2019 (7) TMI 882 - AT - Income Tax

Tribunal Rulings: Amortized Premium Disallowance, Revenue Recognition Disallowance, Liquidated Damages Deduction

Thermax Limited, Versus The Assistant Commissioner of Income Tax, Circle-10,   Pune And Vice-Versa.

Thermax Limited, Versus The Assistant Commissioner of Income Tax, Circle-10,   Pune And Vice-Versa. - TMI Issues Involved:1. Deduction of amortized premium on leasehold land.2. Revenue recognition from contract activity.3. Disallowance of prior period expenses.4. Deduction of liquidated damages.5. Depreciation claim on plant and machinery.6. Short Term Incentive Plan (STIP) deduction.7. Deduction under Section 80HHC of the Income Tax Act.8. Lease rental income.9. Ad-hoc disallowance of various expenses.10. Provision for medical expenses.11. Disallowance under Section 14A of the Income Tax Act.12. Commission paid on sales.Issue-wise Detailed Analysis:1. Deduction of Amortized Premium on Leasehold Land:The assessee's claim for deduction of amortized premium on leasehold land was disallowed by the Assessing Officer (AO) and confirmed by the CIT(A). This issue was covered by a series of decisions of the Tribunal against the assessee. The Tribunal upheld the disallowance, citing the Supreme Court's decision in Govind Sugar Mills Ltd. v. CIT, which ruled against the assessee on similar grounds.2. Revenue Recognition from Contract Activity:The AO added Rs. 26.55 lakhs to the assessee's income by including freight outward in the revenue recognition method. The CIT(A) granted partial relief but upheld the addition related to freight outward. The Tribunal, following its earlier decisions, ruled in favor of the assessee, stating that the inclusion of freight outward was inappropriate as it was merely a reimbursement and did not impact the ultimate profits.3. Disallowance of Prior Period Expenses:The AO disallowed prior period expenses of Rs. 3,23,912, which was upheld by the CIT(A). The Tribunal confirmed this disallowance, noting that the issue had been consistently decided against the assessee in previous years.4. Deduction of Liquidated Damages:The AO disallowed Rs. 200.26 lakhs claimed as liquidated damages, treating them as bad debts. The CIT(A) directed the AO to verify and allow the claim if supported by contractual clauses. The Tribunal ruled in favor of the assessee, recognizing the expenditure as allowable on grounds of commercial expediency.5. Depreciation Claim on Plant and Machinery:The AO restricted the depreciation claim to 25% instead of 100% for certain plant and machinery. The CIT(A) upheld this decision. The Tribunal, following its earlier rulings, allowed 100% depreciation for plant and machinery used in the manufacture of air/gas/fluid heating systems but not for those used in the manufacture of heat pumps.6. Short Term Incentive Plan (STIP) Deduction:The AO disallowed Rs. 4,86,48,820 claimed under the STIP, stating that the liability did not crystallize during the year. The CIT(A) allowed only Rs. 23.21 lakhs. The Tribunal directed the AO to allow the full deduction of Rs. 4,86,48,820, noting that the scheme was approved during the relevant year.7. Deduction under Section 80HHC:The AO made several adjustments under Section 80HHC, which were partially upheld by the CIT(A). The Tribunal remitted the issue back to the AO for fresh adjudication, directing consideration of the Supreme Court decisions in Avani Exports and Topman Exports.8. Lease Rental Income:The AO added Rs. 1,53,21,302 as lease rental income on an accrual basis. The CIT(A) deleted this addition, and the Tribunal upheld the deletion, noting that no assets were leased out during the year.9. Ad-hoc Disallowance of Various Expenses:The AO made ad-hoc disallowances for public relation expenses, miscellaneous expenses, vehicle expenses, foreign travel expenses, and telephone expenses. The CIT(A) upheld these disallowances. The Tribunal, following its earlier decision, deleted the ad-hoc disallowances, noting that the assessee's books were regularly maintained and audited without discrepancies.10. Provision for Medical Expenses:The AO disallowed a provision of Rs. 48,22,069 for medical expenses, treating it as contingent. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, following its earlier ruling in favor of the assessee.11. Disallowance under Section 14A:The AO made a disallowance of Rs. 27.71 lakhs under Section 14A, which the CIT(A) restricted to Rs. 47,00,000. The Tribunal upheld the CIT(A)'s decision, noting that the rule of consistency should be followed.12. Commission Paid on Sales:The AO disallowed commissions paid to five agents due to lack of documentary evidence of services rendered. The CIT(A) deleted the disallowance. The Tribunal, however, found that the agents did not provide proof of services rendered and set aside the CIT(A)'s order, allowing the AO's disallowance.Conclusion:The Tribunal's judgment provided a detailed analysis of each issue, granting relief to the assessee on several grounds while upholding the Revenue's stance on others. The decision emphasized the importance of consistency, documentary evidence, and adherence to legal precedents in tax assessments.