Income Tax Appellate Tribunal - Pune
Thermax Ltd. ,, Pune vs Addl.Cit,Range 8, Akurdi,, Pune on 12 March, 2019
आयकर अपील य अ धकरण पण
ु े यायपीठ "ए" पण
ु े म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE MS. SUSHMA CHOWLA, JM AND
SHRI ANIL CHATURVEDI, AM
आयकर अपील सं
. / ITA No.1055/PUN/2009
नधा रण वष / Assessment Year : 2003-04
Thermax Limited, ...Appellant
Thermax House,
14, Mumbai Pune,
Road, Wakdewadi,
Pune - 411 003.
Vs.
The Addl. Commissioner of Income Tax,
Range - 8, Pune. .....Respondent.
आयकर अपील सं
. / ITA No.1056/PUN/2009
नधा रण वष / Assessment Year : 2003-04
The Addl. Commissioner of Income Tax,
Range - 8, Pune. ...Appellant
Vs.
Thermax Limited, ...Respondent..
Thermax House,
14, Mumbai Pune,
Road, Wakdewadi,
Pune - 411 003.
Appellant by : Shri H.P. Mahajani &
Shri Sanjay Bhave.
Respondent by : Shri M.K. Verma.
MS.
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing : 28.12.2018 Date of Pronouncement: 12.03.2019
आदे श / ORDER
PER ANIL CHATURVEDI, AM:
1. These cross appeals filed by Assessee and Revenue emanate out of order of Commissioner of Income-Tax (A) - III, Pune, dated 19.06.2009 for assessment year 2003-04.
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2. The relevant facts as culled out from the material on record are as under :-
Assessee is a company stated to be engaged in the business of manufacturing of Industrial boilers. Assessee filed its return of income for A.Y. 2003-04 on 31.10.2003 declaring total income of Rs.46,75,43,440/-. The case was selected for scrutiny and thereafter the assessment was framed u/s.143(3) of the Act vide order dated 28.03.2006 and the total income was determined at Rs.66,24,41,842/-. Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A), who vide order dt.19.06.2009 in (appeal No.PN/CIT(A)-III/Cir-10/101/06-07) granted partial relief to the assessee. Aggrieved by the order of Ld. CIT(A), Assessee and Revenue are now in appeal before us.
3. The grounds raised by the Assessee in ITA No.1055/PUN/2009 reads as under :
"Being aggrieved by the order passed by the CIT(A) III PUNE, your appellant submits the following grounds of appeal for your sympathetic consideration.
1. PREMIUM ON LEASE HOLD LAND The learned CIT(A) further erred in confirming the action of the AO in disallowing Appellant's claim for deduction of amortised amount of premium in respect of leasehold land in the amount of Rs.2,69,628/-.
2. REVENUE RECOGNITION On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the AO, to work out the excess provision for profit equalization in the light of the directions of the learned CIT(A) for A.Y. 2002-03.3
On the facts and in the circumstances of the case and in law, the learned CIT(A) ought to have accepted the contention of the Appellant that it had correctly applied the said Accounting Standard and accordingly only income as accounted by the Appellant in terms of the said Standard in respect of construction contracts undertaken by it could be brought to tax under section 4 read with section 28 of the Income-tax Act, 1961.
Without prejudice to the above the learned the CIT(A) ought to have directed the AO to allow deduction for the amount of income already brought to tax in the immediately preceding year in view of the order of the CIT(A) for that year.
3. PRIOR YEAR EXPENSES:
On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming disallowance of prior period expenses of Rs.2,76,870/-.
4. COMPUTER SOFTWARE On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming disallowance of computer software expenses of Rs.6,07,336/-
5. LIQUIDATED DAMAGES On the facts and in the circumstances of the case and in law the learned CIT(A) erred in directing the AO to allow deduction for liquidated damages only to the extent the amounts debited are found supported by the 'clause of liquidated damages' instead of allowing the claim in its entirety.
The claim of the appellant be directed to be allowed in full either as liquidated damages or as bad debts or as a business loss.
6. DEPRECIATION On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the AO of rejecting the contention of the Appellant that it was entitled to claim depreciation @ 100% in respect of certain items of plant and machinery which were so entitled in accordance with Appendix to Income-tax Rules, 1962 and instead allowing depreciation @ 25%.
The learned CIT(A) erred in mechanically following the order of his predecessor for A.Y. 2002-03 while rejecting the facts of the case and also losing sight of the fact that in earlier years similar claim of the appellant was allowed.
The claim of the appellant for further depreciation of Rs.17,25,103/- be directed to be allowed.
7. SHORT TERM INCENTIVE PLAN.
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in disallowing claim of Rs.4,63,70,760/- for 4 deduction of amount payable to the employees of the company under its STIP.
On the facts and in the circumstances of the case and in law, the learned CIT(A) ought to have accepted the contention of the Appellant that the liability for STIP was a crystalised liability in the year under appeal and was allowable as such.
Alternatively, without prejudice to the above, the learned CIT(A), could have directed AO to allow the deduction for the same in the year of payment.
8. DEPRECIATION ON KNOW HOW On the facts and in the circumstances of the case and in law the learned CIT(A) erred in disallowing depreciation on technical know how on the ground that the technical know how was not actually put to use on 31.03.2003 of Rs.61,58,625/-.
9. CLUB EXPENSES The learned CIT(A) erred in confirming the action of AO in disallowing full amount of club expenses amounting to Rs.1,34,210/- on the ground that it was a non-business expenditure rejecting the contention of the appellant that the said expenditure was incurred wholly and exclusively for the purposes of the business of the appellant and no enduring benefit accrued there from.
10. ADHOC DISALLOWANCES:
On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the action of the AO of making the following adhoc and aribitrary disallowances :
Expense Head Gross Amount Disallowance by
(in Rs.) Assessing Officer (in Rs.)
Public Relation Expenses 11,40,130 50,000
Membership & Subscription 33,16,209 1,65,810(5%)
Garden Expenses 5,56,583 27,829
Misc. Expenses 8,11,178 40,558
House Magazine 4,71,635 23,581
Vehicle Expenses 1,45,03,358 7,25,167 (5%)
Miscellaneous Foreign Travel 16,30,830 16,30,830 (100%)
Expenses
Telephone Expenses 74,72,342 3,73,617 (5%)
11. DEDUCTION U/s 80HHC
In the matter of deduction u/s 80HHC the learned CIT(A) erred in:
a) Directing inclusion of sale of scrap of Rs.1,45,40,142/-
balance written back Rs.22,72,000/- and Exchange difference Rs.14,883/- as part of total turnover.
b) Confirming exclusion from eligible profits of the business claims and refunds (Rs.38,19,594) balances written off now recovered (Rs.22,71,036), Premium on forward contracts (6,32,505/-) other income from investment (Rs.1,06,23,000/-), Lease Rent (Rs.2,82,52,673/-), Trading profit Rs. (10,42,000) and miscellaneous income (Rs.8,61,30,026).
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c) Confirming exclusion from 90% from eligible profits of business, exchange Diff net (14,883/-) & loss / expenses on foreign representative offices Rs.4,06,66,621/- and thereby ignoring learned CIT-A's earlier years order.
d) Not accepting the contention of the appellant that loss of foreign representative offices should go to increase the "profits of the business" eligible for deduction u/s 80 HHC instead of ignoring the same.
e) Reducing the profits of the business by Rs.104.96 lacs by not allowing deduction with reference u/s 80 HHC instead of ignoring the same.
f) Confirming the view of AO in reducing from the eligible exports turnover Rs.8,76,93,013/- where proceeds were not received within stipulated time.
g) Confirming the action of the AO in reducing deduction u/s 80 HHC by the amount of deduction allowed u/s 80-IB without correctly giving effect to the provisions of Sec.80IB(13) read with 80IA(9) as was done by the appellant in the report furnished in the Form 10 CCAC.
12. INTEREST U/s 234D On the facts and in the circumstances of the case and in law the learned CIT(A) further erred in confirming the action of the AO confirming levying interest under section 234D of the Act without appreciating the fact that said interest was not leviable for the year under appeal."
4. The grounds raised by the Revenue in ITA No.1056/PUN/2009 reads as under :-
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.324.5 lacs on account of adjustments made to closing stock in accordance with the provisions of Sec.145A of the I.T. Act.?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that the entire amount accrued to the assessee as per invoice raised is not taxable and there is no fault in following AS-7 ?
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in giving direction to AO to delete the disallowance of Rs.200.26 lacs, claimed as liquidated damages, when as per Sec.251 of the I.T. Act, 1961 the Ld.CIT(A) is not empowered to issue any such direction to AO ?
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.1,53,21,302/- made by AO on account of lease rent on accrual basis ?6
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs.7,54,000/- on account of provision for medical expenses when the same was held to be contingent in nature by the AO ?
6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not allowing set off of brought forward losses/ unabsorbed depreciation against the profit of undertaking for the purpose of computation of deduction under sec.
80IA ?
7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in adopting the figure of Rs.1,11,49,759/- as per report in Form 10CCAC, and not the figure of Rs.2,68,83,000/- as per accounts submitted by assessee, on account of trading exports in the total turnover for the purpose of computing deduction u/s 80HHC ?
8. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding the amount of Rs.22,71,036/- being balances written off but now recovered, as operational income of the assessee and including the same in eligible business profits and gains for computing deduction u/s 80HHC ?
9. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding the amount of Rs.10,42,000/- being trading profits as per Form 10CCAC, as operational income of the assessee and including the same in eligible business profits and gains for computing deduction u/s 80HHC ?
10. The order of the Ld.CIT(A) may be vacated and that of the A.O. be restored."
5. We first take up assessee's appeal and to the extent where the Revenue's grounds are inter-connected with the Assessee's appeal, the same are also considered.
6. Before us, Ld.A.R. filed a chart by giving the details of grounds and submitted that most of the grounds raised in the present appeals are identical to those which are decided by the Tribunal in the case of Assessee in earlier assessment years 2000- 01 to 2002-03. From the grounds raised by the assessee, he submitted that identical to ground Nos.1 to 4, 6, 10, 11, 12 are already decided by the Co-ordinate Bench of the Tribunal in the earlier assessment years and ground Nos.5 and 7 to 9 are new grounds which requires separate adjudication. Before us, Ld DR 7 did not controvert the submissions made by Ld AR. In view of the aforesaid submissions of both the parties, we proceed to adjudicate the issue in the following paragraphs.
7. Ground No.1 is with respect to disallowance of premium in respect of leasehold land.
AO on perusing the details of expenditure noticed that assessee had debited an amount of Rs.2,69,628/- being amortization of premium paid on leasehold land. AO noted that similar expenditure claimed by the assessee in earlier years was disallowed by the AO and the action of AO was also upheld by Ld.CIT(A). He therefore, by following the reasoning of AO and CIT(A)'s decision of earlier years, disallowed the claim. Aggrieved by the order of AO, assessee carried the matter before CIT(A), who dismissed the same being not pressed.
Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us.
8. Before us, at the outset, Ld. AR fairly conceded that identical issue arose is assessee's appeal before Tribunal in A.Ys. 2000-01 to 2002-03 and the issue was decided against the assessee. He pointed to the relevant findings of the Tribunal. He therefore submitted that the issue be decided accordingly. Ld. DR did not controvert the submissions made by the Ld. AR but supported the order of lower authorities.
9. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to claim of amortization of premium paid for leasehold land. In the year under 8 consideration, the Ld.CIT(A) vide para no 6.1 of the order dismissed the ground raised by the assessee as "not pressed". The Assessee is therefore now before us. We find this issue was the subject matter before the Tribunal in the earlier assessment years in assessee's own case in A.Ys. 2000-01 to 2002-03 and the issue was decided by the co-ordinate Bench of the Tribunal against the assessee by holding as under :
"14. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to claim of amortization of premium paid for leasehold land. We find that identical issue of amortization of premium on leasehold land arose in assessee's own case in A.Yrs. 2000-01 and 2001-02. The issue was decided against the assessee by the coordinate Bench of the Tribunal by holding as under :
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. CIT, (1998) 232 ITR 319 (SC) against the assessee. Accordingly, the orders of the authorities below on this aspect are upheld and assessee fails."
Accordingly, ground No. 2 in the appeal of assessee is dismissed.
15. We thus find that the Co-ordinate Bench, relying on the decision of Hon'ble Apex Court in the case of Govind Sugar Mills Limited (supra) decided the issue against the assessee. Further, in view of the Ld. AR's submission that the issue in the year under consideration is similar to A.Y. 2000-01 and 2001-02 and since in those years the issue was decided against the assessee, we find no reason to interfere with the order of Ld.CIT(A) and thus the assessee's ground is dismissed."
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10. Before us, Ld AR has not pointed to as distinction in the facts of the case for the year under consideration and that of earlier years. We therefore following the same reasoning as given by the Co-ordinate Bench while deciding the issue in Assessee's own case in AY 2000-01 to 2002-03, find no reason to interfere with the order of Ld.CIT(A) and thus the assessee's ground is dismissed.
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 Rs.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 since the invoices was raised as per the agreed schedule; the invoice value should be treated as revenue receipts. He further noticed that identical issue arose in A.Y. 1997-98 wherein it was held that the value reflected in invoices raised as per agreed schedule with the clients was to be treated as revenue receipts. AO therefore held that the provision of Rs.4,53,93,679/- cannot be allowed. He accordingly 10 disallowed the same and made its addition. Aggrieved by the order of AO, assessee carried the matter before CIT(A), who granted partial relief to the Assessee by holding as under :
"7.2. I find that the issue has elaborately been dealt with by my predecessor in appellant's case in appeal for A.Y. 2002-03, wherein it was held by him that although, in principle, the appellant cannot be found fault with for having followed Accounting Standard-7 in the matter of revenue recognition and accordingly, making provisions for equalization, its actual working is not above scrutiny. He held that the appellant was not justified in omitting to recognize revenue wherever completion was less than 33% of the total project or where the contracts were less than Rs.25 lacs. The Ld.CIT(A) also disapproved the appellant's act of further scaling down towards contingencies / unforeseeable losses. The facts of the case during this year are identical to those in A.Y. 2002-03 and I find no reason to form a view other than that of my predecessor. Accordingly, the Assessing Officer is directed to work out the excess provision in the light of the observation made by Ld.CIT(A) in A.Y. 2002-03 and restrict the disallowance to that extent. Decided accordingly."
Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us. Revenue is also aggrieved by order of CIT(A) to the extent of relief granted by him and has therefore raised ground No.2 in its appeal. Since the grounds raised by assessee and Revenue are inter- connected, both are considered together.
12. Before us, Ld. AR submitted that identical issue arose before Tribunal in assessee's appeal for A.Y. 2002-03 and the issue was decided by the Co-ordinate Bench of the Tribunal in assessee's favour by following the Tribunal order in A.Ys.1997-98 to 2002-03. He placed on record the order of Tribunal for A.Ys. 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.
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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 increase in the contract income arose in assessee's own case in A.Y. 2000-01 and 2001-02 and the coordinate Bench of the Tribunal decided the issue in assessee's favour by following the Tribunal order for A.Yrs. 1997-98, 1998-99 and 1999- 2000, by holding as under:
9. The third ground raised by the assessee in appeal relates to income recognition from contract in accordance with Accounting Standard 7 of the Institute of Chartered Accountants of India (ICAI). The Revenue in cross appeal for assessment year 2000-
01 has also raised this issue as ground No.1. The assessee is manufacturing boilers and heat transfer equipments on contract basis. These contracts are spread over a period of more than one year. The assessee is recognizing income of the projects, on project completion method. The assessee raises invoice on the client as per schedule of payments. The bills raised are always more than the revenue that should be recognized on the basis of project completion method. The adjustment is required to be made to adjust excess billing. The adjustment is made in accordance with AS 7 by creating a provision 'Contribution Equalization Provision'. The Assessing Officer rejected this method of making adjustment by the assessee. In the first appeal, the Commissioner of Income Tax (Appeals) partly accepted the claim of the assessee. Against the finding of the Commissioner of Income Tax (Appeals), both, the assessee and the Revenue have come in appeal.
9.1 We observe that similar issue had come up in the appeal of the assessee and the Revenue for assessment years 1998-99 and 1999- 2000. The Co-ordinate Bench decided the issue in favour of the assessee. The relevant extract of the order of the Tribunal reads as under :-
22. On this aspect, it was a common ground between the parties that in assessment year 1997-98, the Tribunal vide its order dated 03.09.2014 (supra) in the assessee's own case has upheld the stand of the assessee by following the decision of the 12 Pune Bench of the Tribunal on a similar issue in the case of Thermax Babcock & Wilcox Ltd. vs. DCIT vide ITA Nos.157 & 158/PN/1995 dated 11.05.2001 for assessment years 1990- 91 & 1991-92. The Tribunal in its order dated 03.09.2014 (supra) noted that in the case of Thermax Babcock & Wilcox Ltd. (supra) which was a group company 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 earlier years and since in earlier years, the issue has been decided by Co-ordinate Bench of the Tribunal in assessee's favour, we therefore following the decision of the coordinate Bench of the Tribunal in assessee's own case for earlier years and for similar reasons, allow the ground of assessee and thus the assessee's ground No.4 is allowed and Revenue's ground No.2 is dismissed."
14. Before us, since both the parties have admitted that the facts of the case in the present grounds are identical to that of earlier years and since in earlier years, the issue has been decided by Co-ordinate Bench of the Tribunal in assessee's favour, we therefore following the reasoning of the decision of the Co-ordinate Bench of the Tribunal in assessee's own case for earlier years and for similar reasons, allow the ground of assessee and thus the assessee's ground No.2 is allowed and Revenue's ground No.2 is dismissed.
15. Ground No.3 is with respect to prior period expenses. 13
During the course of assessment proceedings AO noticed that though the assessee was following mercantile system of accounting, it had claimed expenses to the extent of Rs.2,76,870/- which pertained to prior period. Assessee was asked to justify the claim. The submissions made by the assessee were not found acceptable to AO. AO was of the view that since assessee was following mercantile system of accounting, it should have booked the expenses in the respective years. He was therefore of the view that the expenses pertaining to prior years aggregating to Rs.2,76,870/- are not allowable and accordingly disallowed the same. Aggrieved by the order of AO, assessee carried the matter before Ld CIT(A), who decided the issue against the Assessee by holding as under :
"8.3 The submission has been considered. In principle, I agree with the appellant's view that expenditure is deductible in the year in which liability to pay arises. However, in the case under consideration, as stated by the appellant, the amount in question represents the commission remitted during the year to foreign parties on the sales that have taken place in earlier years. Since the commission is linked with the sales, the liability to pay commission has arisen in the respective years in which the sales have taken place and therefore, it cannot be allowed as deduction from the income of this year. The commission cannot be considered as deductible during this year on the ground that the same has been remitted during the year. Accordingly, this ground of appeal fails."
Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us.
16. Before us, Ld. AR reiterated the submissions made before AO and Ld.CIT(A) and further fairly submitted that identical issue arose in assessee's appeal in AY 2002-03 and the ground was decided against the Assessee by the Tribunal. He therefore submitted that the issue be decided accordingly. Ld.D.R. on the other hand, did not 14 controvert the submissions of Ld AR and supported the order of lower authorities.
17. We have heard the rival submissions and perused the material on record. Before us both the parties have fairly admitted that the issue in the year under consideration is identical to that of AY 2002-
03. In AY 2002-03, the coordinate Bench of Tribunal had decided the issue against the Assessee by observing as under :
"30. We have heard the rival submissions and perused the material on record. We find that CIT(A) while granting partial relief has noted that some of the expenses got crystallized during the year and therefore he directed the AO to allow the same. He also noted that for some of the expenses the relevant invoices, bills, statements etc., were received prior to the relevant previous years and for some of the expenses assessee did not furnish any details or evidence to substantiate the crystallization of the liability during the year under consideration. He further directed the AO to consider the evidence and thereby granted partial relief to the assessee. Before us, assessee has not placed any material on record to controvert the findings of Ld. CIT(A) nor has placed the details of expenditure to substantiate its stand that the liability got crystallised during the year under consideration. Before us, assessee has also not placed the details of expenses. Before us, Revenue has also not placed any material to point out any fallacy in the findings of Ld.CIT(A). In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground No.7 of the assessee is dismissed and likewise the ground of Revenue is also dismissed."
In view of the submissions of the both the parties as noted hereinabove, we following the reasoning of the co-ordinate Bench while deciding the appeal for AY 2002-03 and for similar reasons, find no reason to interfere with the order of Ld.CIT(A) and thus the ground No.3 of the assessee is dismissed.
18. Ground No.4 is with respect to disallowing computer software expenses.
On perusing the details of expenses, AO noticed that assessee had incurred an amount of Rs.6,07,336/- towards software expenses 15 which were debited under the head of "Miscellaneous Expenses." He also noticed that assessee had also incurred expenses of Rs.27,18,105/-, the major part of which was incurred for obtaining the licence to use software like Windows 2000, Auto Cad, MS Office etc. The assessee was asked to substantiate its claim of expenditure being revenue in nature. The assessee inter-alia submitted that the software expenses were not expected to give enduring benefit to the assessee and that software rarely last for long and therefore it considered the expenses to be of revenue nature. The submissions of the assessee were not found acceptable to the AO. AO was of the view that the benefit of acquiring software gives enduring benefit and it has to be treated as capital expenditure. He was of the view that w.e.f. 01.04.2003 through an amendment into the Income tax Rules, computer software has been clubbed with computers and both put together have been made eligible for depreciation at 60% which also shows that the expenditure is of capital in nature. He accordingly denied the claim of expenses as revenue expenditure but however granted depreciation @ 60% which comes to Rs.2,07,053/- and accordingly made net disallowance of Rs.4,00,263/-. Aggrieved by the order of AO, assessee carried the matter before CIT(A), who upheld the order of AO, by holding as under :
"9.3. After careful consideration, I am not inclined to accept the contention of the appellant. The nature of softwares purchased by the appellant shows that the appellant is going to derive benefit from the same at least for more than one year. It is also seen that 60% of the expenditure has already been allowed by the Assessing Officer during this year by way of depreciation. The stand taken by the Assessing Officer is also found supported by the decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Arawali Construction (P) Ltd., I, therefore, see no reason to make any interference in the action of the Assessing Officer and the same is upheld. Accordingly, this ground of appeal is dismissed."16
Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us.
19. Before us, Ld. AR reiterated the submissions made before AO and Ld.CIT(A) and further fairly submitted that identical issue arose in case of Assessee in AY 2000-01, 2001-02 and 2002-03. In A.Y. 2002-03 the ground was decided against the Assessee by the Tribunal. He therefore submitted that the ground be decided accordingly, Ld.D.R. on the other hand, did not controvert the submissions of Ld AR but supported the order of AO and Ld.CIT(A).
20. We have heard the rival submissions and perused the material on record. We find that identical issue of expenditure on computer software arose in assessee's own case in A.Ys. 2000-01 to 2002-03. The coordinate Bench of the Tribunal while deciding the appeal for AY 2002-03 decided the issue against the assessee by holding as under :
"22. We have heard the rival submissions and perused the material on record. We find that identical issue of expenditure on computer software arose in assessee's own case in A.Yrs. 2000-01 and 2001-02. The coordinate Bench of the Tribunal while deciding the appeal for those years decided the issue against the assessee by holding as under :
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 purchase of computer software as revenue in nature. The Assessing Officer held the same to be capital expenditure. In the first appeal, the Commissioner of Income Tax (Appeals) confirmed the findings of the Assessing Officer.
10.1 The Ld. AR of the assessee pointed out that an identical issue was raised in the appeals for assessment years 1998-99 and 1999-2000 by the assessee, as well as, the Revenue. The Co-ordinate Bench dismissed this ground raised in the appeals of both the parties.
10.2 A perusal of the order of the Co-ordinate Bench in assessee's own case for assessment years 1998-99 and 1999- 17
2000 shows that the Tribunal followed the judgement of the Hon'ble Bombay High Court in the case of CIT vs. Raychem Rpg. Ltd. reported as 346 ITR 138 (Bom.) and rejected the ground raised by the assessee, as well as, the Revenue by observing as under :-
30. We have carefully considered the rival submissions.
In our considered opinion, the issue regarding the nature of the expenditure incurred on account of acquisition of software is liable to be decided in terms of the ratio of the judgement of the Hon'ble Bombay High Court in the case of CIT vs. Raychem Rpg. Ltd., 346 ITR 138 (Bom.). The Hon'ble Bombay High Court upheld the order of the Tribunal whereby the expenditure incurred on acquisition of software which did not form part of the profit making apparatus of the assessee was treated as a revenue expenditure. In the said context, it is to be noted that the CIT(A) has given a finding that expenditure of Rs.22,16,107/- was incurred on acquisition of software connected with the manufacturing operations of the assessee. Such softwares have been identified as Autocad, project management software, designing software, etc.. The assessee is in the business of manufacturing of boilers and heat transfer equipment and therefore the aforesaid softwares form part of its profits making apparatus and thus it is liable to be considered as capital expenditure in view of the judgement of the Hon'ble Bombay High Court in the case of Raychem Rpg. Ltd. (supra). Therefore, assessee's grievance against the decision of the CIT(A) 10 ITA Nos.1247 & 1248/PN/2005 ITA Nos.1290 & 1291/PN/2005 ITA No.574/PN/2007 in sustaining the addition of Rs.22,16,107/- is unjustified having regard to the judgement of the Hon'ble Bombay High Court in the case of Raychem Rpg. Ltd. (supra). Further, the CIT(A) has recorded a finding that expenditure to the extent of Rs.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 Rs.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."
18
23. Before us, both the parties have admitted that the facts of the case in the present ground are identical to that of earlier years. In earlier years, the Co-ordinate Bench of the Tribunal has decided the issue against the assessee. We therefore following the decision of the coordinate Bench of the Tribunal in assessee's own case for earlier years and for similar reasons, find no reason to interfere with the order of Ld.CIT(A) and thus the assessee's ground No.5 is dismissed."
21. Before us, both the parties have admitted that the facts of the case in the present ground are identical to that of earlier years. In earlier years, the Co-ordinate Bench of the Tribunal has decided the issue against the assessee. We therefore following the reasoning of the Co-ordinate Bench of the Tribunal in assessee's own case for AY 2002-03 and for similar reasons, find no reason to interfere with the order of Ld.CIT(A) and thus the assessee's ground No.4 is dismissed.
22. Ground No.5 of Assessee's appeal and Ground No.3 of Revenue's appeal is with respect to Liquidated Damages. 22.1. During the course of assessment proceedings AO noticed that Assessee had debited Rs 200.26 lacs under the head "Liquidated damages". The Assessee was asked to justify it towards the allowability along with the evidences. Assessee inter-alia submitted that Assessee manufactures water treatment plants, pollution control equipments etc and these are manufactured as per the order and requirements of the customers. The contracts involves medium to long term contracts which include activities like pre-design, discussion with the clients, drawings, designs, procurement, fabrication, erection, commissioning and installation of the equipments which is followed by performance guarantee according to the agreed conditions. The contracts generally contain clauses for payment of 19 compensation in the form of liquidated damages which are usually payable at stipulated percentage of the contract value. Some-times the contracts provides for compensation for non performance or satisfactory performance of the products supplied by the Assessee. The payment of compensation/liquidated damages is made to ensure good customer relationship and future business. It was further submitted that the customer can recover the compensation in variety of ways like deduction from future payments etc. It was further submitted that the Assessee accounts for the compensation when the same is actually claimed by the customer or when 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 Rs 200.26 lacs. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who in principle agreed with the claim of Assessee but however directed the AO to verify the Assessee's claim to the extent 20 supported by the clause of Liquidated damages as per contract and decide accordingly. The relevant findings of CIT(A) are as under:
"The submission has been carefully considered by me. The appellant company has also furnished before me the partywise details of liquidated damages of Rs.200.26 lakhs. It has also filed sample copies of purchase orders of a few customers of the appellant company containing clause of Liquidated Damages according to which penalty at the prescribed rate is leviable in case of delay in supply of goods ordered. On perusal of these documents, in principle, I agree with the claim of the appellant company that the liquidated damages, arising out of the terms of the purchase orders, schedule, are allowable as business expenditure. The cases relied upon by the Assessing Officer while disallowing the liquidated damages of Rs.200.26 lakhs have also been successfully distinguished by the appellant by explaining the difference in the facts of appellant's case from the facts of those cases. In this view of the matter, I direct the Assessing Officer to verify and allow the appellant's claim of liquidated damages out of Rs.200.26 lakhs to the extent the amounts debited under this head are found supported by the clause of Liquidated Damages. Decided accordingly."
Aggrieved by the order of CIT(A), Assessee and Revenue are now in appeal before us.
23. Before us, Ld AR reiterated the submissions made before AO and CIT(A) and further submitted that Assessee is engaged in the business of manufacturing of engineering goods, heat transfer equipments such as boilers, heat pumps, manufacture of water treatment plants, waste water management system, pollution control systems etc. Some of the contracts provide for ancillary activities like erection and commissioning of the manufactured equipments. The contracts which the Assessee enters into with the customers generally carry a clause of payment of liquidated damages in the event of delay of deliveries, non-performance of supply of goods etc and the methodology of calculation of liquidated damages is prescribed in the contract. Based on the clause of the agreement, the customer, in the event of breach of the relevant provisions of the contract, debits the amount due under the contract as liquidated damages or withholds 21 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 confused the issue of claim of liquidated damages with the issue of claim of bad debts and that the claim of bad debts has been accepted by him. He further submitted that the reliance placed by AO in the case of N. Sundareswaran Vs CIT reported in 226 ITR 142 is misplaced as the facts are distinguishable from the facts of the present case as in that case the contract did not contain provision for liquidated damages and had only dealt with the case where the matter was to be referred to Arbitration. He further submitted that the facts in the case of CIT Vs. Seshasayee Industries Ltd.(242 ITR 691) are distinguishable and therefore not applicable to the present facts of the Assessee. He thereafter submitted that the expenditure has been incurred during the course of business and is 22 for the purpose of business more so when CIT(A) has accepted the allowability of claim of liquidated damages as business expenditure. He further submitted that Hon'ble Apex Court in the case of SA Builders (288 ITR 1) has held that to the extent that the expenditure may not have been incurred under legal obligation but yet it is allowable as a business expenditure if it is incurred on grounds of commercial expediency. It has further 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. He further submitted that no disallowance of liquidated damages were made in earlier years though the assessee was following similar methodology for accounting. Ld AR thereafter submitted that when CIT(A) had accepted the allowability of claim for liquidated damages as a business expenditure then he should have not directed the AO to allow deduction to the extent there were Liquidated damages clauses in the purchase orders. He therefore reiterated that when the expenses have been incurred for the purpose of business and during the course of business, the claim of Assessee for allowing the expenditure be upheld.
24. LD DR on the other hand took us through the order of AO and submitted that Assessee did not furnish the required details as called for by the AO and in the absence of the required details, AO was fully justified in disallowing the expenses. With respect to the directions of CIT(A) to AO to verify the details and allow the expenses, he submitted that CIT(A) u/s 251(1)(a) has the power to confirm, reduce, enhance or annul the assessment but does not have the power to set aside as the power of setting aside has been withdrawn by Finance Act 2001 23 w.e.f 01.06.2001. He therefore submitted that CIT(A) ought not have set aside the matter to AO for verification and directed the AO to decide the claim of Assessee. He thus supported the order of AO.
25. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to allowing the expenditure towards liquidated damages. In the present ground it is an undisputed fact that the assessee has accepted the claim for liquidated damages/compensation. We find that CIT(A) has in principle accepted the allowability of claim for liquidated damages as a business expenditure. It is a settled law that the expenditure is allowable as a business expenditure if it is incurred on the grounds of commercial expediency. 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. The assessee is following the said method in earlier years and no disallowance has been made. 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. Thus, the ground of Assessee is allowed and that of Revenue is dismissed.
26. Ground No.6 is with respect to disallowance of higher depreciation.
2426.1. On perusing the depreciation chart, AO noticed that assessee had claimed depreciation at higher rate of 80% depreciation on plant Nos.4 and 8 and 11 wherein it was manufacturing shell type boilers and absorption cooling devices. It was Assessee's contention that these items of plant and machinery were used in the manufacture of renewable energy devises and therefore it was eligible for higher rate of depreciation of 80%. The submissions of the Assessee were not found acceptable to AO. AO was of the view that due to the type of equipments that were manufactured by the assessee with the aforesaid machines, the aforesaid machines per se did not qualify for higher depreciation as those machineries could be used for manufacturing of other types of machinery as well and that it cannot be said that the machineries were used wholly and exclusively for manufacturing the energy saving machineries. He accordingly held that Assessee was only eligible for normal depreciation of 25% on such machineries. He accordingly disallowed the claim of additional depreciation of Rs.17,25,103/-. Aggrieved by the order of AO, assessee carried the matter before Ld CIT(A), who following the order of his predecessor for A.Y 2002-03, upheld the order of AO by observing as under :
"12.3 This issue has elaborately been dealt with by my predecessor who while adjudicating upon this issue in assessee's appeal for AY. 2002-03 observed as follows:
I have carefully considered the ground raised by the appellant and the arguments of the Ld.Authorised Representative.
First coming to plant No.11 i.e., absorption cooling division, which manufactures heat pumps, the stand taken by the Assessing Officer will have to be confirmed. Entry No.3(iii)(C)(c) specifically deals with heat pumps. It provides for depreciation on heat pumps at the rate of 100%. This entry will not apply to the appellant as the appellant does not own / use the heat pumps. Instead, it manufactures them. This entry also does not cover the plants and machineries manufacturing heat pumps. Hence plant No.11 would fall outside the purview of entry 25 No.3(iii)(C)(c). It is the appellant's argument that heat pumps would come under entry 3(xii)(e) i.e., air / gas / fluid heating systems. Nothing has been adduced to establish that the heat pumps manufactured by the appellant are in the nature of such heating systems. Further, even while it has been submitted that a heat pump is also a renewal energy device, no evidences have been adduced in this regard apart from stating that it is a waste heat recovery equipment. If the heat pump is a waste heat recovery equipment the same will come under entry No.3(iii)(C)(c) in which case the appellant would not be eligible for depreciation at the rate of 100% since it is not the owner user of the heat pumps. It also needs to be mentioned that by the appellant's own submission the heat pumps require minimum electricity for running the compressor, hence the same cannot be regarded as renewal energy devices. For these reasons, the action of the Assessing Officer in rejecting the appellant's claim of depreciation on the machineries in plant No.11 at the rate of 100% and in restricting the admissible depreciation to a rate of 25% is hereby confirmed.
Coming to the remaining plants and machineries under discussion i.e., plants no.4 and 8, the appellant's arguments have been already noted. The Assessing Officer was certainly not justified in holding that entry 3(xii)(e) applies only to solar heating system. There is nothing in this entry enabling such a conclusion. In the absence of any prefix such as 'solar' any renewal energy device being in the nature of an air / gas / fluid heating system will be covered by this entry. However, the crucial questions is if the products manufactured by the appellant are renewal energy devices as distinguished from energy saving devices which are covered by entry no.3(iii). During the course of the appeal proceedings, the appellant was asked to obtain and furnish certificate from experts to the effect that the multitherms, shellmax, fluidpacs and bi-drum boilers are in the nature of renewal energy devices. The appellant was also asked to submit copies of brochures, pamphlets as may be available with regard to the specifications and functioning of these products. The details / evidences thus called for have not been furnished. In the circumstances, I have to hold that the appellant has not been able to substantiate that these products are in the nature of renewal energy devices being air/gas/fluid heating systems. It is also clear from entry 3(xiii) that all the sub-items figuring in this entry, including sub-entry (r), have to be in the nature of renewal energy devices. The starting words viz. 'renewal energy devices being' qualify all the sub-items including (r). This would indicate that even the 'machinery and plant used in the manufacture of any of the above sub- items' will themselves have to be in the nature of renewal energy devices. Or else, (r) would have come as a separate entry and not as a sub-item in entry No.3(xiii). Nothing has been adduced to show that the plants and machineries in respect of which depreciation at the higher rate has been claimed are in the nature of renewal energy devices. For these reasons, I do not see any valid reason for interfering with the stand taken by the Assessing Officer i.e., in rejecting the appellant's claim of depreciation on the plants and machineries in question @ 100% and in allowing depreciation on the said plants and machineries @ 25% only. Consequently, the resultant disallowance made by the Assessing Officer is hereby confirmed and the ground raised by the appellant against such disallowance dismissed."
Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us.
26
27. Before us, Ld. AR reiterated the submissions made before lower authorities and fairly admitted that identical issue arose in assessee's appeal before Hon'ble ITAT in A.Ys. 2000-01 to 2002-03. The Tribunal while deciding the appeals for AY 2002-03, has decided the issue with respect to claim of additional depreciation on Plant Nos.4 and 8 in favour of the assessee and Plant No.11 against the assessee. Ld. DR did not controvert the submissions made by the Ld. AR but however supported the order of AO.
28. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to allowing higher rate of depreciation on certain machineries. We find that identical issue of disallowance of higher depreciation arose in assessee's own case in A.Ys. 2002-03. The Co-ordinate Bench of the Tribunal while deciding the appeal in ITA Nos.259 & 276/PUN/2006 order dated 30.11.2017 decided the issue partly in favour of assessee by holding as under :
"26. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to allowing higher rate of depreciation on certain machineries. We find that identical issue of disallowance of high depreciation arose in assessee's own case in A.Yrs. 2000-01 and 2001-02. The coordinate Bench of the Tribunal while deciding the appeal in ITA Nos. 1247 & 1248/PN/2005 decided the issue partly in favour of assessee by holding as under:
"11. The fifth ground in appeal of the assessee is with respect to claim of 100% depreciation on plant and machinery. The Revenue has also impugned the findings of the Commissioner of Income Tax (Appeals) on this issue as ground No.2 in its appeal.
11.1 The assessee had claimed 100% depreciation on its plant and machinery in Plant No.3, Plant No.4, Plant No.8, Plant No.10 and Plant No.11. In the first appeal, the Commissioner of Income Tax (Appeals) accepted the contentions of the assessee in respect of all the plants except Plant No.11. The assessee has come in second appeal with respect to the claim of depreciation @ 100% in respect of item of Plant No.11. Whereas, the Revenue in its appeal has assailed the findings of the Commissioner of 27 Income Ta the Commissioner of Income Tax (Appeals) in respect of all the plants except Plant No.11.
11.2 Similar claims were made by the assessee in respect of Plant No. 11 and the Revenue in respect of other plants (excluding Plant No. 11). The issue was decided by the Tribunal in assessee's own case for assessment years 1998-99 and 1999-2000 as under :-
"35. Now, we may first take-up assessee's claim for depreciation 100% with respect to the plant & machinery used in the manufacture of air/gas/fluid heating systems. In this context, it is clear noted that having regard to the entry 3(xiii)(r) read with 3(xiii)(e) of the Depreciation Table annexed to the Rules, plant & machinery used for the manufacture of air/gas/fluid heating systems is eligible for depreciation @ 100%. The plea of the Assessing Officer that other items in Entry in 3(xiii) contain a reference to 'solar' and therefore item (e) of Entry 3(xiii) should also be read to be referring to solar air/gas/fluid heating systems, in our view, is not justified. The Assessing Officer has attempted to read into the statute a word which is conspicuous by its absence. Therefore, in our view, having regard to the item (r) read with item (e) of Entry 3(xiii) of the Depreciation Table, the claim of the assessee has been rightly allowed by the CIT(A) and we find no force in the Ground of Appeal raised by the Revenue.
36. Now, with regard to assessee's claim for allowance of depreciation @ 100% in respect of plant & machinery used in the manufacture of heat pumps is concerned, the same has been appropriately denied by the lower authorities. The CIT(A) has rightly pointed out that machinery & plant used in the manufacture of heat pumps is not eligible for depreciation @ 100% as it does 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."
27. Before us, 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 coordinate Bench of the Tribunal in assessee's own case of earlier years and for similar reasons hold that assessee is eligible to claim depreciation @ 100% with respect to plant and machinery used 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. Thus the ground of assessee is partly allowed."
28
29. Before us, 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. Thus, the ground of assessee is partly allowed.
30. Ground No.7 is with respect to Disallowance of Rs 4.63 crores (rounded off) of Short Term Incentive Plan (STIP):
31. AO on perusing the tax audit report noticed that Assessee had created a provision of Rs.4,63,70,760/- for Short Term Incentive Plan and the amount was unpaid till 30.09.2003. The Assessee was asked to explain as to why the same was not covered u/s 36(1)(iii) or 43B of the Act and the entire provision not be disallowed as it was not incurred during the year. Assessee inter-alia submitted that for promoting growth and prosperity of the assessee, a policy for paying an annual incentive to all the employees was formulated. The quantum of annual incentive was to be based on the performance of each division and also of each employee of that Division. It was further submitted that the Payment of Bonus Act does not apply to such payments as those employees were drawing salary in excess of Rs.3,500/- pm. It was further submitted that the unpaid amount out 29 of the scheme was reversed in the next year and offered to tax. The submissions made by the Assessee were not found acceptable to AO. AO was of the view that the Scheme that was formulated was to be implemented only after the close of financial year and there was no STIP policy during the year more so as the scheme was approved by the Board of Directors on 28.05.2003. He further noted that the amounts were disbursed to the employees after the close of financial year and it was included in form 16 of the concerned employees during F.Y 2003-04. He therefore concluded that there was no incentive plan during the year under consideration and the liability of Rs.4,63,70,760.- did not accrue or arise during FY 2002-03 and further the liability could not be termed to be as "provision for know liability" and therefore not allowable as expenditure. He accordingly disallowed the claim of expenditure and made addition of Rs.4,63,70,760/-. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who upheld the order of AO by observing as under :
"13.3. I have carefully considered the submission of the appellant. As already mentioned in para 8.3 above, an expenditure is deductible in the year in which liability to incur the expenditure arises. In the present case, as rightly pointed out by the Assessing Officer, the company became liable to pay the incentive only on 28.05.2003, the date when the scheme recommended by the Vice President (HR) was approved by the Board of Directors of the company. Since the provision has been made on the basis of the new scheme, appellant's argument based upon the fact that in the immediately preceding financial year, the company did have a scheme for payment of incentives to its employees, does not appear to have any force. After all, the provision has not been made on the basis of the old scheme.
13.4 So far as appellant's reliance on judicial pronouncements is concerned, a cursory appraisal of the facts of the cases relied upon by the appellant reveals that these cases are based on facts which are distinguishable from the facts of the present case. In the case of United Motors (I) Ltd., 181 ITR 347, a provision was made pursuant to the notice of termination of awards given by the trade union. Therefore, on the facts of the case, the Hon'ble Court held that an impending liability arose, pursuant to the termination. No such situation is found in the case of the appellant. Similarly, the provision made on a reasonable 30 basis for payment to be made to the workers was held as allowable deduction in the case of Mahindra Ugene Steel Company Ltd. 250 ITR 84 because as per terms and conditions of the wage settlement entered into by the assessee-company, there was a liability on the assessee company to make lumpsum payment to the workers under the conciliation proceedings. In the present case, no such liability is there on the appellant company. I therefore, uphold the action of the Assessing Officer in disallowing provision for short term incentive plan of Rs.4,63,70,760/-. The disallowance is confirmed."
Aggrieved by the order of CIT(A), Assessee is now before us.
32. Before us, Ld AR reiterated the submissions made before AO and Ld.CIT(A) and further submitted that even in the immediately preceding financial year the Assessee did have a scheme for payment of incentives to it employees but however in the year under consideration a modified scheme was introduced which was based on the performance of the Division and performance of each individual employee of the Division. He submitted that the performance which was the benchmarked for payment related to FY 2002-03. He pointing to the resolution of the Committee which is placed in the paper book submitted that the committee merely observed that the amount of compensation payable under STIP was in line with the payment which was given earlier and therefore approved the same and therefore it cannot be said that the scheme was approved for the first time. He further submitted that the tax with reference to the amount was deducted u/s 192 of the Act at the time of payment. He further submitted that if at all anything was postponed, it was the quantification of the liability which was based on certain norms evolved by the Company. He further submitted that any difficulty in quantifying the liability would not make an existing liability into a contingent liability if the liability has definitely arisen during the year and that the deduction should be allowed although the liability may 31 have been quantified and discharged at a future date and for the aforesaid proposition he relied on the decision of Hon'ble Apex Court in the case of Bharat Earth Movers reported in 245 ITR 428 (SC). He further relying on the decision of Hon'ble Apex Court in the case of Calcutta Co., Ltd reported in 37 ITR 1 (SC) submitted that any difficulty in the estimation of the liability would not convert the accrued liability into a conditional one. He further submitted that if the amount is held to be not allowable then in such a situation the assessee be granted the relief of the amount that has been offered to tax. He therefore submitted that AO and wrongly held the liability to have not arisen during the year and therefore the order of AO which has been upheld by CIT(A) be set aside.
33. Ld DR on the other hand took us through the observations of AO and submitted that after considering the material on record AO had come to the conclusion that the Assessee became liable to pay the incentive only on 28.05.2003, being the date when the scheme was approved by the Board of Directors of the Company. In such a situation the AO had rightly disallowed the expenses. He thus supported the order of lower authorities.
34. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to allowability of provision made for short term incentive plan to the employees. It is Assessee's submission that it has been consistently paying performance based incentives in the past and which has been allowed. However, during the year, the assessee has booked the expenditure on wholesome basis. We further find that pre-declared 32 scheme is dated 22.12.2002 recommended by the VP HR and it was by the committee only on 28.05.2003 i.e., after the close of year. The AO has given a finding that the amounts were not credited to respective employees account in the instant year. Hence, we find no merit in claim of assessee. But the assessee is entitled to deduction of amounts, if any paid under the proposed scheme. In the result, the ground No.7 of the Assessee is partly allowed.
35. Ground No 8 is with respect to Depreciation on knowhow:
35.1. On perusing the depreciation statement, AO noticed that Assessee had shown payment of Rs.61,58,626/- towards acquisition of knowhow (Rs.60,39,836/- paid to M/s Air Paul and Rs.1,18,790/-
paid to M/s. Kawasaki) and on such payments, Assessee had claimed depreciation of Rs.10,38,924/-. Assessee was asked to justify the claim. The submissions made by the Assessee were not found acceptable to AO. AO noted that the addition of technical knowhow has been shown to have been added in the second half of the year. When the Assessee was asked to produce the evidence to demonstrate the use of technical knowhow, AO noted that Assessee could not produced any evidence. He therefore concluded that in the absence of any proof of technical knowhow being put to use on 31.3.2005, the depreciation claimed by the assessee cannot be allowed. He accordingly disallowed the claim of depreciation amounting to Rs 10,38,924/-. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who confirmed the action of the AO by observing as under :
33
"14.3 After careful consideration, I find no merit in the contention of the appellant. It is seen that the appellant has been having a wavering stand with regard to its claim of putting the technical knowhow in question to use during the year. The tax audit report mentions that the technical knowhow has been put to use on 26th February, 2003. It also needs to be appreciated that the Division Chief is company's own employee and therefore, his certification (without any supporting evidence) cannot be accepted as authentic. If the assessee claims that the technical knowhow has been put to use during the year, it is for the assessee to prove its claim by furnishing necessary evidence. The appellant's argument that its contention regarding commencement of commercial production on 26.02.2003 is evidence by the fact that as per the agreement, the third instalment was payable to Air Pol within 45 days of the commencement of production and the remittance of the same has been made on 29.04.2003, does not appear to have much strength. The third instalment was payable within 45 days and not after 45 days of the commencement of production. The consideration of the fact of payment on 29.04.2003 in the light of the agreement with Air Pol shows that the production has commenced on any date between 15.03.2003 to 29.04.2003. Similarly, the payment of royalty to the collaborator also does not conclusively prove that the production commence before 31.03.2003 or for that matter, the technical knowhow was put to use during the year. In this view of the matter, I hold that the Assessing Officer is justified in disallowing assessee's claim of depreciation in respect of the technical knowhow. The disallowance is confirmed."
Aggrieved by the order of CIT(A), Assessee is now before us.
36. Before us, Ld AR reiterated the submissions made before AO and CIT(A) and further submitted that the Agreement with Air Pol for the knowhow of scrubbers, absorbers and gas cleaning plants was dated 19.4.2002 and upto 30th Sept 2002, the 1st installment of Rs.20,33,974/- was paid. The amount due to Kawasaki was also paid before 30th Sept 2002 and both the aforesaid amounts were claimed as addition to the block of intangible assets before 30th Sept 2002. The balance amount of Rs.40,05,862/- payable to Air Pol after 30th Sept 2002 was shown as addition in the second half of the year. He submitted that the CA vide Certificate u/s 195 dated 28th April 2003 has certified. Ld DR on the other hand supported the order of lower authorities and further submitted that there is no external evidence to demonstrate that the assets have been put to use.
34
37. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to depreciation on knowhow. Before us it is assessee's contention that that technical know-how has been acquired in the first half of the year. However before us no external evidence has been furnished by the Assessee to demonstrate that the asset has been put to use. The evidence from Division head of the Assessee itself could not be the only basis for demonstrating the evidence to demonstrate the asset being put to use. In such a situation we find no reason to interfere with the order of CIT(A) and thus, the ground No.8 of Assessee is dismissed.
38. Ground No 9 is with respect to disallowance of club expenses of Rs1,24,210/-.
38.1. During the course of assessment proceedings AO noticed that assessee had claimed entrance fees and subscription of club at Rs. 1,23,925/- and the cost on services and facilities utilized at Rs. 10,285/-. Assessee was asked to show cause as to why the expenses not be disallowed as being incurred for non business purposes. The Assessee made submissions which were not found acceptable to AO. AO disallowed the same by holding it to have been for non business purposes. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who upheld the order of AO by observing as under :
"15.3. The submission is considered. In the case of Knik Chemical Engineers Pvt. Ltd. Vs. ITO (1987), 20 ITO 302 (Bom), it has been held by the Hon'ble Tribunal that club membership of the directors paid by the company could not be allowed as deduction in absence of evidence that tile company derived any benefit out of membership of the director in such club. In the present case, as observed by the Assessing Officer, 35 no such evidence has been produced by the assessee. Even at the appellate stage, the appellant has made no effort to show if any benefit has been derived by the company out of club membership of its executives. Therefore, in the light of the judicial pronouncements mentioned supra, the action of the Assessing Officer in disallowing the amount of Rs.1,34,21 0/- as non-business expenditure is upheld and the disallowance is confirmed."
Aggrieved by the order of CIT(A), Assessee is now before us.
39. Before us, Ld AR reiterated the submissions made before lower authorities and further submitted that providing club membership to employees is a normal trade practice. He further submitted that it is not necessary that each and every business expenditure should result in benefit to business and what is important is that the expenditure must have been incurred by the assessee wholly and exclusively for the purposes of business which fact cannot be denied. He further relying on the decision of Hon'ble Apex Court in the case of United Glass Manufacturing CO Ltd (Civil Appeal No 6447 of 2013) submitted that club entrance fees and subscription and user charges have consistently been held to be as allowable business expenditure. He also place reliance on the decision in the case of R.B.Bansilal Abirchand Spn & Weaving Mills (81 ITR 34 Bom). He therefore submitted that the expenses be allowed. Ld DR on the other hand supported the order of lower authorities.
40. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to disallowance of club expenses. The expenses have been disallowed by the Revenue authorities by holding it to be not for the purpose of business. On the other hand it is Assessee's contention that the expenses have been incurred by the employees for the purpose of 36 business. Before us. Revenue has not placed any material to demonstrate that the expenses were not incurred by the employees of the Assessee. We find that the issue of allowability of club membership fees incurred for employees u/s 37(1) of the Act arose before for Hon'ble Apex Court in the case of United Glass Manufacturing Ltd (supra). The Hon'ble Apex Court held the expenses to be a pure business expenses. Before us. Revenue has not placed on record any contrary binding decision nor could point out as to how the ratio of the aforesaid decision of the Apex Court is not applicable to the present facts. We therefore relying on the aforesaid decision of Hon'ble Apex Court hold the club expenses to be an allowable expenditure u/s 37(1) of the Act. We therefore direct its deletion. Thus the ground of the Assessee is allowed.
41. Ground No 10 is with respect to adhoc disallowance of expenses.
41.1. AO noticed that Assessee had incurred expenses of Rs. 11,40,130/- under the head of public relation expenses. AO noticed that the expenses included expenses on account of small gifts, lunch with guests etc. AO was of the vie that Assessee had not established the reasonableness and exclusivity of the expenses for the purposes of business. He accordingly disallowed Rs 50,000 as being non verifiable in nature. AO also noticed that assessee had incurred expenses under the head of Membership and subscription, garden expenses, miscellaneous expenses and house magazine which were clubbed under miscellaneous expenses. AO was of the view that since the reasonableness and genuineness of the aforesaid expenses were not 37 fully verifiable, he disallowed 5% of total expenses of Rs.51,55,605/- resulting into disallowance of Rs 2,57,780/-. Similarly with respect to vehicle expenses, AO disallowed Rs 725168/- (being 5% of the vehicle expenses as being not incurred for the purpose of business. With respect to foreign travel expenses he noted that out of the expense of Rs 3,11,62,875/-, Rs 16,30,830/- was towards miscellaneous expenses which was disallowed by him on account of failure on the part of the Assessee to produce the full details. Out of the residential telephone expenses, he disallowed 5% of the expenses (Rs.3,73,617/-) for the reason that personal element of expense could not be ruled out. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who upheld the order of AO. Aggrieved by the order of CIT(A), Assessee is now before us.
42. Before us, Ld AR reiterated the submissions made before lower authorities and further submitted that identical issue arose in Assessee's own case in A.Y 2002-03 before the tribunal and the issue was decided in Assessee's favour. He placed on record the order of tribunal for A.Y 2002-03 and pointed to the relevant findings of the tribunal. He further submitted that the facts of the case in the year under appeal is similar to that of A.Y 2002-03 and therefore following the decision of A.Y 2002-03, the addition be deleted. He further submitted that in the subsequent years, CIT(A) has deleted such adhoc disallowances. Ld DR on the other hand supported the order of lower authorities.
43. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to 38 disallowance of various expenses on adhoc basis. We find that identical issue of adhoc disallowance arose in Assessee's own case in A.Y 2002-03 where such disallowance was deleted by the co-ordinate bench of tribunal by observing as under :
36. We have heard the rival submissions and perused the material on record. In the present case, we find that the disallowance of expenses under various heads has been made by the AO on adhoc basis. Ld.CIT(A) has granted partial relief to the assessee. With respect to disallowance of vehicle expenses, the AO disallowed the expenses for the reason that personal use of expenses cannot be ruled out. It is an undisputed fact that the assessee is a limited Company.
With respect to a disallowance of expenses being personal in nature in case of limited company, we find that Hon'ble Gujarat High Court in the case of Sayaji Iron and Engineering Company (supra) has held that a limited company by its very nature cannot have personal use. In the absence of any contrary binding decision in favour of Revenue, we relying on the aforesaid decision of Hon'ble High Court of Gujarat in the case of Sayaji Iron & Engg. Co. (supra), hold that no disallowance of vehicle expenses on account of being personal in nature is called for in the present case. As far as the disallowance of other expenses on adhoc basis is concerned, we find that AO has not pointed out any expenses which are not for the purpose of business. Further it is not in dispute that the assessee's books of accounts are regularly maintained, audited and no discrepancies have been pointed out by the Auditor or the Revenue. The disallowance has been made on adhoc basis. Before us, assessee has submitted that no such adhoc disallowance has been made in subsequent years in scrutiny proceedings and this fact has not been controverted by Revenue. Considering the totality of the aforesaid facts, we are of the view that no disallowance of expenses on adhoc basis is called for in the present case and thus the ground of the assessee is allowed."
44. Before us, no distinguishing feature in the facts of the case under consideration and that of earlier years has been pointed out by the revenue. Before us, the submission of Ld AR that in subsequent years CIT(A) has deleted the adhoc deletions made by AO has not been controverted by Revenue. In such circumstances and following the reasoning as given while deciding the Assessee's appeal for AY 2002-03 and for similar reasons, hold that no disallowance of expenses on adhoc basis is called for in the present case. We therefore direct its deletion. Thus the ground of Assessee is allowed. 39
45. Ground No.11 is with respect to deduction u/s 80HHC of the Act.
45.1. During the course of assessment proceedings, AO noticed that assessee had claimed deduction of Rs.5,56,43,000/- u/s 80HHC of the Act. On perusing the details of deduction, he noticed that assessee had not included excise duty (Rs.24,97,57,000/-) and sales tax collected (Rs.14,77,41,675/-) as forming part of total turnover. AO was of the view that the sales tax and the excise duty was part of turnover and should have been considered as part of total turnover in view of Hon'ble Apex Court's decision in the case of Chowringhee Sales Bureau Pvt. Limited (87 ITR 542). The submission of the assessee for non inclusion of excise duty and sales tax as part of total turnover was in view of the decision of Bombay High Court in the case of Sudarshan Chemical Industries Ltd was not found acceptable to AO as he was of the view against the decision of Hon'ble High Court, Revenue had preferred appeal before Hon'ble Apex Court. He also noticed that Assessee had trading exports to the tune of Rs 268.83 lacs but the same was not considered as part of total turnover while calculating deduction u/s 80HHC He accordingly added Rs 268.83 lacs to the sales figure to arrive at the total turnover for computing deduction u/s 80HHC of the Act.
46. AO also noticed that the assessee had earned Rs 1,45,40,142/- on sale of scrap which was not considered as part to total turnover for the purpose of computing deduction u/s 80HHC of the Act. He held the aforesaid amount received on sale of scrap as part of turnover for 40 the purpose of calculation of deduction u/s 80HHC of the Act by the assessee while settlement of claim on order cancellation, exchange difference, miscellaneous income, balances written off earlier recovered in the year etc., aggregating to Rs.12,02,22,558/- (details of which are placed at Page 50 of the assessment order). AO was of the view that the aforesaid income should have been excluded while calculating deduction u/s 80HHC. AO therefore re-worked the deduction u/s 80HHC and computed the deduction at Rs.4,39,41,655/- as against the claim of Rs.5,56,43,000/- made by assessee. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A) who granted partial relief to assessee by holding as under :
"19.3. I have carefully considered the submission of the appellant in the light of the provisions of law and the judgment in the cases relied upon by the appellant.
19.3.1 The issue regarding inclusion of sales tax and excise duty in the total turnover for the purpose of deduction u/s.80HHC is squarely covered not only by the decision of the Hon'ble Bombay High Court in the case of Sudarshan Chemical Industries Ltd. but also by the decision of Hon'ble Supreme Court in the case of Lakshrni Machine Works, 290 ITR 667.Therefore, I see no justification in the action of the Assessing Officer in adding sales tax and excise duty in the total turnover while calculating deduction u/s. 80HHC. This part of the ground of appeal is allowed.
19.3.2 I also do not find the action of the Assessing Officer in adopting the figure of trading exports as per accounts Rs.2,68,83,000/- instead of the figure of export turnover Rs.1,11,49,759/- as per report in form no. 10CCAC, to be in accordance with the provisions of law. As per Explanation (b) to section 80HHC 'export turnover' means the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub- section (2) of any goods or merchandise to which section 80HHC applies and which are exported out of India. In the present case, the appellant has taken the figure of export turnover as per statutory mandate while calculating deduction u/s 80HHC. It is not the case of the Assessing Officer that the sale proceeds brought into India. by the assessee are more than Rs.1,11,49,759/-. Therefore, the Assessing Officer is not justified in adopting the figure of export turnover at RS.2,68,83,000/- instead of Rs.1,11,49,759/-. His action in doing so is accordingly negatived.
19.3.3. As regards inclusion of the amount of Rs.1,45,40,142/- representing sale of scrap, it is seen from the submission that the appellant has not disputed the action of the Assessing Officer in adding 41 the amount to the total turnover and has only contended that this amount should not be subjected to 90% reduction under explanation (baa) to section 80HHC. As regards inclusion of sale of scrap in the total turnover, I find no infirmity in the action of the Assessing Officer because the proceeds from disposal of scrap that is generated in the manufacturing process forms the operational income of the assessee.
However, for the same reason, the Assessing Officer is not held to be justified in subjecting the amount of sale of scrap to 90% reduction under explanation (baa) of section 80HHC once this amount has been considered as part of total turnover. Therefore, the Assessing Officer is directed to recompute deduction u/s 80HHC accordingly. 19.3.4 Coming to the appellant's grievance against the inclusion of the amounts written back in the total turnover, I do not find any force in the contention of the appellant. The trading debts, earlier written off and now recovered, are intrinsically related to the sales and therefore, do form part of the turnover. Further, the liquidated damages are in the nature of compensation for stipulated breach that may be recovered by the customer by deducting the amount from future payment after the breach has occurred or by withholding payments. The payments from customers are received against the sales and therefore, any recovery of the amount deducted earlier by the customers as liquidated damages shall form part of the total turnover. Similarly, exchange gain relating to the sales of the company is in the nature of sales and is therefore, includible in the total turnover. In view of the aforesaid, the action of the Assessing Officer in including the amounts written back in the total turnover is confirmed.
20. Ground No.16(b) is against exclusion by the Assessing Officer of 100% of the following amounts from eligible business profits and gains.
i) Claims and refunds Rs.38,19,594/-
ii) Balances written off now recovered Rs.22,71,036/-
iii) Premium on forward contract Rs.6,32,606/-
iv) Other income from investment Rs.1,06,23,000/-
v) Lease rent and notional lease rent Rs.2,82,52,673/-
vi) Miscellaneous income Rs.8,61,30,020/-
vii) Trading profits as per form
10CCAC Rs.10,42,000/-
20.1.1 During the course of assessment proceedings, the Assessing Officer found that the assessee has received claims and refunds of Rs.38,19,594/- balances written off now recovered Rs.22.72 lakhs, premium on forward contract Rs.6,32,505/-, other income from investments Rs.106.23 lakhs, lease rent Rs.1,29,31,371/- and also lease rent and notional lease rent added to the total income of the assessee at Rs.1,53,21,302/-. The Assessing Officer observed that these amounts have not been excluded by the assessee from the profits of business and profession for the purpose of deduction u/s. 80HHC. He was of the view that the receipts from claims and refunds is not the operational income of the assessee as the same specifically pertains to the claims which might have been made by the assessee on certain pretext and refunds which may have been received by the assessee from the Government agencies. He observed that it is not the business of the assessee to make claims and to earn by way of receiving refunds. He was of the view that these receipts are incidental and relatable to certain incidents or from the policies of the Government and therefore, cannot be treated to be operational income of the assessee. He, therefore, excluded the entire amount so received at 42 Rs.38,19,594/- from the profits of the business for the purpose of computation of deduction u/s 80HHC. Regarding receipt of Rs.22,71,036/- from the balances earlier written off now recovered, the Assessing Officer rejected the submission made by the assessee that this amount represented an operational income because of remission of liability u/s 41 (2). The Assessing Officer was of the view that these are the receipts of the assessee which were written off earlier from the books of accounts and have been received during the year and therefore, cannot be treated to be operational income of the assessee. He, therefore, excluded the amount of Rs.22,71,036/- from the eligible profits.
20.1.2 The Assessing Officer further found that the assessee has gained Rs.6,32,505/- towards premium on forward contract. According to him, this receipt is out of hedging activity which gives this kind of benefit to the assessee because of exchange rate of various currencies in the international market. He observed that it is not the business of the assessee to earn money from the money market or from the hedging of the currency. Therefore, the receipt from premium on forward contracts cannot be treated to be operational income of the assessee. Accordingly, he excluded the amount of Rs.6,32,505/- from the profits of the business for the purpose of computation of deduction u/s.80HHC.
20.1.3 Similarly, the amount of Rs.106.23 lakhs representing income from investment was excluded by the Assessing Officer from the profits of the business for the purpose of computation of deduction u/s 80HHC after observing that this income is against the investment made by the assessee out of surplus profits. As it is not the business of the assessee to earn from the investment, the amount of Rs.106.23 lakhs, according to the Assessing Officer, does not qualify as eligible profits for the purpose of deduction u/s 80HHC.
20.1.4 The Assessing Officer further found that the assessee has received lease rent of Rs.1,29,31,371/- and notional lease rent of Rs.1,53,21,302/- which has been added to tile income of the assessee. He was of the view that it is not the business of the assessee to earn from leasing activities of the assets. The assessee is in the business of manufacturing and sale of steam boilers heat exchangers etc. and therefore, these receipts from these rentals cannot be treated to be operational income at all. Accordingly, he excluded the total amount of Rs.2,82,52,673/- (1,29,31,371 + 1,53,21,302) from the profits of the business of the assessee for the purpose of computation of deduction u/s 80HHC.
20.1.5 The Assessing Officer also found that the assessee in total has received Rs.10,68,69,368/- as miscellaneous income which is on account ofcredit balances appropriated, DEPB, excess provision written back of material and expenses, rent received, warehousing charges, cash discounts, miscellaneous income and short provisions written off. From the details of these receipts he observed that except the receipts from DEPB and cash discounts, others do not form part of the operational income of the assessee. Accordingly, the miscellaneous receipts of Rs.10,68,69,368/-· as reduced by the DEPB and cash discount amounting to Rs.8,61,30,026/- was excluded by him from profits eligible for computation of deduction u/s 80HHC. 20.1.6 Regarding exclusion of Rs.10,42,000/- in respect of trading profit as reduced in computation of form 10CCAC, the Assessing Officer 43 has mentioned nothing in the assessment order and the same has been excluded directly from the total profits of the business in the computation of deduction u/s 80HHC.
20.2 In this context, the appellant submitted that the items of income from Sr. No. (i) to (vii) are part of operational income of the appellant company and should not have been excluded from the profit considered for computing deduction u/s 80HHC. Reliance has been placed for this purpose on the decision of Bombay High Court in the case of Bangalore Clothing Co. 260 ITR 371. It has been added that the income from lease rentals Rs.2,82,52,673/- has been considered on a notional basis by the Assessing Officer telescoping the lease rentals on the basis of lease agreement entered into by the appellant company with its customer which was foreclosed and terminated by the appellant in the earlier year. According to the appellant, it has been allowed the irrecoverable lease rental amounts written off as bad debts in the preceding AY. 2001-02 and AY. 2002-03 by the Hon'ble CIT(A). It has been contended that in the light of the aforesaid facts the Assessing Officer should not have considered the notional amount of lease rental income for the impugned A.Y. 2003-04. Without prejudice to the aforesaid, the appellant submitted that since the Assessing Officer has taken the notional lease rental as business income of the appellant for the impugned A. Y. 2003-04 being in pursuance of one of the objects of the company in furtherance of its business, the Assessing Officer ought to have taken the said lease rental as part of business profit and should not have excluded the same for the purpose of allowing deduction u/s 80HHC of the I.T. Act.
20.3. The submission has been considered. In support of its contention the appellant has placed reliance on the judgement of Hon'ble Bombay High Court in the case of Bangalore Clothing Co. However, except for item at S.No. (v) mentioned in para 20, the appellant has not elaborated as to how the other items are forming the operational income of the assessee. Therefore, these items are considered on merits as follows:
20.3.1 The claims and refunds being amounts received from government agencies, are in the nature of charges, and therefore, their recoveries also cannot qualify as operational income Similarly, premium on forward contract, other income from investment, miscellaneous income cannot partake the character of operational income in the light of the decision in the case of Bangalore Clothing Company. However, balances written off now recovered have been held to be a part of the total turnover in para 19.3.4 and therefore, the same shall form the operational income of the company. The trading profits of Rs.10,42,000/- also stand on the same footing.
20.3.2 Coming to the lease rent and notional lease rent, the action of the Assessing Officer in excluding the same from profits of the business for the purpose of deduction u/s 80HHC has to be confirmed. The income earned by way of lease of various goods is neither related to the manufacturing nor export activity of the assessee and therefore, does not qualify as its operational income. However, the amount to be excluded under this head has to be restricted to the amount which has been credited by assessee in the accounts of this year.
20.3.3 Before me, the appellant submitted that only an amount of Rs.1,29,31,371/- has been accounted for as lease rent for this year.
The Assessing Officer is directed to verify the same and restrict the exclusion to this extent only.
44
21. Ground of appeal No.16(c) is against the action of the Assessing Officer in reducing from the eligible profits and gains of business at 90% of following :
i. Sale of scrap
also included by him in total turnover Rs.1,45,40,142
ii. Exchange Difference net Rs.14,883
21.1 It has already been held in Par 19.3.3 that the Assessing Officer is not not justified in subjecting the amount of sale of scrap to 90% reduction under explanation (baa) of section 80HHC. As regards exchange difference, to the extent the exchange difference is relatable to sales, the same is not hit by explanation (baa) of section 80HHC and therefore, to this extent, the exchange difference should not be subjected to 90% reduction. Decided accordingly. Ground of appeal no. 16(d) is against the action of the Assessing Officer in excluding from eligible profits of business, loss/ expenses on foreign representative offices Rs. 4,06,66,421/- and not accepting the contention of the appellant that loss of foreign representative offices should go to increase the "profits of the business" eligible for deduction u/s 80 HHC instead of ignoring the same.
22.1. During appellate proceedings, the appellant contended that under the scheme of the Act, profits of overseas branches have to be reduced while computing eligible profits. By the same logic, in the mathematical formula prescribed in section 80HHC, the losses should have been added to arrive at the eligible profits. 22.2. I find that the claim of the appellant is not supported by any of the provisions of law and therefore, cannot be entertained. There being no infirmity in the action of the Assessing Officer, the same calls for no interference and this part of the ground of appeal is dismissed.
23. Ground of appeal No.16(e) is against the action of the Assessing Officer in not giving appropriate further deduction with reference to 90% of export incentives (other than DEPB) Rs.104.96 lacs. 23.1. This issue is covered by the order of my predecessor against the appellant in appellant's own case in AY. 2003-04. Respectfully following the same, I dismiss this ground of appeal.
24. Ground of appeal No.16(f) is against the action of the Assessing Officer in reducing from the eligible total exports turnover Rs.8,76,93,013/- for which proceeds were not received within stipulated time.
24.1 Before me, the appellant submitted that amount of Rs.8,76,93,013/- has been excluded from the export turnover allegedly for non-receipt of the sale proceeds in the hands of the appellant company. The Assessing Officer has excluded the said amount on the plea that the sale proceeds were not received within 12 months from export shipment. In fact the appellant has received the export proceeds within the period of 12 months and which is the period allowed in accordance with the provisions of sub-section (2)(a) of section 80HHC. 24.2. It is seen from the assessment order that this issue has . elaborately been dealt with by the Assessing Officer who after verification of the details submitted by the assessee in this regard has 45 given a categorical finding that the entire sale proceeds of Rs.8,76,93,013/- were such which were received not only after so"
September, 2003 but were also beyond one year time of the date of their shipment and therefore, they were such which were received not only after 30th September, 2003 but were also beyond one year time of the date of their shipment and therefore, they were not within the time period of time period of six months from the end of the previous year or even within such further period as competent authority may allow in this behalf. During appellate appellants, no material has been produced before me by the appellant to refute the finding of the Assessing Officer. Therefore, I find no reason to interfere with the action of the Assessing Officer which is upheld and the ground of appeal is dismissed.
25. Ground of appeal no.16(g) is against the action of the Assessing Officer in reducing deduction u/s 80HHC by the amount of deduction allowed by him u/s 80-IB of the Act instead of correctly giving effect to the provisions of section 80-IB(13) r w 80-IA(9) as has been done by the appellant in the report in form 10CCAC . 25.1 During appellate proceedings, no submission has been made by the appellant in this regard. On merits, I find that the Assessing Officer's action is in accordance with the provision of law and therefore, calls for no interference. As a corollary, this ground of appeal fails." Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us vide ground No.11 and Revenue is also aggrieved by the order of Ld.CIT(A), to the extent of relief granted by Ld.CIT(A) and has raised ground Nos.7 to 9. Since the grounds raised by assessee and Revenue are inter-connected, both are considered together.
47. The assessee by way of ground of appeal No.11 has raised various issues in respect of the items to be considered in total turnover and the items to be considered in export turnover. While applying the deduction u/s 80HHC of the Act, the AO had excluded certain items and included certain items against which the Ld. CIT(A) has given relief in respect of certain items and upheld the other items. Both the assessee and the Revenue are in appeal against the respective portions of the order of the Ld. CIT(A). Both the Authorised Representatives have made extensive arguments in support of their respective claims. However, the issue of various aspects of claim of 46 deduction u/s 80HHC of the Act has been adjudicated by the Hon'ble High Court and the Apex Court in various decisions and we proceed to adjudicate the issues raised by making reference to the said decisions relied upon by the Ld.A.R. for the assessee and Ld.D.R. for the Revenue.
48. First we take up the ground of appeal No.11(a) and (b) raised by the assessee in this regard. i.e., determination of total turnover.
48.1. The assessee is aggrieved by the inclusion of sale of scrap, balances written back and exchange difference as part of "total turnover". The Revenue is also in appeal against the order of Ld. CIT(A). Vide ground No 7, Revenue is aggrieved by the directions of CIT(A) for adoption of Rs 1.11 crores (rounded off) as per Form 10CCAC and not the figure of Rs 2.68 crore (rounded off) on account of trading turnover in the total turnover.
49. The plea of the assessee is that the scrap is generated during the course of manufacturing. The aforesaid contention of the assessee is not controverted by the Revenue. In such a situation, we find that the ratio of the decision of Hon'ble Apex Court in the case of CIT Vs. Punjab Steel Industries India reported in 364 ITR 144 would be applicable to the present facts and therefore the sale of scrap cannot be considered as part of "total turnover" for the purpose of calculation of deduction u/s 80HHC of the Act. Further, identical issue arose in Assessee's own case in AY 2002-03 wherein the issue 47 was decided in favour of the Assessee by the co-ordinate Bench of Tribunal.
50. The next item in ground of appeal No.11(a) is Exchange Difference, wherein the Ld.A.R. for the assessee fairly admitted that the said difference to the extent of sales would form part of the total turnover and the balance needs to be excluded. We find merit in the plea of the assessee that exchange difference to the extent of sales would be included as part of the total turnover.
With respect to ground No.7 of Revenue, we find that CIT(A) has held that Assessee had taken the figure of export turnover of Rs 1.11 crore as per the statutory mandate while calculating the deduction u/s 80HHC. No fallacy has been pointed out by the Revenue in the findings of CIT(A). we therefore find no reason to interfere with the order of CIT(A) on this aspect.
Thus, ground of appeal No.11(a) raised by the assessee is partly allowed and ground of appeal No.7 raised by the Revenue is dismissed.
51. Now coming to the issue raised by assessee in ground of appeal No.11(b) relates to disputed adjustments to the export turnover wherein the various claims have been raised before us and we proceed with the same by referring to each one of them.
(i) Business claims and refunds :
48
In this regard the amount relates to business claims and refund of Rs.38,19,594/-. Before us, Ld AR submitted that in AY 2002-03, the issue was remitted back to the AO with direction. He submitted that the issue being identical to that of AY 2002-03, the issue be remitted back as in earlier year.
Considering the submissions of Ld AR, following the reasoning for AY 2002-03 and for similar reasons, we remit this issue back to the AO to apply the said directions.
(ii) Balances written off now recovered :
The assessee pointed out that it was part of operational income recovered. Since the expenses when booked were allowed as expenditure, hence, the same is to be considered at cost of export turnover. We find merit in the plea of the assessee in this regard. However once the same is excluded as part of turnover, hence, the same cannot be excluded under Explanation (baa) to Sec.80HHC of the Act.
(iii) Premium on forward contracts, other income from investments, lease rent, trading profit and miscellaneous income :
Before us, Ld AR fairly submitted that the aforesaid items would stand excluded under Explanation (baa) to s. 80HHC and therefore it is to be decided against the Assessee. In view of the aforesaid submission of the Ld AR, we find no reason to interfere with the order of AO to exclude the aforesaid items for calculation of eligible profits. Thus this ground is decided against the Assessee.49
With respect to ground 11(c) on account of exclusion of exchange difference of Rs 14883/-, Ld AR submitted that due to smallness of the amount, the Assessee does not wish to press the issue. Thus, the same is dismissed.
With respect to second part of ground 11(c) the assessee is aggrieved by the non-exclusion of business losses. In this regard, it was pointed out that profits if any of the representatives of the assessee ought to be excluded u/s 80HHC of the Act, so consequently the losses have to be excluded under Explanation baa (2) of Sec.80HHC of the Act and consequently the profits eligible for claiming the deduction u/s 80HHC of the Act should be increased.
We find merit in the plea of the assessee as Explanation (baa) to Sec.80HHC of the Act provides that the profits of any branch office, warehouse or any other establishment of the assessee situated outside India ought to be revised from the profits of business computed under the head of profits and gains of business and profession. Consequently in cases from the any loss of over-seas, branch or office then the same also needs to be excluded and the profits eligible to claim deduction u/s 80HHC of the Act should be increased and we direct so. Thus, ground of appeal No.11(c) and (d) are allowed.
With respect to ground 11(e), the assessee is aggrieved by the reducing the profits of the business by Rs 104.96 lacs.50
52. Before us, Ld AR submitted that in AY 2002-03, the Tribunal vide para 45 of the order directed the AO to apply the amendment to Sec.80HHC(3) and decide the issue. He submitted that as per the decision of Hon'ble Apex Court in the case of Avani Exports, the 3rd and 4th proviso to s. 80HHC(3) are prospective in nature and do not apply to A.Y 2003-04 and 2004-05. He further submitted that Hon'ble Apex Court in the case of Topman Exports (342 ITR 49) has held that the assessee would be entitled to deduction u/s 80HHC on the entire amount of DEPB credit. He therefore submitted that the issue be remitted back to AO to decide in the light of the aforesaid decisions of Hon'ble Apex Court. We find merit in the contentions raised by the Ld AR. In view of the aforesaid submissions, we restore the issue back to the file to AO to decide the issue in the light of the aforesaid decisions of Apex Courts and in accordance with law. Thus, the ground of Assessee is allowed for statistical purposes.
53. Ground No 11(g): CIT(A) had upheld the action of AO in reducing from the eligible exports turnover of Rs 8,76,93,013/- where the proceeds were not received within the stipulated time. Before us, Ld AR submitted that the claim be allowed in view of subsequent realization of debts. Ld DR did not contovert the submissions made by Ld AR. In view of the submissions of Ld AR we find merit in his contentions. We therefore remit the issue back to the file to AO to allow the claim in accordance with law on the subsequent realization of the debts. Thus. this ground of assessee is allowed for statistical purposes.
51
54. Ground No 11(g) is with respect to reducing the claim of deduction u/s 80HHC by the amount of deduction allowed u/s 80IB.
54.1. Before us, Ld AR submitted that AO had applied the provisions of Sec.80IA(9) and deducted the amount of profit eligible for deduction u/s 80IA from the profits eligible for computing deduction u/s 80HHC. Ld AR fairly admitted that the method adopted by the AO has been upheld by the Hon'ble Delhi High Court in the case of Great Eastern Exports (332 ITR 14) wherein it had approved the decision of the Special Bench of ITAT in the case of Hindustan Mint and Agro Products P Ltd 315 ITR (AT) 401 and therefore the ground of the Assessee will have to be dismissed. In view of the aforesaid submissions of Ld AR, the ground of assessee is dismissed.
(iv) Miscellaneous income :
The next item is Miscellaneous Income, wherein the assessee claimed the said income at Rs.4.39 crore to be part of export turnover. The Ld. CIT(A) allowed the claim of the assessee to the extent of Rs.2.29 crores referring the Ld. CIT(A) vide para 24.3 discussed the issue and we find merit in his observations and upheld the order of Ld. CIT(A) regarding miscellaneous income to be excluded. Hence, the ground of appeal No.10(c) is partly allowed.
55. Ground No.12 is with respect to charging of interest u/s 234D.
5255.1. Before us, at the outset, Ld.A.R. submitted that this ground needs to be decided against assessee as the provisions of Sec.234D were applicable as assessment was completed after 01.06.2003. He further submitted that similar ground raised by the Assessee in 2002- 03 was decided against the Assessee. In view of the submission of Ld.A.R., the ground of assessee is dismissed.
56. In the result, the appeal of the Assessee is partly allowed.
57. Now we take up the grounds raised in Revenue's appeal:
58. 1st ground is with respect to deletion of addition of Rs. 324.50 lacs on account of adjustment made to closing stock. 58.1. AO on perusing the details noticed that the figures of Excise duty (CENVAT), sales tax etc relatable to closing stock stood at Rs. 324.50 lacs. AO was of the view that closing stock has to be taken as per the method regularly employed by the assessee and needs to be further adjusted by the amount of tax, duty, cess or fee actually paid or incurred by the Assessee AO was further of the view that Sec. 145A dealt with only the closing stock and the adjustments called for in terms of Sec.145A were to be made only to closing stock leaving the purchases and opening stock unaltered. He accordingly made addition of Rs 324.50 lacs to the closing stock. Aggrieved by the order of AO, assessee carried the matter before CIT(A), who decided the issue in favour of the assessee by observing as under :
"5.3 I have carefully considered the submission of the appellant. I have also gone through the detailed. discussion made by the Assessing 53 Officer in the assessment order before making addition of Excise Duty etc. relatable to closing stock u/s.145A of the Act. The addition has been made by the Assessing Officer after forming the view that the provisions of section 145A essentially only relate to the valuation of closing stock. In forming this view the Assessing Officer has relied upon the Notes on clause of Finance (No.2) Bill, 1998 and the memorandum explaining the provisions of section 145A inserted by the Finance (No.2) Bill, 1998. The Assessing Officer has also tried to gather strength from the closing phrase of section 145A(b) which, according to him, has the implied meaning that it refers to closing stock only as because what is available to the assessee as on the date of valuation is the closing stock only and nothing else. I find that the Assessing Officer has misdirected himself in forming his view by relying on such notes on clause to Finance (No.2) Bill 1998 that, in their original' form, never saw the light of the day as the bill was passed after making amendments to it so much so that even the original caption "computation of value of inventory" was changed to "Method of accounting in certain cases."
After making a plane reading of section 145A, I am inclined to accept the appellant's contention that the clause (a) of section 145A clearly refers to purchases, sales and inventory and does not in any manner restrict to closing stock only as interpreted by the Assessing Officer. In fact, while reading the provision, we cannot close our eyes to read only part of the provisions in inferring that the provisions of section 145A apply to the valuation of closing stock only. Further, while forming the above mentioned view that provisions of section 145A apply to the closing stock only, the Assessing Officer has relied upon his understanding of the phrase 'as on the date of valuation' mentioned in the clause (b) of Section 145A. Here again, I do not agree with the Assessing Officer. The 'date of valuation' does not necessarily mean the date when the accounts are closed. It can be any date when the valuation of goods is made. The Assessing Officer has also expressed his concern that if the adjustments made as per provisions of section 145A have no effect on the gross profit, then the provisions of section 145A would become superfluous. I do not consider it to be so. What is aimed at by inserting the provisions of section 145A is to have the value of closing stock inclusive of excise duty etc. This aim is automatically achieved once the excise duty is included in the opening stock, purchases and sales as has been categorically specified in the provisions of section 145A which, as per the opening lines, mandate that the valuation of purchase and sale of goods and inventory has to be done as prescribed in the section.
5.4. In view of the aforesaid, respectfully following the decision of the ITAT, Mumbai as given in the case of Gandhar Oil Refinery, I do not find any justification in the action of the Assessing Officer in making addition of Rs.3,24,50,000/- to the income of the appellant by applying section 145A. The addition is ordered to be deleted." Aggrieved by the order of CIT(A), Revenue is now before us.
59. Before us, Ld DR supported the order of AO. Ld AR on the other hand reiterated the submissions made before lower authorities and further submitted that assessee follows the exclusive method for valuing the closing stock since purchases are accounted for net of 54 CENVAT credit and sales tax set off. He submitted that AO by applying the provisions of Sec.145A grossed up only closing stock thereby bringing to tax additional income without grossing up purchases and opening stock. He submitted that for the purposes of Sec.145A, opening stock also has to be revalued as held by Hon'ble Delhi High Court in the case of Mahavir Aluminium Ltd (297 ITR 77) and Bombay High court in the case of Mahalaxmi Glass Works Pvt. Ltd reported in 318 ITR 116. He thus supported the order of CIT(A).
60. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to adjustment made to closing stock in terms to Sec.145A of the Act. We find that CIT(A) after considering the decision of Mumbai tribunal in the case of Gandhar Oil Refinery decided the issue in favour of the Assessee. Before us, Revenue has not pointed out any fallacy in the findings of CIT(A). We therefore find no reason to interfere with the order of CIT(A) and thus, the ground No.1 of Revenue is dismissed.
61. Ground No.2 is with respect to the action of CIT(A) in holding that the entire amount raised in the invoice does not accrue.
61.1. Before us both the parties submitted that the present ground is inter-connected to ground No.2 of assessee's appeal.
62. We have heard the rival submissions and perused the material on record. Before us both the parties submitted that the present ground is inter-connected to ground No.2 of assessee's appeal. We 55 have hereinabove have decided the ground No.2 in Assessee's appeal in assessee's favour. In view of the reasons cited therein while deciding the ground No.2 of assessee, the ground No.2 of Revenue is dismissed.
63. Ground No.3 is with respect to the action of CIT(A) in directing deletion of addition of Rs 200.26 lacs. 63.1. Before us both the parties submitted that the present ground is inter-connected to ground No.5 of assessee's appeal.
64. We have heard the rival submissions and perused the material on record. Before us both the parties submitted that the present ground is inter-connected to ground No.5 of assessee's appeal. We have hereinabove have decided the ground No.5 in Assessee's appeal in assessee's favour. In view of the reasons cited therein while deciding the ground No.5 of assessee, the ground No.3 of Revenue is dismissed.
65. Ground No.4 is with respect to the action of CIT(A) in directing deletion of addition of Rs 1.53 crore on account of lease rent.
66. During the course of assessment proceedings AO noticed that the Assessee is engaged in the business of self manufactured products in the past. The Assessee was asked to give the details of the lease rentals which was furnished by the Assessee and it was further submitted that during the year under consideration no assets 56 have been given on ease and there was no accrual of the lease rentals during the year. It was further submitted that in AY 2002-03 similar addition was made by AO but the same was deleted by CIT(A). The submissions made by the Assessee was not found acceptable to AO and also noted that the order of CIT(A) has not been accepted by the Revenue and appeal has been filed before the Tribunal. He thereafter made addition of Rs.1.53 crores. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who deleted the addition by holding as under :
"It is seen that the issue involved in this ground of appeal is squarely covered by the order of CIT(A) in the case of the appellant in assessment years 2001-02 and 2002-03. In the year under consideration, the facts of the case are identical to those in earlier assessment year viz A.Y. 2002-3 and the Assessing Officer, has made the additions of Rs.1,53,21,302/- merely on the basis of addition made on this score in A.Y. 2002-03 in order to keep the issue alive. After careful consideration, I am inclined to agree with the finding of my predecessor that the addition of Rs.1,53,21,302/- with reference to the subject leases was without any basis. Accordingly, the addition of Rs.1,53,21,302/- is directed to be deleted."
Aggrieved by the order of CITA(A), Revenue is now before us.
67. Before us. Ld DR supported the order of AO. Ld AR on the other hand reiterated the submissions made before lower authorities and further submitted that in the year under appeal there was no subsisting lease agreements. He further submitted that in earlier year, the order of CIT(A) deleting the addition made by the AO has been upheld by the Tribunal. He thus supported the order of CIT(A).
68. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to addition made on account of lease rentals. Before us it is submitted that in 57 earlier year the addition has been deleted by the tribunal. Before us, no fallacy has been pointed out by the revenue in the order of CIT(A). We therefore find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.
69. Ground No 5 is with respect to deletion of addition on account of medical expenses.
During the course of assessment proceedings AO noticed that Assessee has made additional provision of Rs 7,54,000 for the medical expenses. The AO was of the view that the provision was without quantification and the amount did not crystalised. He accordingly disallowed Rs 7,54,000 and made its addition. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who deleted the addition by observing as under :
"17.3 I find that the issue is covered in favour of the appellant by the order of CIT(A) in appellant's own case in A.Y. 2002-03. After careful consideration, I do not find any reason to form a view other than that formed by my predecessor. Accordingly, this ground of appeal succeeds.
Aggrieved by the order of CIT(A), Revenue is now before us.
70. Before us Ld DR supported the order of CIT(A). Ld AR on the other hand reiterated the submissions made before lower authorities and further submitted that in AY 2001-02 the identical issue was decided by tribunal in assessee's favour. He further submitted that the issue was not challenged by the Department in AY 2002-03. He thus supported the order of CIT(A).
58
71. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to disallowance of additional medical expenses. We find that CIT(A) while deciding the issue in assessee's favour had relied upon the order of his predecessor for AY 2002-03. Before us, Ld AR submitted that in AY 2002-03 CIT(A) on identical facts had decided the issue in assessee's favour and the issue was not agitated by the Revenue. The aforesaid contention of the Ld AR has not been controverted by the Revenue. We further find that identical issue in AY 2002-03 was decided in Assessee's favour. In view of the aforesaid fact, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.
72. Ground No 6 is with respect to computation of deduction u/s 80IA of the Act.
72.1 In FY 2001-02 a company called Thermax Water Technologies Ltd had amalgamated with the Assessee. In AY 2002-03 the assessee had claimed set off u/s 72A in respect of loss of Rs 15.21 crores (rounded off) in respect of amalgamating company. In AY 2002-03 the loss was set off against the claim for deduction u/s 80IA to the extent of Rs 1092.49 lacs and the balance loss of Rs 428.57 lacs was now set off against the claim for deduction u/s 80IA as a result of which claim for deduction was restricted to Rs 9784800 as against Rs 2,57,07,000 made in the return. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who decided the issue in favour of assessee by observing as under:
59
"18.4 The submission has been considered and is found to have merit. If the loss of the erstwhile Thermax Water Technologies Ltd. has been completely set off in the hands of the appellant company in the A.Y. 2002-03 and no loss is available to be carried forward to the present assessment year, the question of setting of losses during this year does not arise. Accordingly, the action of the Assessing Officer is negatived.
Aggrieved by the order of CIT(A) Revenue is now before us.
73. Before us, Ld DR supported the order of AO. Ld AR reiterated the submissions made before lower authorities and supported the order of CIT(A).
74. We have heard the rival submissions and perused the material on record. We find that CIT(A) while deciding the issue in favour of the assessee has noted that if losses of erstwhile Thermax Water Technologies Ltd has been completely setoff and no loss is available to be carried forward then the question of setting of losses during the year does not arise. Before us Revenue has not pointed to any fallacy in the finding of CIT(A) and therefore we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.
75. Ground Nos.7, 8 and 9 are with respect to deduction u/s 80HHC of the Act.
75.1. Before us both the parties submitted that the issues raised in the present grounds are interconnected with the ground no 11 of assessee's appeal.
76. We have hereinabove while deciding the appeal of assessee has given certain directions to AO for computation of deduction u/s 60 80HHC. In view of the aforesaid facts, the grounds of the Revenue are decided accordingly.
77. In the result, the appeal of Revenue is partly allowed.
78. To sum up, appeals of assessee and Revenue are partly allowed.
Order pronounced on this 12th day of March, 2019.
Sd/- Sd/-
(SUSHMA CHOWLA) (ANIL CHATURVEDI)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
th
ु े / Pune; दनांक Dated : 12 March, 2019.
पण
आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. CIT(A)-III, Pune.
4. CIT-V, Pune.
5 वभागीय #त#न$ध, आयकर अपील य अ$धकरण, "ए" / DR, ITAT, "A" Pune;
6. गाड* फाईल / Guard file.
ु ार/ BY ORDER,स आदे शानस या // True Copy // व,र-ठ #नजी स$चव / Sr. Private Secretary आयकर अपील य अ$धकरण ,पण ु े / ITAT, Pune