2019 (7) TMI 1513 - AT - Income Tax

Tribunal Upholds Revenue Appeals Dismissal for Assessment Years 2009-10 and 2010-11

Assistant Commissioner of Income Tax, Circle – 10, Pune Versus Thermax Engg. Const. Co. Ltd.

The Tribunal dismissed both appeals by the Revenue for the assessment years 2009-10 and 2010-11. The Tribunal upheld the deletion of additions on account ... Addition on account of negative Contract In Progress (CIP) - HELD THAT:- We find the AS-7 which existed prior to letter dated 01st April, 2003 continues to remain the same; but for minor changes. There are minor changes in relation to the computational issues. There is no change so far as “cost based” percentage completion method in concerned. Therefore, the computation of “recognition income” is concerned, the order of the CIT(A) is fair and reasonable and the same does not call for any interference. Accordingly, relevant grounds stand allowed in favour of the assessee. So far as adjustments made by the AO to the estimated cost is concerned, the CIT(A) already granted part relief to the assessee. With reference to the freight outward to be included in the estimated total cost, we find it is a case of reimbursement of the actual cost incurred by the assessee. The inclusion in the total estimated cost when the same is returned has no effect on the income aspect. Therefore, being the case of reimbursement, there is no profit element. Consequently, recognition income of such reimbursement is not appropriate. Therefore, the order of the CIT(A) on this issue requires to be reversed. Provision towards leave travel allowance and medical reimbursement to the employees - HELD THAT:- The assessee has furnished copy of the scheme which is combined for medical reimbursement and the leave travel concession. The scheme has been reproduced in para 3.1 of the order. The Co-ordinate Bench of Tribunal deleted the addition as now been upheld by the Tribunal [2019 (7) TMI 882 - ITAT PUNE] We find no reason to interfere with the findings of Commissioner of Income Tax (Appeals). Accordingly, ground No. 2 of the appeal is dismiss Disallowance of liquidated damages - allowable business expenditure - HELD THAT:- “Commercial expediency” is a term of wide import and has been held to include such expenditure as a prudent businessmen incurs for the purpose of business. No disallowance of liquidated damages were made in earlier years though the assessee was following similar methodology for accounting.CIT(A) had accepted the allowability of claim for liquidated damages as a business expenditure then he should have not directed the AO to allow deduction to the extent there were Liquidated damages clauses in the purchase orders. 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 Issues Involved:1. Deletion of addition made on account of negative Contract In Progress (CIP).2. Deletion of disallowance of provision towards leave travel allowance and medical reimbursements.3. Deletion of disallowance claimed as liquidated damages.Detailed Analysis of the Judgment:1. Deletion of Addition on Account of Negative Contract In Progress (CIP):The Revenue challenged the deletion of Rs. 67,22,000/- made on account of negative CIP. The Tribunal noted that the issue had already been adjudicated in favor of the assessee's parent company, Thermax Limited, for the assessment year 2004-05. The Tribunal reaffirmed that the income recognition method under Accounting Standard 7 (AS-7) was correctly followed by the assessee. The Tribunal found no fault in the method adopted by the assessee for recognizing contract revenue and dismissed the Revenue's grounds, citing consistency with previous decisions.2. Deletion of Disallowance of Provision Towards Leave Travel Allowance and Medical Reimbursements:The Revenue contested the deletion of disallowance amounting to Rs. 9,53,369/- for leave travel allowance and medical reimbursements. The Tribunal observed that a similar issue had been decided in favor of the assessee's parent company, Thermax Limited, for the assessment year 2004-05. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, which was based on the scheme's objective to provide flexibility to employees in drawing benefits from a common basket. The Tribunal found the scheme to be on identical footing for both leave travel allowance and medical reimbursements and dismissed the Revenue's ground.3. Deletion of Disallowance Claimed as Liquidated Damages:The Revenue disputed the deletion of disallowance of Rs. 1,94,93,177/- claimed as liquidated damages. The Tribunal noted that this issue had also been adjudicated in favor of the assessee in the case of Thermax Limited for the assessment year 2003-04. The Tribunal found that the contracts involved clauses for liquidated damages due to delays or non-performance, which were legitimate business expenses. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, which directed the Assessing Officer to verify and allow the claim of liquidated damages. The Tribunal dismissed the Revenue's grounds, finding no reason to interfere with the Commissioner of Income Tax (Appeals)'s findings.Conclusion:The Tribunal dismissed both appeals by the Revenue for the assessment years 2009-10 and 2010-11, finding no merit in the grounds raised. The Tribunal's decision was consistent with previous rulings in similar cases involving the assessee's parent company, Thermax Limited.