 17,97,051/- has been incurred on acquisition of routine standard softwares such as Windows 95, MS Office, etc. which are revenue in nature. Ostensibly, assessee s business is of manufacturing of boilers and other heat transfer equipment and the aforesaid softwares merely facilitate assessee s trading operations and/or enable conduct of its business more efficiently and the same are not in the nature of the profit-making apparatus of the assessee company. Therefore, in our view, the CIT(A) made no mistake in treating the expenditure of ₹ 17,97,051/- incurred on acquisition of routine standard software as a revenue expenditure. Moreover, the said decision of the CIT(A) is in line with the ratio of the judgement of the Hon ble Bombay High Court in the case of Raychem Rpg. Ltd. (supra). In the result, the Ground of Appeal No.7 of the assessee as well as the Grounds of Appeal No.7.1 7.2 of the Revenue are dismissed. Respectfully following the order of Tribunal in earlier assessment years in assessee s own case, we dismiss this ground in the appeal of assessee. 11. The fifth ground in appeal of the assessee is with respect to claim of 100% depreciation on pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find a place in any of the items in the Depreciation Table which is entitled for depreciation @ 100%. On this aspect, the order of the CIT(A) is hereby affirmed. Thus, Ground of Appeal No.8 of the assessee as well as the Grounds of Appeal Nos.8.1 8.2 of the Revenue are dismissed. The issue raised by both the sides are identical to the one already adjudicated by the Tribunal. Both the sides have not been able to controvert the findings of the Tribunal in earlier assessment years. We find no reason to take a contrary view. Accordingly, the ground with respect to claim of depreciation in assessee s appeal and the appeal of Revenue is dismissed. 12. The sixth ground raised by the assessee in its appeal is with respect to the amount of expenditure attributable to dividend and taxfree interest. We find that identical ground was raised by assessee in appeal for assessment year 1998-99 before the Tribunal. The Tribunal dismissed the contentions of the assessee with following observations :- 45. In this context, the relevant facts are that the Assessing Officer estimated 5% of gross dividend and other tax-free incomes as an expenditure incurred for earning of such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debt. The Ld. AR of the assessee contended that once the assessee has declared the amount as non recoverable and has written-off as bad debts, there is no question of taxing the same. In support of his submissions, the Ld. AR placed reliance on the decision of the Hyderabad Bench of the Tribunal in the case of M/s Maruti Securities Ltd. vs. Addl.CIT in ITA No.468/Hyd/2009 and Others, decided on 05.09.2014 and the judgement of the Hon ble Supreme Court of India in the case of TRF Ltd. vs. CIT reported as 323 ITR 397 (SC). 13.3 On the other hand, the Ld. DR submitted that the Commissioner of Income Tax (Appeals) has erred in crossing over from one assessment year to the next assessment year. The Commissioner of Income Tax (Appeals) ought to have restricted to the issue in assessment year 2000- 01 only. To support his submissions, the Ld. DR placed reliance on the judgements of Hon ble Supreme Court of India in the case of ITO vs. Murlidhar Bhagwan Das reported as 52 ITR 335 (SC) and CIT vs. Manick Sons reported as 74 ITR 1 (SC). The Ld. AR of the assessee controverting the submissions of the Ld. DR submitted that before the Commissioner of Income Tax (Appeals) the appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for assessment year 2000-01 has assailed the findings of the Commissioner of Income Tax (Appeals) with respect to allowability of deduction under section 80-IA of the Act to the assessee in respect of its unit Woodpack . The Ld. AR of the assessee submitted at the outset that this issue was considered and decided in favour of the assessee by the Co-ordinate Bench of the Tribunal in Revenue s appeal in assessment year 1998-99 and assessment year 1999-2000. The ld. DR admitted the fact, however, she strongly defended the findings of Assessing Officer. 14.1 After perusal of the order of Tribunal in ITA No.1288 1289/PN/2005 for assessment years 1998-99 and 1999-2000, we observe that this issue was raised by the Revenue in its appeal for assessment year 1998-99 as ground No.11. The Co-ordinate Bench affirmed the findings of the Commissioner of Income Tax (Appeals) with following observations :- 65. In this Ground, dispute pertains to the assessee s claim for deduction u/s 80-I/80-IA of the Act in respect of two industrial undertakings, namely, (i) Woodpac (manufacturing) ₹ 21.84 lacs; and, (ii) Process Integrated Boilers ₹ 138.06 lacs. The only reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01 are partly accepted, in the aforesaid terms. 16. Now, we proceed to decide ITA No.1248/PN/2005 and ITA No.1291/PN/2005 for the assessment year 2001-02. 17. In assessment year 2001-02, the assessee has raised following 11 grounds of appeal :- 1. The learned CIT (Appeals) erred in confirming the action of the Assessing Officer of rejecting the contention of the appellant that 'Retention money' did not accrue to the appellant and was accordingly not taxable in the year under appeal. 2. The learned CIT (Appeals) erred in confirming action of the Assessing Officer in attributing ₹ 15 lacs as expenditure incurred in relation to dividend and interest-free income rejecting the contention of the Appellant that no such expenditure was, in fact, incurred for earning such income and accordingly none was so attributable. In any event, the estimate made by the AO and confirmed by the CIT(A) is high-pitched. 3. The learned CIT (Appeals) erred in confirming disallowance of the Appellant's claim for provision made in respect of warranty obligation liability in the amount of ₹ 1,59,50,143/- (being the difference between gross year-end liability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n expenses. 11. The learned CIT (Appeals) erred in confirming assessing income of ₹ 2,01,25,745/- under the head 'Other Sources' hence rejecting the contention of the appellant that it was assessable under the head 'Business income' Your appellant reserves the right to add to, alter or amend any of the above grounds of appeal, if necessary. 18. The first ground raised by the assessee in its appeal for assessment year 2001-02 relates to Retention Money forming part of sales. The ld. AR of the assessee stated at the Bar that he is not pressing ground No.1 of appeal. In view of the statement made by ld. AR, we dismiss this ground of appeal of the assessee as not pressed. 19. The second ground raised by the assessee in appeal is with respect to the expenditure attributable to dividend and tax-free interest. The ld. AR of the assessee made statement that he is not pressing this ground of appeal, as well. Accordingly, we dismiss this second ground of appeal of the assessee as not pressed. 20. The third ground of appeal raised by the assessee in appeal is with regard to provision for warranty obligation. Similar ground was raised by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100% depreciation on certain items of other plants. This issue has already been considered by us in the appeal of the assessee and Revenue in assessment year 2000-01 in para 11 above. Both the sides have not been able to show any change in circumstances in the present assessment year. Accordingly, this ground in the appeal of assessee as well as Revenue is rejected for similar reasons as mentioned above in para 11. 25. The ground Nos.8, 9 and 10 of appeal of the assessee is directed against the findings of the CIT(A) in respect of deduction under section 80HHC claimed by the assessee. On the other hand, the Revenue in ground Nos.9 and 10 of its appeal has assailed the relief granted to the assessee in computation of deduction under section 80HHC. 25.1 The Assessing Officer rejected the assessee s computation of deduction under section 80HHC. The Assessing Officer while recomputing the deduction added excise duty and sales-tax collected in total turnover. Apart from the above, the Assessing Officer also added the following items in determining total turnover : i) Scrap sale 23,672,925 ii) Exchange Gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised by the Revenue in its appeal with respect to computation of deduction under section 80HHC is rejected. 25.4 The assessee in its appeal has impugned the findings of the CIT(A) in holding that Service Charges (USA and International) and Exchange Gain as a part of total turnover and their exclusion under Explanation (baa) to section 80HHC of the Act. It is a well-settled law that what has been included in export turnover that it has to be included in total turnover as well. In other words, what has been excluded in export turnover cannot be included in total turnover. As far as miscellaneous receipts are concerned, the contention of the assessee is that the same is covered by the order of the Hon ble Bombay High Court in the case of Pfizer Ltd. (supra). We, therefore, remit these issues to the file of the Assessing Officer to re-compute the deduction u/s. 80HHC, accordingly. Thus, ground Nos. 8, 9 and 10 of appeal of the assessee are allowed for statistical purposes. 26. In ground No.11, the assessee has assailed the order of the CIT(A) in confirming the income of ₹ 2,01,25,745/- under the head other sources . The assessee claimed the said income under head busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 37(1) of the Act is liable to be decided against the assessee following the judgement of the Hon ble Supreme Court in the case of M/s Drilcos (India) Pvt. Ltd. vs. CIT, (2012) 348 ITR 382 (SC). Therefore, following the ratio of the judgement of the Hon ble Supreme Court in the case of M/s Drilcos (India) Pvt. Ltd. (supra), the expenditure incurred by the assessee for acquiring process know-how fee is to be allowed amortization in terms of section 35AB of the Act. Therefore, in-principle, the stand of the Revenue on this aspect is upheld and the assessee fails in its Ground of Appeal. 8. In so far as the Ground of Appeal No.1 of the Revenue relating to the CIT(A) s decision to allow determination of deduction u/s 35AB of the Act not only with reference to the amounts actually paid but also with reference to the amounts payable for process know-how is concerned, the same in our view has been appropriately decided by the CIT(A). Notably, the CIT(A) has noticed that assessee is following the mercantile system of accounting and the word paid has been defined in section 43(2) of the Act to include the incurrence of liability also. In coming to such conclusion, the CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Revenue in appeal is with regard to lease rentals. This issue has already been considered by us in assessment year 2000-01 in para 13 above. In assessment year 2001-02, there has been no change in the facts and circumstances. Accordingly, this ground of appeal of the Revenue is allowed. 29. The third issue raised by the Revenue in appeal is with regard to provisions for reimbursement of medical expenses. The Ld. AR of the assessee submitted that annual amount due to each employee is credited to his personal Medical Reimbursement Account. It is left to the discretion of employee to withdraw the amount as reimbursement, as and when required or to accumulate and claim at the time of retirement. The Assessing Officer held that since the amount has not been quantified or paid, under mercantile system of accounting, the expenditure cannot be said to have accrued or crystallized. The claim is by way of provision, without exact quantification. The Assessing Officer disallowed the same. 29.1 In first appeal, the Commissioner of Income Tax (Appeals) held that the medical reimbursement is akin to liability of leave encashment. The amount to be transferred under medical reimbur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance on the decision of Mumbai Bench of Tribunal in the case of M.J. Exports Ltd. vs. JCIT reported as 88 ITD 18 (Bom.). 31.1 It is an undisputed fact that the assessee has accounted gross amount in its books of accounts and has paid tax thereon. It is also not disputed that the assessee has not received TDS certificates from its customers to the tune of ₹ 64.93 lakhs. The Revenue has not controverted the findings of the CIT(A) that the said amount has been actually written off by the assessee. We concur with the findings of CIT(A) that non-receipt of TDS certificates is akin to non-receipt of monies from debtors. The Mumbai Bench of the Tribunal in the case of M.J. Exports Ltd. vs. JCIT (supra) under similar circumstances had accepted the claim of assessee. The ld. AR in order to further buttress his submissions has drawn support from the order of Co-ordinate Bench of the Tribunal in the case of Kailash Vahan Udyog Ltd. vs. DCIT in ITA No.1077/PN/2011 for assessment year 2004-05 decied on 31.01.2013. In the said case, the assessee had not received TDS certificates from its customers. The assessee had already accounted for the said amount in respective years. The Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee with respect to exchange gain, excise duty refund and sales tax refund. However, in respect of insurance refund and lease rental income the CIT(A) upheld the findings of the Assessing Officer. Against the order of the CIT(A), the assessee has come in second appeal before the Tribunal. 35.3 Shri H.P. Mahajani appearing on behalf of the assessee submitted that both lease rental income as well as insurance refund received during the relevant period are integral part of the business income eligible for deduction under section 80HHC of the Act. The ld. AR submitted that the assessee apart from manufacturing and selling of steam boilers, water exchangers, water treatment plant, carbon and metal film resistors, etc. is also engaged in leasing out plant and machinery. The lease rentals are part of latter business activity. In respect of insurance refund, the ld. AR contended that these are insurance claims arising out of claim of damage. The Hon ble Bombay High Court in the case of CIT vs. M/s Pfizer Ltd. reported as 233 CTR 521 (Bom.) has held that the claim of insurance on account of stock-in trade does not fall within Explanation (baa) and therefore, is not liable to be reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Pfizer Ltd. (supra). The Hon ble Bombay High Court while accepting the claim of the assessee held, that the insurance claim is not similar to brokerage, commission, interest, rent or charges, therefore, does not fall within the meaning of Explanation (baa). In the present case, it is not evident from the records whether the insurance claim is on account of claim of damages of stock-in-trade or any other asset. In our considered opinion, this issue needs a re-visit to the Assessing Officer for the limited purpose of ascertaining whether the insurance claim was on account of damage caused to stock-in-trade or any other asset. In case, the Assessing Officer finds that the insurance claim is on account of stock-in-trade, he shall allow the same in terms of the judgement of the Hon ble Bombay High Court in the case of M/s Pfizer Ltd. (supra). The appeal of the assessee is partly accepted for statistical purposes. 36. Resultantly, appeals of the assessee in ITA Nos.1247 1248/PN/2005 for assessment years 2000-01 and 2001-02 are partly allowed and in ITA No.574/PN/2007 for assessment year 2001-02 is allowed for statistical purposes. The appeals of the Revenue in ITA Nos.1290 1291 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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