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TMI Blog2018 (12) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly we set aside the order passed by the CIT(A) on this issue and direct the Assessing Officer to delete the addition made by him on this issue. Seduction claimed u/s 80HHE - Held that:- As earlier restored the issue relating to Grants in aid to the file of the AO for examining its taxability afresh by duly considering the agreement entered by the assessee with the Government. Hence the claim of the assessee for deduction u/s 80HHE in respect of this income would depend upon the view that will be taken by the AO in the set aside proceedings. As contended by D.R, if it is found that the Government has given grant in aid to meet the expenses incurred in development and implementation of government programs and accordingly if it was held that the same is taxable, then we are of the view that the grant in aid shall form part of operating income and would be eligible for deduction u/s 80HHE of the Act. Provisions written back - Held that:- We agree with the said submission of the assessee. It is quite normal in any business to create provisions for known liabilities and to write back the same when the liability is no longer payable. The amount so written back is usually t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2002-03. 2. The assessee company is engaged in the business of design development of software, sale of computer and other allied activities. It was owned by Government of India up to 15.10.2001. Under the disinvestment policy, the Government sold 51% stake in the company to M/s Tata Sons Ltd on 16.10.2001. 3. We shall first take up the appeal filed by the assessee. The first issue relates to the addition pertaining to the assessment of receipts allocated towards Warranty period. The assessee was earlier following the system of accounting entire sale price as its income. As per the terms of sale, the assessee provides warranty to the computers sold by it for a certain period. The existing accounting system of declaring entire sales amount as revenue in the year of sale was found to be not in consonance with the requirement of Accounting standards, since the assessee would be claiming warranty expenses in the subsequent years. Hence the assessee changed its method of accounting from AY 1992-93 onwards and accordingly it allocated 10% of sales revenue as pertaining to Warranty period. Accordingly the same was not offered as income in the year of receipt and the same was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of liability is upheld:- ( a) ACIT vs. Mahindra Holidays and Resorts (India) Ltd (39 SOT 438)(SB)(Chennai) ( b) Director of Income tax (IT)-II vs. BNP Paribas SA (214 taxman 548) ( c) CIT vs. Bank of Tokyo Ltd (1993)(71 Taxman 85)(Cal) ( d) CIT vs. Punjab Tractors Co-op Multipurpose Society Ltd (234 ITR 105)(P H) 6. The learned DR, on the contrary, submitted that the assessee has collected amount as sales revenue by raising invoices on its customers and thereafter accounted for only 90% of the same as its sales revenue. The balance 10% was allocated by the assessee as warranty period receipts . The Ld D.R submitted that the assessee did not offer the amount allocated as Warranty period receipts as its income. The assessee has changed its method of accounting as stated above from AY 1992-93 onwards. Since the entire amount was collected as sales revenue only, the the Assessing Officer did not accept the change in method of accounting since the assessment year 1992-93 onwards. The Ld D.R submitted that the view so taken by the AO is justified, since it is the assessee who is changing the character of receipt, i.e, it is the assessee who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas the methodology adopted by the assessee is in accordance with the accounting principles and accounting standards. Accordingly, the learned AR submitted that the addition made by the Assessing Officer should be deleted. 8. We heard the rival contentions on this issue and perused the records. There is no dispute with regard to the fact that the assessee has obliged to provide warrantee on the computer sold by it for certain period. We find merit in the said submission of the learned AR. The methodology adopted by the A.O., in effect, only shifts the year of assessing the amount allocated towards warranty receipts. The contention of the assessee is that the method of accounting followed by the assessee complies with the accounting principle of Revenue cost matching principle , i.e., the revenue is being spread by the assessee over the warranty period, since warranty expenditure shall be incurred by the assessee during the warranty period. Accordingly, we are of the view that the change in method of accounting made by the assessee in the assessment year 1992-93 was on account of genuine reasons and not with the purpose of avoiding any tax liability. It is well settled prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, as the same was given to meet the expenditure incurred by the assessee in the course of conducting of the business. He further submitted that the decision rendered in the case of Siemens Ltd (supra) is not applicable to the facts of the present case. Accordingly, the learned DR submitted that the tax authorities have rightly assessed the same as income of the assessee. 12. We heard the rival contentions and perused the records. We noticed that the co-ordinate Bench of the Tribunal has restored an identical issue to the file of the Assessing Officer for assessment year 1988-89 and also in assessment year 1989-90 in ITA No.1682/Mum/1993 dated 24.04.2003. Following the same, we restore the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer for adjudicating the issue afresh by duly considering the relevant documents. After hearing the assessee, the Assessing Officer may take appropriate decision in accordance with law. 13. The next issue contested by the assessee relates to the deduction claimed u/s 80HHE of the Act. The assessee had claimed deduction u/s 80HHE of the Act to the tune of ₹ 86,35,105/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly if it was held that the same is taxable, then we are of the view that the grant in aid shall form part of operating income and would be eligible for deduction u/s 80HHE of the Act. 17. The next item is Provisions written back. The Ld CIT(A) took the view that the amount so written back may represent expenses claimed in the year in which the assessee was not eligible for deduction u/s 80HHE of the Act. He further took the view that the writing back of liability cannot be regarded as operating profit eligible for deduction u/s 80HHE of the Act. Accordingly, the Ld CIT(A) confirmed the order of the AO passed on this issue. 18. The Ld A.R submitted that the writing back of liability is not a separate source of income, as it is not a receipt contemplated in the definition of Profits of business given in sec. 80HHE of the Act. We agree with the said submission of the assessee. It is quite normal in any business to create provisions for known liabilities and to write back the same when the liability is no longer payable. The amount so written back is usually treated as income of the year in which it is so written back. Hence, we do not find any merit in the apprehensio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed by the assessee. During the year under consideration, the assessee paid lease rentals to the tune of ₹ 84.14 lacs to various finance companies in respect of lease transactions entered in the earlier years. The AO noticed that, during the course of assessment proceedings relating to AY 1999-2000, these lease transactions were considered as finance lease by the assessing officer and accordingly the claim for deduction of lease rentals was rejected. The AO also noticed that the disallowance so made by the AO was deleted by Ld CIT(A) in those year, but the revenue has preferred appeal before ITAT. Accordingly, the AO disallowed the claim of lease rentals of ₹ 84.14 lakhs made by the assessee. However, the AO allowed deduction of depreciation of ₹ 29.28 lakhs and interest component of ₹ 31.79 lakhs in respect of these lease transactions. Hence net addition made by the assessee worked out to ₹ 23.07 lakhs. 23. The Ld CIT(A), by following his earlier orders, deleted the addition made by the AO. The revenue is aggrieved. 24. We heard the parties on this issue and perused the record. We notice that the AO has mainly treated the lease transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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