2019 (9) TMI 879 - AT - Income Tax

Tribunal Rules in Favor of Assessee for Assessment Years 2007-08 and 2008-09

The Tribunal ruled in favor of the assessee for both Assessment Years 2007-08 and 2008-09. Various issues including revenue recognition, liquidated ... Addition in respect of Prior period expenses - HELD THAT:- Such ground has been dismissed by the Tribunal in earlier years. Following the same, we dismiss this ground of appeal as well. Confirmation of sales commission @10% - HELD THAT:- Unlike the immediately preceding year, the assessee did produce books of account before the AO for the year under consideration, who had full opportunity of examining the same and finding out anything adverse before making any addition out of the expenses. Despite that, the AO could not point out any specific defect qua the expense and chose to make an ad hoc addition. Following the view taken by the Tribunal in earlier years deleting such ad hoc additions, except the immediately preceding year for the special reasons as discussed in our order for the A.Y 2006-07, we order to delete the sustenance of ad hoc disallowance out of the Commission expense. Addition towards legal and professional fees paid to Baker & Mckinsey LLP and others - HELD THAT:- It is an admitted position that the assessee incurred ₹ 8.42 crore to defend the litigation created by Purolite. Such litigation was initiated not only against the assessee but also its USA subsidiary. The benefit of such expenditure in the shape of fee paid to Baker and Mckinsey LLP and others, has obviously gone to the assessee in asmuchas it had defended itself. The mere fact that the subsidiary in the USA also got benefitted by the expenditure, cannot come in the way of allowing deduction in the hands of the assessee. Even in the absence of its USA entity being a party to the litigation, the assessee was bound to incur such expenditure to defend itself. The Hon’ble Supreme Court in Sassoon J. David & Company Private Limited Vs. CIT [1979 (5) TMI 3 - SUPREME COURT] has held that deduction has to be allowed for the expenditure incurred wholly and exclusively for the purpose of business even if benefit of such expenditure percolates to someone else also Disallowances made on account of Public Relation expenses, Membership & subscription, Garden expenses, Misc. Expense, House Magazine expenses, Vehicle expenses, Misc Foreign Travel Expenses and Telephone expenses - HELD THAT:- Both the sides agree that this ground is similar to the grounds taken by the Revenue in earlier years in which the ad hoc additions made by the AO have been finally deleted by the Tribunal. Following the orders of the Tribunal in the assessee’s own case for earlier years, this ground of Revenue is not allowed. Addition on account of Provision for Medical and LTA expenses - HELD THAT:- Both the sides agree that the facts and circumstances of this ground are similar to the Ground No.6 of the Revenue’s appeal for the A.Y. 2004-05. Addition of liquidated damages towards invocation of Bank Guarantee by the Arsmeta Captive Power Company - HELD THAT:- It is noticed that the assessee claimed deduction on a mere invocation of performance bank guarantee on 28-04- 2007. Thereafter, the assessee sought legal remedy and the injunction granted by the City Civil Court was vacated. The matter was finally settled in a later year on the assessee paying a sum of ₹ 6.00 crore to Arsmeta Captive Power Company. Till that time, the assessee could not have claimed deduction of contractual liquidated damages to Arsmeta Captive Power Company. No deduction of ₹ 6.98 crore is permissible for the year under consideration as no liability on account of liquidated damages was finally incurred. AR contended that the assessee voluntarily credited ₹ 6.98 crore to its Profit and loss account in succeeding year when it claimed deduction of payment of ₹ 6.00 crore. If the assessee had erroneously credited its income in the succeeding year, the same can be reversed subject to the relevant provision. We, therefore, uphold the impugned order on this score. Disallowance of depreciation at 80% in respect of certain items of plant and machinery instead of allowing depreciation @25% - HELD THAT:- It is found as an admitted position that similar issue has been decided by the Tribunal in the assessee’s favour for the immediately preceding assessment year and earlier years. Respectfully following the precedent, we decide this issue in assessee’s favour. Disallowance u/s.14A - HELD THAT:- CIT(A) restored the matter to the file of AO with direction to recompute the disallowance by holding that in computing the average value of investments, the investments which yield taxable income, should be excluded. He jettisoned the contention of the assessee that the fixed assets should be considered at their gross value without excluding depreciation. He further directed the AO to exclude interest of ₹ 19.99 lakh incurred in Post Shipment packing credit. All the above three directions given by the ld. CIT(A) are perfectly in order. Since the issue has been restored to the AO, we uphold the impugned order to this extent thereby affirming the specific directions given in the impugned order. Issues:1. Assessment years 2007-08 and 2008-09 - Common issues in cross appeals by assessee and Revenue.Analysis:1. Assessment Year 2007-08:- Issue 1: Revenue recognition in Freight and contract activity.- The Tribunal decided in favor of the assessee based on consistent precedents.- Issue 2: Addition on account of liquidated damages.- Tribunal dismissed this ground based on previous rulings.- Issue 3: Claim of depreciation at 80% on certain plant and machinery.- Assessee's appeal allowed following past Tribunal decisions.- Issue 4: Provision of warranty.- Grounds decided in favor of the assessee based on precedents.- Issue 5: Legal and professional fees paid for litigation.- Tribunal allowed deduction as expenditure was incurred wholly and exclusively for business purposes.2. Assessment Year 2008-09:- Issue 1: Income recognition from contract activity.- Tribunal decided in favor of the assessee based on past rulings.- Issue 2: Denial of deduction on Prior period expenses.- Ground decided against the assessee following earlier rulings.- Issue 3: Liquidated damages.- Tribunal allowed part of the assessee's ground and dismissed Revenue's ground.- Issue 4: Disallowance of depreciation at 80%.- Tribunal decided in favor of the assessee based on past decisions.- Issue 5: Disallowance u/s.14A.- Tribunal upheld the order directing re-computation of disallowance by AO.- Issue 6: Payment of commission.- Matter remitted to AO for fresh consideration based on earlier year's order.- Issue 7: Disallowance of legal expenses for USA litigation.- Tribunal allowed the ground of appeal based on similar grounds in the A.Y. 2007-08.- Issue 8: Provision of warranty.- Tribunal allowed this ground in favor of the assessee based on consistent precedents.