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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 ..... 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 shown as liability in the Balance Sheet. The assessee was offering the said liability as its income on proportionate basis, i.e., proportionate to the period of warranty. The said change of accounting system was not accepted by the AO since 1992-93 onwards and accordingly he assessed the sales revenue so assigned towards warranty period also as income of the assessee in the year of receipt. Following the same, in the instant year also, the AO assessed the sales amount allocated towards Warranty period as income of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is segregating the sales revenue into Sales revenue and Warranty period receipts. He submitted that the customers of the assessee have paid the amount as per sales invoice raised upon them. The learned DR further submitted that the Revenue has taken a consistent view in this matter and hence the same should be considered as settled issue. Accordingly he submitted that the order passed by the learned CIT(A) does not call for any interference. The learned DR further submitted that the various case laws relied on by the assessee are distinguishable on facts in as much a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing 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 proposition of law that the genuine change in the method of accounting to comply with the requirement of the accounting principles and accounting standards should be accepted. As regards the methodology adopted by the AO, we notice the same only shifts the year of assessing the income, whereas the methodology adopted by the assessee would comply with the requirement of the accounting principles and the accounting standards. Accordingly we are of the view that there is no requirement to disturb the methodology adopted by the assessee in accounting for Warranty period receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 86,35,105/-. The AO took the view that the deduction is not available on the following receipts, as they are independent income not related to the activities of export of software:- (a) Project grants from Govt. (b) Profit on sale of assets (c) Dividend from subsidiary (d) Transfer from Capital Reserve (e) Provision written back (f) Miscellaneous Income Accordingly the AO recomputed the deduction at Rs. 57,56,781/- as against the claim of Rs. 86.35 lakhs made by the assessee. 14. Before Ld CIT(A), the assessee submitted that it did not include incomes, viz., profit on sale of assets, div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O 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 apprehension of Ld CIT(A). Accordingly we agree with the contentions of the assessee that the amount so written back should be treated as part of operating profit of the assessee, as it is not an independent source of income. Accordingly we direct the AO to include the amount written back by the assessee in "Profits of business" and allow deduction u/s 80HHE of the Act. 19. The next item relates to the miscellaneous income. The assessee could not furnish break-up details of miscellaneous income and hence the Ld CIT(A) rejected the claim of the assessee for deduction u/s 80HHE of the Act. The Ld A.R submitted that the miscel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO disallowed the claim of lease rentals of Rs. 84.14 lakhs made by the assessee. However, the AO allowed deduction of depreciation of Rs. 29.28 lakhs and interest component of Rs. 31.79 lakhs in respect of these lease transactions. Hence net addition made by the assessee worked out to Rs. 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 as finance transactions, only for the reason that the lessor has purchased the computers as identified by the assessee and further the relevant invoices also contained the name of the assessee as "Lessee". We notice that the Ld CIT(A), in the order passed for AY 1997-98, has examined the identical issue and decided the same in favour of the assessee. We notice that the Ld CIT(A) has taken support of the decision rendered by Hon'ble Bombay High Court in the case of Development Credit Bank vs. Prakash Industries Ltd (Civil suit no.3196 of 1998) and held that the lessor is the real owner of the assets. The Ld CIT(A) also held that so long as the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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