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TMI Blog2019 (7) TMI 1513X X X X Extracts X X X X X X X X Extracts X X X X ..... recognition income of such reimbursement is not appropriate. Therefore, the order of the CIT(A) on this issue requires to be reversed. Provision towards leave travel allowance and medical reimbursement to the employees - HELD THAT:- The assessee has furnished copy of the scheme which is combined for medical reimbursement and the leave travel concession. The scheme has been reproduced in para 3.1 of the order. The Co-ordinate Bench of Tribunal deleted the addition as now been upheld by the Tribunal [ 2019 (7) TMI 882 - ITAT PUNE] We find no reason to interfere with the findings of Commissioner of Income Tax (Appeals). Accordingly, ground No. 2 of the appeal is dismiss Disallowance of liquidated damages - allowable business expenditure - HELD THAT:- Commercial expediency is a term of wide import and has been held to include such expenditure as a prudent businessmen incurs for the purpose of business. No disallowance of liquidated damages were made in earlier years though the assessee was following similar methodology for accounting.CIT(A) had accepted the allowability of claim for liquidated damages as a business expenditure then he should have not directed the AO to al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to delete the disallowance of ₹ 1,94,93,177/- claimed as liquidated damages? 3(b) Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in terms of provisions contained in Section 251 of the Act in directing the A.O. to verify and allow the claim of Liquidated Damages following the decision in the case of Thermax Ltd for AY. 2004-05? 4. The appellant craves leave to add, amend or alter any of the above grounds of appeal. 3. Shri R.D. Onkar appearing on behalf of the assessee submitted at the outset that the issue raised in ground No. 1(a), 1(b) and 1(c) of the appeal relating to negative Contract In Progress (CIP) has been adjudicated by the Tribunal against the Department in the case of assessee s parent company Thermax Limited in ITA No. 1765 1803/PUN/2012 for the assessment year 2004-05 decided on 24-05-2019. The Commissioner of Income Tax (Appeals) has allowed this ground of appeal of assessee following the decision of his predecessor in the case of Thermax Limited in assessment year 2004-05. The ld. AR submitted that the issue relates to income recognition from contract activities. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- p.a. 3) Employees in the grades M2/M1 : ₹ 80,000/- p.a. Such withdrawals will, off course, be subject to availability of balance to employee's credit and also on employee submitting necessary supporting as per IT act. A detailed note on the taxability of LTA has already been circulated by Finance. It will continue to apply. Amount once claimed by the employee towards LTA can not be refunded back to the Company. An employee can claim L TA maximum twice in a financial year subject to above conditions. Those who have already claimed L TA during current financial year 2003-04 can also claim additional amount one more time subject to above conditions. Medical withdrawal: Medical withdrawals will be against actual spending, duly supported by bills, and subject to availability of balance to employee's credit. Income tax will be applicable beyond the exemption limits provided in the Tax Laws. Currently, medical reimbursements up to ₹ 15,000/- p.a. are exempted from Income Tax. Cur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2003-04 (supra), we find, in principle, the income recognition method stands approved by the order of the Tribunal in favour of the assessee. The discussion at para 11 to 13 of the order of the Tribunal is relevant in this regard and the same are extracted as under :- 11. Ground No.2 is with respect to addition made to the contract income. AO noticed that assessee is a manufacturer of industrial boilers and heat transfer equipments and undertakes the projects on contract basis and the contract normally runs over a period of more than one year. The assessee was accounting for income on such projects by following the Projection Completion method and was raising invoices as per the scheduled payments agreed with the clients but at the same time had created provision towards Contribution Equalization Provision to adjust excess billing. During the year, the provision of contribution equalization debited to the Profit and Loss account was ₹ 4,53,93,679/-. AO noticed that the excess amount realized as per the invoices was not offered as revenue receipts and to that extent profit was not offered as income. AO was of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000-01 to 2002-03 and pointed to the relevant findings of the Tribunal. He submitted that since there are no change in the facts of the case for the year under consideration, therefore following the order of the Tribunal in Assessee‟s own case for earlier years, the issue be decided in favour of the assessee. Ld. DR did not controvert the submissions made by the Ld. AR but however supported the order of AO. 13. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to increasing the income to the extent of provision for profit equalization. We find that identical issue of increase in the contract income arose in assessee‟s own case in A.Ys.2000-01 to 2002-03 and the coordinate Bench of the Tribunal decided the issue in assessee‟s favour by following the Tribunal order for A.Ys. 1997-98 to 2000-01, by holding as under: 18. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to increasing the income to the extent of provision for profit equalization. We find that identical issue of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, 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. 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. 19. Before us, since both the parties have admitted that the facts of the case in the present ground are identical to that of earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) and 1(b) of the Revenue is dismissed. No material has been placed on record by the Revenue to distinguish the facts in the present assessment year. On parity of facts, the findings given by Tribunal in assessment year 2004-05 would mutatis mutandis apply to impugned assessment year. Thus, ground No. 1(a), 1(b) and 1(c) in the appeal by Revenue are dismissed being devoid of any merits. 6. The ground No. 2 of the appeal is in respect of provision towards leave travel allowance and medical reimbursement to the employees. We find that this issue has also been considered by the Co-ordinate Bench of Tribunal while adjudicating the appeal of Revenue in the case of Thermax Limited in ITA No. 1803/PUN/2012 for the assessment year 2004-05. However, in the said appeal the issue was confined to the reimbursement of medical expenditure to the employees. The assessee has furnished copy of the scheme which is combined for medical reimbursement and the leave travel concession. The scheme has been reproduced in para 3.1 of the order. The Co-ordinate Bench of Tribunal deleted the addition by following the order of Tribunal in ITA No. 1055 1056/PN/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is deducted by the customer whichever is earlier. It was thus submitted that the nature of compensation was not in the nature of penalty for breach of statutory provision and that such breach was a normal incidence of trade. The submissions of the Assessee were not found acceptable to AO. AO after considering the submissions of the Assessee and after perusing the details furnished by the Assessee noted that the bad debts and liquidated damages as per the assessee are clearly not distinguishable as they are quite overlapping. He further concluded that the amount claimed as liquidated damages are short receipts from customers which have been written off as bad debts or sundry balances written off and that it was neither a case of compensation given by the Assessee nor a case of liquidated damages. He further observed that the claim as write off of bad debts also cannot be allowed as the amounts have not been written off in the books of accounts. He accordingly denied the claim and made addition of ₹ 200.26 lacs. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who in principle agreed with the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debits the amount due under the contract as liquidated damages or withholds the amount while releasing payments for monies which are otherwise legally due to the Assessee in terms of the contract. Upon such deduction/holding back by the customers, the assessee accounts for the sum and wherever required issues a credit note towards the liquidated damages. In support of his contention of the contracts having clause for liquidated damages, he pointed to the sample purchase orders placed in the paper book. He submitted that the AO‟s conclusion that the issuance of credit notes does not tantamount to effective write off is factually incorrect despite the fact that a credit note is issued whereby the party‟s account is credited with a corresponding debit to the liquidated damages account in the books and more so when there is no denying of the fact that there was indeed a breach of contractual conditions. He further submitted that with respect to the claims there has been an accrual of liability and the customer enforcing the right vested by deducting the sum from the payments which are otherwise due to the Assessee. He further submitted that AO has confus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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