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2015 (7) TMI 685
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....) of the Act. The Revenue has filed Cross Appeal in ITA No.1291/PN/2005. In ITA No.574/PN/2007, the assessee has impugned the order of Commissioner of Income Tax (Appeals) dated 18.01.2007 for the assessment year 2001-02 passed under section 143(3) r.w.s. 147 of the Act. 2. The brief facts of the case as emanating from records are: The assessee is engaged in manufacturing and sale of steam boilers, water exchangers, water treatment plant, water treatment resins, water treatment chemicals, carbon and metal film resistors, related accessories and treasury operations. The assessee filed its return of income for the assessment year 2000-01 on 30.11.2000 declaring total income of Rs. 14,88,97,010/-. In assessment year 2001-02, the assessee filed its return of income on 31.10.2001 declaring total income of Rs. 8,20,84,180/-. The return of income for both the impugned assessment years was subject to scrutiny assessment. During the course of scrutiny assessment, the Assessing Officer made additions/disallowances in the income returned by the assessee inter alia, on account of : (i) Deduction under section 35AB for payment of technical know-how fees; (ii) Provision for warran....
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....ome." 6.1 The Revenue in its appeal for the same assessment year has raised six grounds. In the appeal of the Revenue ground Nos.5 and 6 are general in nature, therefore, they do not require any adjudication. The ground Nos.1 to 4 in Revenue's appeal are as under :- "(i) Provision made in accordance with AS-7 (same as ground No.iii of assessee's appeal). (ii) Claim of depreciation @ 100% allowed on certain items of plant (counter to ground No.v of assessee's appeal). (iii) Deduction allowed under section 80IA. (iv) Lease Rentals allowed as bad debts (counter to ground No.vii of assessee's appeal)." 7. The first ground in the appeal of assessee is provision of warranty. The assessee is providing warranty for a period of one to two years on the products manufactured by it. The assessee is under obligation to replace or repair the product free of cost against manufacturing defects. The assessee created provision for warranty to meet these repair/replacement expenditure. The Assessing Officer disallowed the same by following the order of CIT(A) in the earlier assessment years. 7.1. The Ld. AR of the assessee pointed out that in assessment year 1998-99 similar groun....
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....in the appeal of the assessee is with regard to amortization of premium paid on leasehold land. The assessee has debited the amortization premium paid on leasehold land to Miscellaneous Expenses Account. The assessee claimed the expenditure as revenue by placing reliance on the judgement of Hon'ble Karnataka High Court in the case of CIT vs. H.M.T. Limited reported as 203 ITR 820. The Assessing Officer disallowed the amortization premium paid on leasehold land by following the order of the Commissioner of Income Tax (Appeals) in assessment year 1993-94. In appeal, the Commissioner of Income Tax (Appeals) has confirmed the findings of the Assessing Officer. 8.1 The Ld. AR of the assessee fairly submitted that this issue has been decided against the assessee in assessment years 1998-99 and 1999-2000 by the Tribunal. We observe that this issue has been considered by the Co-ordinate Bench in assessment years 1998-99 and 1999-2000 and has decided the same against the assessee with the following observations :- "15. In this context, the Ld. Representative for the assessee conceded that similar issue has been decided against the assessee by the Tribunal in the past years and in t....
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....he Pune Bench of the Tribunal on a similar issue in the case of Thermax Babcock & Wilcox Ltd. vs. DCIT vide ITA Nos.157 & 158/PN/1995 dated 11.05.2001 for assessment years 1990- 91 & 1991-92. The Tribunal in its order dated 03.09.2014 (supra) noted that in the case of Thermax Babcock & Wilcox Ltd. (supra) which was a group company of the assessee, the Tribunal upheld the allowability of provision for profit equalization while recognizing incomes on application of percentage of completion method in the case of long term contracts in the light of the AS-7 issued by the ICAI. In view of the decision of the Tribunal in the assessee's own case in the preceding assessment year, we do not deal with the issue any further except directing the Assessing Officer to implement the order of the Tribunal dated 03.09.2014 (supra) on this Ground too. As a consequence, whereas Ground of Appeal of the assessee is allowed that of the Revenue is dismissed." There has been no change in the facts and circumstances in the present year, nor there is any change in the accounting treatment given by the assessee. We do not find any reason to deviate from the view taken by the Co-ordinate Bench in assessmen....
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....o be considered as capital expenditure in view of the judgement of the Hon'ble Bombay High Court in the case of Raychem Rpg. Ltd. (supra). Therefore, assessee's grievance against the decision of the CIT(A) in sustaining the addition of Rs. 22,16,107/- is unjustified having regard to the judgement of the Hon'ble Bombay High Court in the case of Raychem Rpg. Ltd. (supra). Further, the CIT(A) has recorded a finding that expenditure to the extent of Rs. 17,97,051/- has been incurred on acquisition of routine standard softwares such as Windows 95, MS Office, etc. which are revenue in nature. Ostensibly, assessee's business is of manufacturing of boilers and other heat transfer equipment and the aforesaid softwares merely facilitate assessee's trading operations and/or enable conduct of its business more efficiently and the same are not in the nature of the profit-making apparatus of the assessee company. Therefore, in our view, the CIT(A) made no mistake in treating the expenditure of Rs. 17,97,051/- incurred on acquisition of routine standard software as a revenue expenditure. Moreover, the said decision of the CIT(A) is in line with the ratio of the judgement of the Hon'ble Bombay Hig....
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.... force in the Ground of Appeal raised by the Revenue. 36. Now, with regard to assessee's claim for allowance of depreciation @ 100% in respect of plant & machinery used in the manufacture of heat pumps is concerned, the same has been appropriately denied by the lower authorities. The CIT(A) has rightly pointed out that machinery & plant used in the manufacture of heat pumps is not eligible for depreciation @ 100% as it does not find a place in any of the items in the Depreciation Table which is entitled for depreciation @ 100%. On this aspect, the order of the CIT(A) is hereby affirmed. Thus, Ground of Appeal No.8 of the assessee as well as the Grounds of Appeal Nos.8.1 & 8.2 of the Revenue are dismissed." The issue raised by both the sides are identical to the one already adjudicated by the Tribunal. Both the sides have not been able to controvert the findings of the Tribunal in earlier assessment years. We find no reason to take a contrary view. Accordingly, the ground with respect to claim of depreciation in assessee's appeal and the appeal of Revenue is dismissed. 12. The sixth ground raised by the assessee in its appeal is with respect to the amount of expenditure att....
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....aid rentals had accrued to the assessee, therefore, the same should have been included in total income of the assessee. 13.2 In first appeal, the Commissioner of Income Tax (Appeals) agreed with the proposition of the Assessing Officer, however, the Commissioner of Income Tax (Appeals) directed the Assessing Officer to give relief to the assessee in following assessment year by treating the lease rental amount as bad debt. The Ld. AR of the assessee contended that once the assessee has declared the amount as non recoverable and has written-off as bad debts, there is no question of taxing the same. In support of his submissions, the Ld. AR placed reliance on the decision of the Hyderabad Bench of the Tribunal in the case of M/s Maruti Securities Ltd. vs. Addl.CIT in ITA No.468/Hyd/2009 and Others, decided on 05.09.2014 and the judgement of the Hon'ble Supreme Court of India in the case of TRF Ltd. vs. CIT reported as 323 ITR 397 (SC). 13.3 On the other hand, the Ld. DR submitted that the Commissioner of Income Tax (Appeals) has erred in crossing over from one assessment year to the next assessment year. The Commissioner of Income Tax (Appeals) ought to have restricted to the i....
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....g the same in taxable income. The CIT(A) allowed the deduction of the aforesaid amount by way of bad debts in subsequent assessment year, which is also simultaneously being decided by him. The assessee cannot claim bad debt unless the same are in fact written off in the books of account. This ground of appeal of the assessee is accordingly dismissed and that of the Revenue is allowed. 14. The Revenue in its appeal for assessment year 2000-01 has assailed the findings of the Commissioner of Income Tax (Appeals) with respect to allowability of deduction under section 80-IA of the Act to the assessee in respect of its unit 'Woodpack'. The Ld. AR of the assessee submitted at the outset that this issue was considered and decided in favour of the assessee by the Co-ordinate Bench of the Tribunal in Revenue's appeal in assessment year 1998-99 and assessment year 1999-2000. The ld. DR admitted the fact, however, she strongly defended the findings of Assessing Officer. 14.1 After perusal of the order of Tribunal in ITA No.1288 & 1289/PN/2005 for assessment years 1998-99 and 1999-2000, we observe that this issue was raised by the Revenue in its appeal for assessment year 1998-99 as gro....
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....e Ld. DR has not been able to controvert the findings of the Tribunal in the earlier assessment years. The facts and circumstances in the assessment year under appeal are identical. We do not find any reason to take a different view. Accordingly, this ground of appeal of the Revenue is dismissed. 15. In result, the appeal of the assessee as well as the appeal of the Revenue for assessment year 2000-01 are partly accepted, in the aforesaid terms. 16. Now, we proceed to decide ITA No.1248/PN/2005 and ITA No.1291/PN/2005 for the assessment year 2001-02. 17. In assessment year 2001-02, the assessee has raised following 11 grounds of appeal :- 1. The learned CIT (Appeals) erred in confirming the action of the Assessing Officer of rejecting the contention of the appellant that 'Retention money' did not accrue to the appellant and was accordingly not taxable in the year under appeal. 2. The learned CIT (Appeals) erred in confirming action of the Assessing Officer in attributing Rs. 15 lacs as expenditure incurred in relation to dividend and interest-free income rejecting the contention of the Appellant that no such expenditure was, in fact, incurred for earning such....
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....40,826 II. Brokerage 13,05,60,090 10. The learned CIT(A) further erred in not accepting the contention of the appellant that, in any event, exclusion under Explanation (baa) should also be net of direct expenses incurred in relation to the said items of income apart from 10% deduction mandated by the Statute for common expenses. 11. The learned CIT (Appeals) erred in confirming & assessing income of Rs. 2,01,25,745/- under the head 'Other Sources' hence rejecting the contention of the appellant that it was assessable under the head 'Business income' Your appellant reserves the right to add to, alter or amend any of the above grounds of appeal, if necessary." 18. The first ground raised by the assessee in its appeal for assessment year 2001-02 relates to 'Retention Money' forming part of sales. The ld. AR of the assessee stated at the Bar that he is not pressing ground No.1 of appeal. In view of the statement made by ld. AR, we dismiss this ground of appeal of the assessee as not pressed. 19. The second ground raised by the assessee in appeal is with respect to the expenditure attributable to dividend and tax-free interest. The ld. AR of the assesse....
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....d the Revenue is rejected for the details reasons given in para 10 hereinabove. 24. The seventh ground raised by the assessee in its appeal is with regard to claim of depreciation at the rate of 100% on plant and machinery installed in Plant No.11. The Revenue in its appeal has also assailed the grant of 100% depreciation on certain items of other plants. This issue has already been considered by us in the appeal of the assessee and Revenue in assessment year 2000-01 in para 11 above. Both the sides have not been able to show any change in circumstances in the present assessment year. Accordingly, this ground in the appeal of assessee as well as Revenue is rejected for similar reasons as mentioned above in para 11. 25. The ground Nos.8, 9 and 10 of appeal of the assessee is directed against the findings of the CIT(A) in respect of deduction under section 80HHC claimed by the assessee. On the other hand, the Revenue in ground Nos.9 and 10 of its appeal has assailed the relief granted to the assessee in computation of deduction under section 80HHC. 25.1 The Assessing Officer rejected the assessee's computation of deduction under section 80HHC. The Assessing Officer while rec....
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....n as a part of total turnover and their exclusion under Explanation (baa) to section 80HHC of the Act. It is a well-settled law that what has been included in export turnover that it has to be included in total turnover as well. In other words, what has been excluded in export turnover cannot be included in total turnover. As far as miscellaneous receipts are concerned, the contention of the assessee is that the same is covered by the order of the Hon'ble Bombay High Court in the case of Pfizer Ltd. (supra). We, therefore, remit these issues to the file of the Assessing Officer to re-compute the deduction u/s. 80HHC, accordingly. Thus, ground Nos. 8, 9 and 10 of appeal of the assessee are allowed for statistical purposes. 26. In ground No.11, the assessee has assailed the order of the CIT(A) in confirming the income of Rs. 2,01,25,745/- under the head 'other sources'. The assessee claimed the said income under head 'business income'. Since no arguments were forwarded by the ld. AR of the assessee on this issue the same is dismissed. 27. Now, we take up the remaining grounds raised by the Revenue in appeal for assessment year 2001-02. The first issue in appeal of the Revenue i....
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....rt in the case of M/s Drilcos (India) Pvt. Ltd. (supra), the expenditure incurred by the assessee for acquiring process know-how fee is to be allowed amortization in terms of section 35AB of the Act. Therefore, in-principle, the stand of the Revenue on this aspect is upheld and the assessee fails in its Ground of Appeal. 8. In so far as the Ground of Appeal No.1 of the Revenue relating to the CIT(A)'s decision to allow determination of deduction u/s 35AB of the Act not only with reference to the amounts actually paid but also with reference to the amounts payable for process know-how is concerned, the same in our view has been appropriately decided by the CIT(A). Notably, the CIT(A) has noticed that assessee is following the mercantile system of accounting and the word "paid" has been defined in section 43(2) of the Act to include the incurrence of liability also. In coming to such conclusion, the CIT(A) has followed the judgement of the Hon'ble Bombay High Court in the case Padamjee Pulp and Paper Mills Ltd. (supra). At the time of hearing, the Ld. Representative for the assessee relied upon the decision of the Bangalore Bench of the Tribunal in the case of M/s Amco Power Syste....
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....e is allowed. 29. The third issue raised by the Revenue in appeal is with regard to provisions for reimbursement of medical expenses. The Ld. AR of the assessee submitted that annual amount due to each employee is credited to his personal Medical Reimbursement Account. It is left to the discretion of employee to withdraw the amount as reimbursement, as and when required or to accumulate and claim at the time of retirement. The Assessing Officer held that since the amount has not been quantified or paid, under mercantile system of accounting, the expenditure cannot be said to have accrued or crystallized. The claim is by way of provision, without exact quantification. The Assessing Officer disallowed the same. 29.1 In first appeal, the Commissioner of Income Tax (Appeals) held that the medical reimbursement is akin to liability of leave encashment. The amount to be transferred under medical reimbursement scheme can be ascertained depending upon the entitlement of each employee of assessee company. The CIT(A) allowed the claim of the assessee by following the judgement of the Hon'ble Supreme Court of India in the case of Bharat Earth Movers vs. CIT reported as 245 ITR 428 (SC).....
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....has not received TDS certificates from its customers to the tune of Rs. 64.93 lakhs. The Revenue has not controverted the findings of the CIT(A) that the said amount has been actually written off by the assessee. We concur with the findings of CIT(A) that non-receipt of TDS certificates is akin to non-receipt of monies from debtors. The Mumbai Bench of the Tribunal in the case of M.J. Exports Ltd. vs. JCIT (supra) under similar circumstances had accepted the claim of assessee. The ld. AR in order to further buttress his submissions has drawn support from the order of Co-ordinate Bench of the Tribunal in the case of Kailash Vahan Udyog Ltd. vs. DCIT in ITA No.1077/PN/2011 for assessment year 2004-05 decied on 31.01.2013. In the said case, the assessee had not received TDS certificates from its customers. The assessee had already accounted for the said amount in respective years. The Tribunal held that the assessee in earlier years had considered the above amount in its turnover and shown as receivable from the parties. Since during the impugned assessment year the assessee has written off the same, therefore, the amount has to be allowed as 'bad debts'. 31.2 In the instance ca....
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....P. Mahajani appearing on behalf of the assessee submitted that both lease rental income as well as insurance refund received during the relevant period are integral part of the business income eligible for deduction under section 80HHC of the Act. The ld. AR submitted that the assessee apart from manufacturing and selling of steam boilers, water exchangers, water treatment plant, carbon and metal film resistors, etc. is also engaged in leasing out plant and machinery. The lease rentals are part of latter business activity. In respect of insurance refund, the ld. AR contended that these are insurance claims arising out of claim of damage. The Hon'ble Bombay High Court in the case of CIT vs. M/s Pfizer Ltd. reported as 233 CTR 521 (Bom.) has held that the claim of insurance on account of stock-in trade does not fall within Explanation (baa) and therefore, is not liable to be reduced to the extent of 90%. On the other hand, Smt. M.S. Verma representing the Department vehemently placed reliance on the order of the Commissioner of Income Tax (Appeals). 35.4 Both sides heard. Orders of the authorities below perused. The only issue raised by the assessee in appeal is whether lease r....