2017 (12) TMI 1845 - AT - Income Tax

Tribunal partially allows appeals on contractual provisions, warranty, and depreciation. Fresh consideration ordered.

M/s. BGR Energy Systems Ltd Versus The Deputy Commissioner of Income Tax, Central Circle 3 (1) Chennai and vice-versa

The Tribunal partly allowed the appeals of the assessee and the Revenue for statistical purposes. The Tribunal directed fresh consideration by the ... Disallowance of provision for contractual obligations - HELD THAT:- As it is apodictic that actual payments against the provisions made by the assessee for earlier year were negligible upto assessment year 2013-14. Assessee was unable to furnish any details regarding the projects so far completed by the assessee with delay and the actual amount of liquidated damages paid for such overrun. While there can be no quarrel on the claim of the assessee that actual liquidated damages payable on account of delay attributable to it, is a crystallized liability, in our opinion requisite details for supporting the claim made by the assessee is not on record. Not only the assessee has to show that there was indeed a delay, it is also required to show what part of such delay was attributable to its own fault and what claim was made by the client as per contractual provision, for such damages. In the facts and circumstances of the case, we are of the opinion that the issue requires a fresh look by AO. We therefore set aside the orders of the lower authorities and remit the issue back to the file of the ld. Assessing Officer for consideration afresh in accordance with law. Disallowance being provision for warranty - HELD THAT:- What we find is that for assessment year 2009-10 though the claim was allowed by the ld. Commissioner of Income Tax (Appeals), the Tribunal had reversed such finding of the ld. Commissioner of Income Tax (Appeals) and upheld the disallowance for warranty provisions. Nothing was shown before us to take a different view for the impugned assessment year. Ground of the assessee stands dismissed. Disallowance u/s.14A - HELD THAT:- Hon’ble Delhi High Court in the case of Joint Investment P. Ltd [2015 (3) TMI 155 - DELHI HIGH COURT] disallowance u/s.14A of the Act cannot exceed the exempt income claimed by the assessee. We restrict the disallowance accordingly. Addition of retention money - Accrual of income in which year ? - HELD THAT:- We find that the question whether retention money could be considered as part of income had come up before the Hyderabad Bench of the Tribunal in assessee’s own case for assessment year 2007-08 [2013 (9) TMI 372 - ITAT HYDERABAD] Tribunal had set aside the issue to the file of the ld. Assessing Officer for verifying the correctness of the claim of the assessee that retention money was offered as income in the years in which these were received. Accordingly, for the impugned assessment year also, we give similar directions as given by the Tribunal - Ground of the Revenue is partly allowed for statistical purpose. Allowance of depreciation on technical know-how - HELD THAT:- No doubt, Revenue has claimed that assessee had not become absolute owner of the technical know-how and the supplier company continued to enjoy the ownership of such technical know-how. However, in our opinion, once assessee had paid the money and acquired the technical know-how, it become an intangible asset, eligible for claiming depreciation u/s.32(ii) of the Act. The question whether the same vendor had given the same technical know-how for other persons, is in our opinion, irrelevant in deciding the question of eligibility of the assessee for claiming depreciation. We therefore do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals) in this regard. Ground stands dismissed. Issues Involved:1. Disallowance of provision for contractual obligations.2. Disallowance of provision for warranty.3. Disallowance under Section 14A of the Income Tax Act.4. Addition of retention money.5. Allowance of depreciation on technical know-how.Issue-wise Detailed Analysis:1. Disallowance of Provision for Contractual Obligations:The assessee contested the disallowance of provision for contractual obligations confirmed by the Commissioner of Income Tax (Appeals). The assessee argued that similar provisions were allowed in earlier years by the Hyderabad Bench of the Tribunal. The Departmental Representative countered that the assessee failed to provide specific details for the impugned assessment year, and the provision was unscientific. The Tribunal noted that the assessee did not furnish requisite details to support its claim. The Tribunal set aside the orders of the lower authorities and remitted the issue back to the Assessing Officer for fresh consideration, directing the assessee to provide all required details.2. Disallowance of Provision for Warranty:The assessee admitted that the issue was decided against it by the Hyderabad Bench of the Tribunal for earlier assessment years, and an appeal was pending before the Andhra Pradesh High Court. The Tribunal upheld the disallowance, referencing its previous decision which stated that warranty provisions were contingent liabilities and not allowable under Section 37 of the Act. The Tribunal found no reason to deviate from its earlier decision and dismissed the assessee's ground.3. Disallowance under Section 14A of the Income Tax Act:The assessee argued that the disallowance under Section 14A should be restricted to the exempt income claimed. The Departmental Representative contended that disallowance could be made irrespective of the quantum of exempt income. The Tribunal referred to the Delhi High Court's judgment in Joint Investment P. Ltd. vs. CIT, which held that disallowance under Section 14A cannot exceed the exempt income. The Tribunal restricted the disallowance to the amount of exempt income claimed by the assessee, partially allowing the assessee's ground.4. Addition of Retention Money:The Revenue challenged the deletion of an addition made by the Assessing Officer on retention money. The Tribunal noted that the issue was previously decided in favor of the assessee by the Hyderabad Bench, which held that retention money should be taxed in the year it is actually received. The Tribunal directed the Assessing Officer to verify the assessee's claim that retention money was offered to tax in the year of receipt and re-determine the addition accordingly, partially allowing the Revenue's ground for statistical purposes.5. Allowance of Depreciation on Technical Know-how:The Revenue contested the allowance of depreciation on technical know-how. The Tribunal referred to its earlier decision, which allowed depreciation on technical know-how as an intangible asset, fulfilling the criteria of ownership and use in business. The Tribunal found no reason to interfere with the Commissioner of Income Tax (Appeals)'s order and dismissed the Revenue's ground.Conclusion:The appeals of the assessee and the Revenue were partly allowed for statistical purposes, and the cross-objection of the assessee was dismissed as infructuous. The Tribunal directed fresh consideration and verification by the Assessing Officer on specific issues, ensuring compliance with legal standards and principles established in previous judgments.