Cross-appeals partially allowed for assessment years 1998-99 & 1999-2000. AO directed to follow tribunal orders.

The Tribunal partly allowed the cross-appeals for both assessment years 1998-99 and 1999-2000, directing the AO to follow its previous orders and applicable legal precedents.

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Issues Involved:
1. Deduction of process know-how fees under Section 37(1) vs. Section 35AB.
2. Provision for warranty obligations.
3. Deduction of amortized premium on leasehold land.
4. Recognition of income from contract activities.
5. Disallowance under Section 35D.
6. Taxability of retention money.
7. Capital vs. revenue expenditure for computer software.
8. Depreciation on plant and machinery.
9. Computation of deduction under Section 80HHC.
10. Exclusion of certain incomes under Explanation (baa) of Section 80HHC.
11. Deduction under Section 80-I/80-IA for specific industrial undertakings.
12. Disallowance of club fees.
13. Disallowance of bad debts.
14. Commission paid to a group company.

Detailed Analysis:

1. Deduction of Process Know-How Fees:
The assessee claimed a deduction of Rs. 7,16,58,292/- under Section 37(1) for process know-how fees. The Assessing Officer (AO) and CIT(A) allowed the deduction under Section 35AB, not Section 37(1). The Tribunal upheld the Revenue's stand, following the Supreme Court's judgment in M/s Drilcos (India) Pvt. Ltd. vs. CIT, allowing amortization under Section 35AB.

2. Provision for Warranty Obligations:
The assessee's provision for warranty obligations amounting to Rs. 49,62,303/- was disallowed by the AO and CIT(A) as contingent liability. The Tribunal allowed the provision, following past decisions in the assessee's favor.

3. Deduction of Amortized Premium on Leasehold Land:
The assessee's claim for Rs. 2,25,020/- as amortized premium on leasehold land was disallowed by the AO and upheld by CIT(A), following the Supreme Court's decision in Govind Sugar Mills Ltd. vs. CIT.

4. Recognition of Income from Contract Activities:
The AO added Rs. 14,95,43,003/- to the income, disallowing the provision for profit equalization. The CIT(A) allowed the provision but disallowed Rs. 4,00,71,000/- for scaling down revenue and non-recognition of revenue for contracts under Rs. 20,00,000/-. The Tribunal directed the AO to follow its previous order and allow the provision.

5. Disallowance under Section 35D:
The assessee's grounds on this issue were not pressed and dismissed as 'Not Pressed'.

6. Taxability of Retention Money:
The assessee's contention that retention money did not accrue and was not taxable was not pressed and dismissed as 'Not Pressed'.

7. Capital vs. Revenue Expenditure for Computer Software:
The AO treated Rs. 40,13,159/- for computer software as capital expenditure. CIT(A) allowed Rs. 17,97,051/- as revenue expenditure and retained Rs. 22,16,107/- as capital. The Tribunal upheld CIT(A)'s decision, following the Bombay High Court's judgment in CIT vs. Raychem Rpg. Ltd.

8. Depreciation on Plant and Machinery:
The AO disallowed 100% depreciation on plant & machinery used in manufacturing heat pumps and air/gas/fluid heating systems. CIT(A) allowed 100% depreciation for air/gas/fluid heating systems but not for heat pumps. The Tribunal upheld CIT(A)'s decision.

9. Computation of Deduction under Section 80HHC:
The AO used export turnover as per books instead of Section 80HHC definition. The Tribunal directed the AO to use the definition in Section 80HHC.

10. Exclusion of Certain Incomes under Explanation (baa) of Section 80HHC:
The AO excluded 90% of certain incomes. The Tribunal restored the issue to the AO, following the Bombay High Court's judgment in Pilzer Ltd. vs. CIT.

11. Deduction under Section 80-I/80-IA for Specific Industrial Undertakings:
The AO denied deductions for Woodpac and Process Integrated Boilers. CIT(A) allowed the deductions, and the Tribunal upheld CIT(A)'s decision, following past Tribunal and High Court decisions.

12. Disallowance of Club Fees:
The AO disallowed Rs. 2,50,000/- as capital expenditure. CIT(A) allowed it as business expense, following Gujarat High Court's decision in Gujarat State Export Corporation Ltd. vs. CIT. The Tribunal upheld CIT(A)'s decision.

13. Disallowance of Bad Debts:
The AO disallowed Rs. 14,82,798/- for bad debts. CIT(A) allowed the claim, and the Tribunal upheld CIT(A)'s decision, following the Supreme Court's judgment in TRF Ltd. vs. CIT.

14. Commission Paid to a Group Company:
The AO disallowed Rs. 90,00,000/- paid as commission to Thermax Culligan Water Technologies Ltd. CIT(A) allowed the deduction, and the Tribunal upheld CIT(A)'s decision, noting the business transfer agreement and procedural delays.

Conclusion:
The Tribunal partly allowed the cross-appeals for both assessment years 1998-99 and 1999-2000, directing the AO to follow its previous orders and applicable legal precedents.

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